What Is a Distributor in Business?
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- In business, a distributor is a wholesaler that buys and owns (takes title to) products before reselling them to its customers, such as retailers or other businesses. Owning the goods is what separates a distributor from an agent or broker, who negotiates sales for others, typically for a commission or fee, and does not take title to the goods.
How it works
The US Census Bureau defines a distributor as a wholesaler that buys and owns products prior to reselling them to its customers. In the supply chain, wholesale sits between businesses: the Census Bureau's examples of business-to-business transactions are a manufacturer selling to a wholesaler and a wholesaler selling to a retailer.
Because a distributor owns what it sells, it holds inventory. The Census Bureau measures wholesale inventories as the value, at cost, of merchandise on hand and available for sale, counting the goods a firm owns, and its Monthly Wholesale Trade Survey collects sales and inventory data from distributors.
Distributors are one kind of merchant wholesaler. The Census Bureau describes merchant wholesalers as wholesalers who sell goods on their own account, such as:
- Distributors
- Jobbers
- Drop shippers
- Import and export merchants
- Manufacturers' sales branches and offices
Distributor vs. wholesaler, agent and retailer
- Wholesaler: the wider category. Every distributor is a wholesaler, but wholesalers also include agents and brokers, which the Census Bureau classes as non-merchant wholesalers.
- Agent or broker: acts as a representative for others in negotiating contracts, purchases or sales, typically earns a commission or fee, and does not take possession of, or title to, the goods.
- Manufacturer's sales branch or office: run by a manufacturer apart from its plants to market its own products. Sales branches typically carry inventory, while sales offices typically do not.
- Retailer: a business that sells goods in small quantities directly to consumers.
Uncap's guide to B2B ecommerce for distributors covers how distributors sell online on Shopify.
Example
A plumbing distributor buys 500 ball valves from a manufacturer at $12 each, a $6,000 purchase. It takes title, so the valves sit in its warehouse as its own inventory. During the month it sells 400 valves to contractors at $18 each:
- Sales: 400 x $18 = $7,200
- Cost of the valves sold: 400 x $12 = $4,800
- Inventory left, at cost: 100 x $12 = $1,200
Had a manufacturer's agent arranged the same sales instead, the agent would typically have earned a commission or fee and never owned a valve.
On Shopify
Shopify B2B runs on the Basic, Grow, Advanced and Shopify Plus plans, not on Starter or Retail. These B2B features are on all four plans:
- Companies and company locations, with location-level permissions for buyers.
- Quantity rules and price breaks: minimum, maximum and increment, plus quantity price breaks.
- Net terms and PO numbers on orders.
- Quick order list and easy reorders.
Basic, Grow and Advanced can assign up to 3 active catalogs across all B2B markets. Shopify Plus adds unlimited B2B market catalogs, catalogs assigned directly to companies and company locations, deposits, partial payments and payment requests per fulfillment.
How Uncap helps
Uncap builds Shopify B2B for distribution ecommerce. Uncap Connect keeps Shopify and your ERP in lockstep: products, location-level inventory, orders and account pricing, in real time rather than overnight batches. Uncap Portal gives accounts self-serve ordering and quick reorders, and Uncap Quotes keeps the negotiated deals moving inside Shopify.
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Frequently asked questions
What does a distributor do?
A distributor buys products and takes title to them, holds them as its own inventory, and resells them to its customers, such as retailers or other businesses.
What's another word for distributor?
Wholesaler is the closest term, but it is broader: the US Census Bureau defines a distributor as a wholesaler that buys and owns (takes title to) products before reselling them. The Census Bureau also counts agents and brokers as wholesalers, and they negotiate sales for others, typically for a commission or fee, without taking title to the goods.
What is a distributor vs. retailer?
A distributor sells goods on its own account to other businesses, such as retailers. A retailer is a business that sells goods in small quantities directly to consumers.
