Heard Any Of These Before?
“Selling on Amazon is a piece of cake!”
“I made enough money to replace my full-time job and I only have to work a few hours a week.”
“I just go around to yard sales every Saturday and discount stores throughout the week to find great product to sell on Amazon.”
“I wrote this book to let everyone know just how easy it is to create a business by selling on Amazon.”
“With my system, anyone can become a seven figure seller on Amazon”
Such quotes abound in marketing materials for other Amazon training programs. They present the false notion that anyone can get rich or make a household level income with very little work.
Reality demonstrates a different picture. We’ve worked with thousands of business owners struggling to manage their cash flow, unable to purchase quality inventory when they rarely do find it, and overwhelmed with the complexity of running a business.
After months or years of trying and finding spotty success, many sellers have unfortunately learned by experience that they can do 99% of it right, but one miscalculation or misjudgment along the way can lead to a loss or even a financial disaster. For those who risk significant investment and walk into the game blindly, they can quickly lose their life savings just as if they had walked into a casino.
On the other hand, for those with adequate financial resources and unique supplier relationships, selling on Amazon, still remains challenging but it has proven to them profitable, stable, and promising.
Of the two million current 3rd party sellers, a small proportion of them have found LASTING success on the channel and that’s because few of them incorporate intelligent business strategies. To become an expert seller you must master every aspect of Seller Central, incorporate detailed checklists and processes for your business, and ALSO develop high-level sourcing capability.
Becoming an expert product sourcer, though, is much more than having the latest scanning app so you can pick up a few books or trinkets at your local yard sale or swap meet.
Our main goal in this chapter is to properly educate you on the difficulty of and the necessity of sophisticated product procurement.
Although we see some sellers create an advantage over their competitors with proprietary product research tools or advanced account management software, that leverage tends to get adopted by other sellers pretty quickly.
In our experience the most CONSISTENTLY successful sellers don’t just incorporate the latest software applications, they also have a SUPPLY-SIDE advantage.
In fact some of the top sellers on the channel today actually lack intelligent forecasting, have never used feedback solicitation software, and don’t use repricers.
Their business would probably improve with these tools, yet in spite of lacking that technology and know-how, they still sell extremely well.
And that’s because they have the same thing every other top seller ALWAYS has: well-kept, unique supplier relationships.
Our goal is to help you develop those same relationships in this chapter, and in the Product Identification chapter and to help you learn how to identify product which sells at your targeted velocity and targeted profit margins. There will be some overlap since your product and your suppliers are inherently interwoven.
Let’s discuss how to find suppliers among the various categories and the tradeoffs of each type of supplier.
We’ve divided this chapter into two sections:
Reselling Existing Branded product
Within this section we will look at these types of supplier relationships:
- Wholesale from Manufacturers/Distributors
- Dropshipping from Manufacturers/Distributors
- Retail Arbitrage
- Closeouts from Manufacturers/Distributors
- Gray Market Suppliers
Manufacturing your own product
Within this section we will look at these types of supplier relationships:
- Trading Companies
- Direct-to-factory Relationships
Are you ready to build your supply chain infrastructure so you can consistently purchase the type of product that will generate substantial sales and profit? Time to get started.
Reselling Supply: Distributors/Manufacturers
Opening an account with a manufacturer or distributor can be one of the hardest hills to climb even when you have a brick and mortar location, but if you are persistent you will find that there are many companies willing to work with you.
Part of your learning curve will be learning how to find Manufacturers or Distributors and learning what to say. We will use the term manufacturer and brand interchangeably in this section.
Examples of Brands (manufacturers) or Distributors
What are some good example of product distributors or manufacturers?
Otterbox – the maker of covers for cellphones — is a good example of a manufacturer who utilizes distribution companies to sell their product. If you reside in the US, you wouldn’t be able to purchase the product directly from them but instead would have to go through one of their five main US distributors:
- Nite Ize
Doc Martens – the shoe company — is a good example of a manufacturer who directly distributes its own product to wholesale customers. You would have to work through one of its internal sales reps to be able to purchase their product.
A quick note: a lot of new sellers are intimidated by contacting sales representatives – you don’t need to be… reps are there to answer your questions.
Most will be courteous and understanding especially when you explain that you’re new to the game. They’ve encountered this before so it’s no big deal.
The worst thing that could happen is they turn down doing business with you, for now. That happens all day long to many prospective customers, so you’re not alone if and when it happens to you. Here are some common questions a rep might ask you:
- How many years have you been in business?
- Do you have a store? Where is it located?
- What type of products do you carry? What brands do you carry?
- Do you sell online? Do you have a website? Do you sell on Amazon or eBay?
- Business information: address, W-9 (the form to fill out to show that they are selling to a business so they don’t have to collect sales tax)
How to find Brands or Distributors
There a number of ways to get in touch with Brands or their distributors. We’ll begin by talking about Wholesale Trade Shows – most distributors and manufacturers go to Trade shows from January till into the fall. They are regional and distributed across the United States in most of the major cities (New York, Chicago, Miami, Las Vegas, Los Angeles).
For buyers some of these shows are free to attend where as others have a small entrance fee. Travel, lodging, and meal expenses can add up pretty quickly if you attend many shows especially if you bring additional employees with you.
For sellers who register at the door of the show, most bring business cards, preprinted purchase orders with their letterhead, incorporation documents, corporate credit card or company bank account checkbook and their sales tax permit for their home state. Pre-registering typically receive a discount and you can leave much of this information at home if do so. For meeting with Brands at the show, you will need business cards and an electronic device or a notebook to take notes.
These shows can give you the opportunity to see all of the potential suppliers, get catalogs, business cards, and if you are prepared, to place orders for products. For those who are stuck behind a computer screen dabbling in product sales rank all day, tradeshows can also be a good method to stay abreast of the new and popular items in your category. They can be a great way to get a handle on what is available and if you’re lucky you might catch a hot new item and get access to it.
Many new sellers have had success with small manufactures at the trade shows and established relationships that grew into a substantial wholesale accounts.
While the suppliers at the tradeshows often offer discounts if you place orders at the show, keep in mind that you shouldn’t be placing orders for anything until you have done a SKU-level analysis of products you’re considering, so as to verify the competitive nature and pricing on Amazon – can you make money selling each SKU, and can you realistically win the buy box on each SKU?”
We should also note that we don’t suggest going to a tradeshow unprepared – it’s not a massive browsing opportunity… It should be considered first and foremost, an opportunity to talk with prospective suppliers that you have already scoped out by doing the right product and competitive research. While there may be a few interesting surprises of companies you meet at a trade show, the process isn’t really going into a flea market, but more of going in a candy store which is carrying a specific candy you want.
Here’s a few Tradeshow Examples
- The Magic Show: With more than $200 million in orders written daily, MAGIC fuels the business of fashion. The Magic Show is an apparel/clothing and accessory tradeshow, held twice a year (in February and August) in Las Vegas.
- The International Housewares Show: The International Home + Housewares Show is staged every year by the International Housewares Association (IHA). It is the center of the IHA’s yearly activities. This show covers more than 750,000 net square feet of exhibit space. It is one of top 20 largest trade shows in the U.S. and in the top 10 in Chicago.
- ASD: held biannually in Las Vegas, Since 1961, ASD has grown into one of the nation’s largest merchandise trade events in the industry, ASD showcases the following merchandise categories: Gift & Home, Fashion Accessories & Affordable Fashion, Apparel & Footwear, Jewelry / Cash & Carry, Health & Beauty, Toys & Novelty, General Merchandise.
These are just a few of the MANY wholesale tradeshows you can attend. We’ve provided links to wholesale sites and included a list of some of the top Amazon seller attended shows for product sourcing in our Wholesale Trade Show Directory in our Additional Resources Section.
You can also google: “wholesale trade shows” and you will find a multitude of directories for hundreds of different shows ranging from Pet Supplies to Gifts, Fashion Accessories, or Home and Garden Products.
How else can I find manufacturers or distributors?
Here are some more popular methods:
- Research through the brand or distributors site
- Do you know someone who has a retail shop? If you have a close relationship with a retail business owner you may be able to get contact information from them so you can reach out to the brand or distributor’s sales reps. This may not work if they are in the same geographic vicinity as you – although your friend may not sell online he or she will probably still view you as competition.
- Do you have friends, relatives who are employees of the company? They often will have access to employee information or may know of other employees within the sales department whom they can refer you to so you can reach your sales rep over your geographic region.
- Wholesale Websites – while these aren’t the most reliable resources, some sellers have found ways to sift through the filler to find meaningful contact information for decent brands.
- LinkedIN – see if you are connected to anyone of interest for the brands you’ve identified or search for the brands you wish to sell and try to find sales rep information. If you’re connected through a friend or associate, ask for an introduction. If not, reach out through an InMail.
- Hire a product broker on Odesk or Elance. Just as you can hire help to find suppliers overseas, there are experienced consultants, usually ex-sales reps, who can help you find the right people to talk to you at the brands you want to buy from.
Advantages Of Working Directly With A Brand Or Authorized Distributor
- You almost always find higher margins purchasing wholesale directly from a brand or distributor than you would find through a dropship relationship or from a gray market suppliers.
- You can trust that the product is authentic and you’ll receive the proper product packaging
- Brands and Distributors will usually provide credit terms after a relationship is established. This can help with cash flow and allow you to scale your business faster. But be sure to only purchase what you can sell through within that payment term date range unless you have enough cash or financing in reserve to pay your bill.
- Brands and Distributors are typically a stable sourcing partner
- Purchasing product directly allows you to utilize FBA which eliminates the possibility of late order shipments and increases your Buy Box win rate
Some Disadvantages Of Working Directly With A Brand Or Distributor
Although some brands allow anyone to purchase wholesale from them, almost all require approval and many require that you have a brick and mortar store setting which matches their category of products. Obtaining a retail setting can be a big project and a decent financial investment, so we don’t recommend jumping into this without a strategy and a full business plan. We have seen many sellers use their store fronts to secure highly sought after brands and as a result experience great success on Amazon, but we have also seen others land only a few or none of the brands they desired and end up in a precarious situation.
Some brands or distributors have minimum order quantities (MOQs) whereas other do not. Your order volume, as with every other supplier determines your priority in their eyes. So it’s good to order more with them as you’ll be higher on the pecking order when it comes to close out notifications or securing inventory during the fourth quarter. But be careful about scaling up quickly or too high with any particular brand. Brands are paranoid, sometimes for good reason, and they will question you as to why you are ordering so much so quickly. If you have a physical location that you used to secure your relationship with the brand, they will also question order volumes which seem too high relative to your store’s size. The best practice is to increase your order sizes slowly and steadily until you’ve reached your or their comfort level.
Many brands now require you abide by their MAP (Minimum advertised price) policy. Even if you use a Display Name on your Amazon account which does not match your Legal Business name, some manufacturers and distributors are sophisticated enough to look at your inventory levels (or change in inventory levels) on the channel and match that to purchase orders you’ve made. If they catch you violating MAP and you’re a small customer, you will probably lose your account with the supplier.
Many brands are now requiring new customers to sign agreements that they will not sell on Amazon or even on your website, and some brands come back to you months or years after you began your business relationship with them and then ask you to discontinue selling on Amazon.
Dropshippers, Retail Arbitrage & Closeouts
Some sellers get a confused at the term Dropshipper. They assume it is an entirely different type of supplier when it really is just a different type of order and fulfillment relationship with your supplier. Dropshippers are the exact same brands (manufacturers) or distributors we just spoke about, but we classify them differently because they are sending the product directly to the customer for you, and do not require you to hold the inventory you plan to sell.
Examples of Dropshippers
An example would be Vortex – the hunting and outdoors gun accessories and optics company. As a brand/manufacturer, they sell product to distributors and to wholesale customers. However, they also offer dropship options for approved wholesale customers.
How To Find
Similar to how you would find brands, you’ll need to establish an account with the brand or distributor in order to be able to dropship, but not all brands or manufacturers dropship and establishing a dropshipping arrangement can be tricky because it requires a level of trust on both sides. Some sellers, during initial conversations with the brand, will ask if they dropship. Whereas others build a relationship through small wholesale purchases before moving into the dropshipping discussion.
Doba is an example of a dropshipping aggregator – a site that has hundreds or thousands of manufactures on one side and resellers on the other side. It’s a dropshipping marketplace: although the name of the manufacturer is disguised so you, the customer, don’t take your business relationship directly to the supplier, these sites allow you to search through product to find suppliers. In our experience and the experience of many other sellers, it’s almost impossible to find any items that you could make a significant margin on.
A better site for finding dropshippers is probably WholesaleCentral.com, but in our experience sellers who dropship as a main part of their business find the BEST accounts through working directly with brands or distributors, and usually after establishing a tenured relationship with that supplier.
We don’t recommend drop shipping for sellers just starting out on Amazon, or just starting out with a new supplier. Even if you’re lucky enough to find a supplier who will drop ship product from the beginning at a high margin, the supplier needs to prove its reliability when it comes to fulfillment. Build some history with the account first and make sure it is reliable for timely shipping and updating its inventory quantities.
If you jump in without any history working with your dropship supplier, you risk listing inventory that is not available or having orders shipped out late. We’ve seen brand new sellers get their accounts suspended when six or seven orders had to be cancelled because their dropship supplier had incorrect quantities listed on its inventory feed.
Advantages Of Dropshipping With Your Supplier Include:
- Performance based terms – depending on the dropshipping terms you establish you will only pay when your product ships, the customer receives the product, or when the dropship supplier sends you an invoice after the purchase is made.
- MOQs (Minimum order Quantities) – the basis for dropshipping is the ability to have just one unit sent directly to your customer.
- Diverse listing capabilities. As long as your supplier is reliable, you can potentially add their entire catalog to your Amazon account. We’ve seen sellers succeed because they were able to list hundreds of thousands of items on Amazon through quality dropshipping relationships. With the dropshipping arrangement, they never would have had the resources to purchase this product and offer it on site.
Some Disadvantages Of Dropshipping With Your Supplier Include:
- If you sell enough to the channel and they realize what you’re doing, they may replace you internally. We’ve seen many instances were suppliers learn what the seller is doing and the supplier terminates the dropship agreement and starts selling on the channel themselves.
- Drop shipped items are usually more expensive than items purchased directly (margins that were close to Keystone (50%) now drop to 10-30% depending upon the supplier).
- Drop shipped orders have to be fulfilled by Merchant, so you aren’t able to take advantage of FBA which also means that on competing items, where there are FBA sellers, you will receive a lot less buy box share.
- You will need to keep up to date on supply from your dropshipper so you don’t oversell product which isn’t available. This can be a tedious process if they only provide pdfs or even flat files. Some companies do provide API access, but you will have to purchase or develop the right software and hire a programmer to integrate that application appropriately with your amazon account.
- Dropshippers like to do business with lots of resellers, so it’s likely other resellers like yourself are also trying to get access the same dropshipper’s selection – and as you know, the more resellers offering the same selection, the more likelihood that margins will be squeezed for resellers like yourself.
It Is Possible To Build A Lucrative Drop Shipping Business?
One of our clients was a successful internet entrepreneur. He had started multiple sites and sold them, for a great profit, after only a few years, becoming a millionaire in his twenties.
Not only had he developed some great marketing skills to drive relevant, high converting traffic to his site, but he also possessed a great ability to find manufacturers/brands that would sell him expensive, high-quality. He approached us to learn how to sell the right products on Amazon and to understand all of the costs and fulfillment requirements for his business.
He received a crash course that instructed him on how to research whether his products were already on Amazon, find their sales rank, find their buy box price, and find the level of competition for each product. We also cautioned him to be wary of his dropshippers’ fulfillment services as failure on their part would affect his account performance metrics.
Working with dropship suppliers he learned that certain companies are more reliable than others to ship their products promptly. He also learned that certain products within even those trusted companies were more likely to reflect the value listed on the company inventory data feed. In other words, they were only certain suppliers who could get product out on time, and even some of them had issues updated how much of which products were in-stock.
If certain items were back ordered and weren’t fulfilled on-time, it hurt his seller rating. So to protect against order cancellations or late shipments, he added an additional layer of security by buffering the amounts listed by his suppliers. He now only lists products which have a sufficient buffer of inventory.
So yes, others have been successful with dropshipping, but it’s one of the hardest supply acquisition routes for quality, in-demand product. And it’s one of the lowest-margin supply routes you can take.
For our purposes, purchasing new product in its original packaging, usually in large quantities, from the owner or manager of retail stores/outlet stores (at close to wholesale costs) is considered Gray Market sourcing, not Retail Arbitrage.
We define Retail Arbitrage as the business of buying items “retail” meaning within a store or other retail setting. This would mean scouring the clearance shelves looking for product, scanning it to find its price online and then buying it at checkout counter.
Yes, in some cases, there can be enough of a price difference between a channel in which you buy as a consumer, and a channel in which you sell as a reseller in order for you to build a profitable business. But we recommend against it, even though we know companies that are able to make this business model work.
Factoring travel time, finding quality product, scanning time, and preparing product for FBA, many Retail Arbitrage sellers have told us that their business proceeds equate to about $10-20/hr.
Is that worth it? Consider:
- The money you risk investing in inventory that might sell for a loss (or might not sell)
- The complexity of dealing with sales tax filings and sales tax nexus
- Legal requirements for income tax filings, business registrations, business bank accounts, etc.
We’d rather that you find a way to develop a sustainable supply chain model so you can streamline your business so your “hourly wage” (or the money you net from your business divided by the hours you worked) is much higher than $10-20.
Advantages Of Sourcing Via Retail Arbitrage Include:
- The ability to purchase very small amounts
- The ability to find items that are less competitive
- Finding popular items that are heavily discounted
- Anyone can do it
- It’s so easy that children and technology impaired individuals have made successful hobbies out of it. All you need to do is download one the popular product research apps and scan product with your phone to determine the item’s sales rank and buy box price.
Disadvantages of sourcing via retail arbitrage Include:
- As we just alluded to, this is more of a hobby, not a business. Some sellers have created processes which have turned this into a business.
- It takes too much time for revenue and profit generated
- It’s unpredictable: you may find great items for 10 days in a row, or you may strike out for an entire month
- It’s not easily scalable or repeatable. Unless you plan on outsourcing your product acquisition responsibility to low wage employees (yikes?), you can’t cover more stores than you have time to visit physically or online. When you do find great products on sale, the quantity is limited. There may be very few items available or an entire pallet. But after that product is sold, you won’t find more of the same product. You’ll have to go search for different items.
- You have to finance all of the inventory yourself, as you are buying it as a consumer to resell as a reseller. There is rarely enough financing available as a consumer from the store or a credit card for you to be able to buy the inventory and flip it fast enough before payment on your limited credit limit is due for payment.
We mentioned closeout purchases earlier in the Distributors or Manufacturers section. Many sellers have built their business around closeouts.
They maintain good relationships with suppliers by purchasing product throughout the year, and as a result, those brands offer closeout deals to the sellers.
The seller may have broken even or made little profit on their in-line purchases, but they now reap heavy profit margins from liquidation stock.
Casio offers a list to their wholesale customers at the end of the year for overstocked watches to purchase at a substantial discount off the wholesale cost.
A shoe distributor wants to get rid of this year’s model knowing that next year’s version will be arriving shortly or has already arrived, so she offers liquidation pricing to her customers to make room for the current version of shoes.
An outlet store owner wants to move out this season’s inventory to recoup whatever cost he can from his inventory before he has to dispose of it. So he offers discounts effectively pricing his product for pennies on the dollar to a few sellers who’ve established direct relationships with him.
Advantages of sourcing through closeouts Include:
- Other than manufacturing your own product, closeouts are some the best margin deals you’ll find.
- Because your supplier is desperate to move inventory you often can negotiate them down more than their initial offer. Very rarely do customers negotiate for a better price with Brands +on in-line product.
- Close out deals are usually “Take all” on the entire order or by sku. That means to get the type of price you want you will have to take all of the inventory the supplier has by item or by lot. This may force you to either purchase more than you can sell in a reasonable amount of time, or walk away from the deal. Skilled sellers sometimes work together or find investors to partner on their purchase.
- If you don’t purchase the entire lot or sku, you will find competition that prices as low or lower than you
- Close outs are usually older inventory that may currently be popular but will become less popular when newer models are released. Keep an eye out for this and don’t purchase too much inventory because you expect it to continually sell at its current rate.
- Allocating costs to each SKU in the lot is very complicated. If you are buying lots of closeout product, often these lots are of mixed SKUs.
You will have to get very skilled at knowing through which channel each type of SKU is most likely to be resellable at the highest price.
This will also require you to allocate acquisition cost to each SKU dependent on how much you think you can get in revenue for each SKU – so some SKUs in the mixed pallets you may write off as unsellable, while others are expected to get a lot of revenue…
This process of allocating costs to the individual SKUs in the lot is typically very complicated, and not something that you should take on without having apprenticed from an expert.
Otherwise, you’re likely to find yourself with some proportion of each lot selling well, and some proportion not selling well or at all. So the profits you make in one place may be eliminated by the losses you take on the other SKUs from the same lot.
Gray markets or “Parallel Imports”
To describe type of market, we reference materials from Andrew Holland of the law firm, Thoits, Love, Hershberger & Mclean. He states that:
“Gray market” is the term used to describe the sale of new, used, surplus and refurbished products through unauthorized resellers or channels.
Gray market goods, also commonly referred to as “parallel imports” are goods or merchandise, otherwise legitimate and genuine, but which, upon importation to the United States, may be considered to be unlawful when they are sold in competition with authorized U.S. distributors.
Gray market goods include any number of different products that are legally manufactured and given intellectual property protection, purchased outside the United States by someone other than an authorized importer or distributor, and then imported for sale in the United States at a typically much lower price.
Because U.S. manufacturers are at a severe disadvantage when competing with gray marketers who offer essentially the same goods at lower prices, they try to prevent the re-importation of these goods.
When a reseller can’t get a direct relationship with the brand or with an authorized reseller, sometimes the reseller will turn to “gray market” suppliers who literally re-route product mean for one channel or even another country, and make it available back in the US for sales.
Some of our former clients were literally dealing with suppliers that exporting product out of the US, destined for an international market, but then immediately re-importing that product right back into the US. Another one of our former clients was buying product in another country, then shipping and selling it in the US – product that wasn’t meant to leave the other country for resale.
While the legalities of this have been questioned and challenged before, lots of companies nonetheless have sourced product this way. Without going into all of the legalities, we will highlight that some brands have been able to reduce gray market product through serial number tracking.
- You can get access to brands you want, whether brands that don’t want to sell to you or brands that don’t want to be sold online.
- Replenishing inventory is not predictable, as it is heavily dependent on what the gray market supplier is able to get.
- There are no financing terms – you have to pay up front for all gray market product.
- There are rarely return policies with your gray market supplier – the product becomes your problem.
- Because you are not dealing with an authorized supplier, you can’t get extra packaging or instruction materials to be used for helping clean up returned orders that you want to resell as new.
- Margins are usually tight, because of this extra middleman’s additional risk.
- Almost always higher shipping costs, as product is often getting shipped to multiple destinations before arriving in your possession.
- Often more than 1 round of customs fees to pay on the same items, once for exporting out of a country, and once for importing back into the US.
- Brands and manufacturers rarely honor warranties on product that they know is gray market. That can hurt the unknowing customer, or can add extra cost to the reseller if the reseller is providing warranty services to cover the now-voided manufacturer warranty.
- All sorts of potential legal issues, some tied to establishing if product is allowed to be imported into the US, and some related to whether the product is actually “genuine” product.
While there are many legitimate sourcing opportunities outside of the US (including Canada, China, Singapore and Europe), some of the same challenges apply as gray market product, including lack of product warranties, questions about authenticity of the product, and higher cost of shipping.
Should you find a legitimate foreign supplier, make sure that you have the legal right to import that supplier’s product in the US, and that that supplier can provide you with all of the appropriate legal paperwork to streamline that importation process.
Retail Stores can be another form of gray market supply. Many retailers on “Main Street” would love to have you as a partner to sell online as they probably have seasonal or overstock items in the store room that you can take a shot at selling. And working with the owner of the store to purchase directly from him/her at close to wholesale cost (5-10% above the store’s cost) can be a win for them:
- It can increase the amount they purchase from their supplier, improving their relationship with their supplier. Brands value customers who purchase more.
- Bringing in additional inventory may help them acquire additional lines.
- Bringing in additional inventory may help them acquire close out purchases.
- The store is getting Increased revenue & profit for very little work.
Here are some examples of stores you could approach for gray market supply:
- Auto parts stores
- Jewelry Stores
- Sporting Goods Stores
- Shoe Stores
- Apparel Stores
- Toy Stores
- Book Stores
- Exercise equipment stores
- Natural food stores
Advantages of purchasing through a retail store Include:
- Access to premier brands and if your store owner has multiple locations you may be able to acquire a lot of branded product on a consistent basis.
- If you have negotiated a small take for the store owner then it won’t be worth it to your store partner if you purchase in low quantities, so they will want to supply you a lot of inventory.
- Decent product margin
- Product will have manufacturer’s warranty
- Quick shipping
- Payment by credit card for close partners
Disadvantages of purchasing through a retail store Include:
- Less control over supply relationship (as you will have no contact with the direct supplier)
- The store may not be “allowed” to sell online or via marketplace channels and could lose its buying privileges
- The store may compete with you, or stop supplying to you if it finds out how and where you sell
- Brands can limit the amount stores purchase relative to their size and expected sales volume
Sell Your Own Private Label Product
Up until now we’ve discussed suppliers for Branded Product which you want to resell. We’ll now go into finding manufacturers to create your own brand of products.
Before we do so, let’s clarify that there are plenty of manufacturers out there willing to create a custom product for you or to sell you “open market” products that you can brand as your own.
Open market products are existing non-branded product the manufacturer has created or currently produces which you can purchase at very small minimum order quantities.
A good example would be t-shirts. Many factories produce millions of blank t-shirts in hundreds or thousands of varying sizes, colors, cuts, etc. If you want one of their existing shirts, your minimum order quantities may well be close to just one unit.
If you want your own shirt that has a different sewing pattern to it and you’re okay using open market fabric, the factory can just use their “cut and sew” facilities to produce t-shirts from existing fabric.
Your minimum order quantity won’t be one, but it will be a lot smaller than a totally custom product. If you want an entirely custom shirt printed with a unique floral print which your team designed, that’s where your cost and minimum order quantities increase significantly.
There are tradeoffs between going the open market route versus having custom product produced:
- Open market products have smaller minimum order quantities
- Open market products may cost less because tens of thousands are already produced
- Open market products may have higher initial demand because customers are used to the product.
For example, customers know what a Bluetooth speaker is and if yours is competitive in quality and price, it’s likely to sell as well as the competition.
However, if you’re creating a novel product which requires customer education, adoption will be slow at first, resulting in limited sales, but in the long run it may produce many more sales if you are first to market.
Even altered open market products may have more saturation – more competition; which can lead to a race to the bottom on pricing and margins.
Custom products always have higher minimum order quantities and cost more unless you order massive amounts. One big advantage to building your own brand is that from a supply perspective, you have flexibility as to how small or large you want your business to be.
My first company began manufacturing in the US at a “cut and sew” facility just a few miles from my home. This allowed my company to purchase in small enough quantities based on our limited capital and our little marketing know-how at the time. As we increased our capacity to purchase and to sell larger volumes, we moved production overseas through a trading company.
In a few short years, our business went from ordering a few hundred units to full container loads (more than 40 thousand units).
Manufactured in the USA
If you want to manufacturer your product in the U.S., contact your local SBDC (small business development center) to get a list of manufacturers in your local area. You can also search online for the type of manufacturer you need.
Comparing that to China, where your factory can purchase the raw material for your product and process it for assembly, in the U.S. you will need to find a material supplier & an assembler.
Payment is usually due upfront for materials, which are then sent to the facility for assembly – payment is usually due upon receipt for assembly.
Advantages of manufacturing your product in the U.S. include:
- Lower minimum order quantities
- Shipping is much quicker (receiving a product from Los Angeles by truck is much quicker than by boat from China and usually quicker than air shipment too because
- You won’t have to deal with clearing customs or import duties
- You can claim your product is Made in the USA
- Payments can usually be made by credit card
- You won’t run into delays caused by Chinese New Year
- Better payment terms: paying on receipt is way better than 30% down payment, 30% due upon shipping, and the rest when it arrives to you.
Disadvantages of manufacturing your product in the U.S. include:
- You MAY receive higher quality goods than your foreign manufacturers, but don’t assume that’s the case. Some of my best product has come from China, not the U.S.
- Your cost of goods sold are much higher than overseas (2-3x higher)
- Factories in the U.S. aren’t used to massive orders and may not be able to produce product as quickly as you need it if your product takes off
Don’t put all of your eggs in one basket. We have had clients working with suppliers in China try to import product and it gets held up in customs for because it’s the fourth quarter, the shipping stations are on strike, or the goods are under review.
We’ve also experienced a dramatic increase in product price when cotton prices increased and we were unable to supply to certain distribution channels because of that.
So make sure that you have multiple suppliers to diversify your risk, and have a good import broker to deal with likely hassles of overseas paperwork.
Also new regulations on materials or products may ban your product from being sold on Amazon or imported into the US. For these reasons, it is good to diversify among suppliers and types of products produced. Here are a few basic things you should know about purchasing internationally:
For working with Chinese suppliers, it’s helpful to have experience working with Chinese businesses and Chinese culture. If you don’t have this you’ll need to learn what you can quickly. We know names of folks who specialize in finding reliable Chinese companies, so drop us a line if you need some pointers.
Suppliers generally require a portion down, a portion when your product ships and the remainder when it arrives. Get used to forking out some capital well before you even receive product.
Due to Chinese business culture, samples don’t always reflect the end quality of the product. We often received poor samples from our most reliable supplier.
He promised the end result would be better and it always was. Factories are setup to produce massive amounts of goods. Samples cost more and sometimes are impossible to produce the same way that your regular goods would be produced.
That said, when you’re starting out make sure you get a sample you love before you pull the trigger. After you’ve been with a supplier for a while don’t panic when your samples take a turn for the worse.
It’s best to hire a quality control or QC company to inspect inventory during production and post-production or fly to the manufacturer and tour their warehouse and inspect your product.
Unfortunately, no amount of looking at initial samples will ensure that the full production run will maintain high quality.
For regular orders, it’s best to hire a customs broker for importing goods. While there are many that specialize in specific countries, big companies like UPS or DHL can also help.
You will need to arrange for transportation from the port to your warehouse, 3PL, or Amazon
Advantages of working directly with foreign suppliers
- Your product will cost very little compared to products purchased wholesale or manufactured in the USA.
When I began manufacturing in the US our cost of goods was close to Keystone, a term used to mean 50% of the manufacturer suggested retail price (MSRP). That cost is not horrible if you’re only selling direct to consumer, but there’s no way we could sell wholesale or build a large business from a niche item with only a 50% margin. When we moved to production overseas, our cost of goods dropped to almost a third of what it was before. This opened up many doors for our business and allowed us to sell to distributors and wholesalers and to run discounted specials. It became the foundation upon which we sold millions of dollars of product at a discounted rate off our MSRP. For Amazon sellers, being able to drop the price of your product and remain highly profitable is a great formula for success. Dropping your price just a few dollars sometimes is the difference between a product in the top 100 or 1000 in sales rank in its relevant category or sub-category. Manufacturing your own product so you can enter the market with competitive prices gives you the opportunity to sell a high margin product without direct competition for the buy box. You still have to compete for viewership with all of the other products on the site.
- You won’t run into Brands limiting the amount you can purchase because they have run out of supply or are suspicious of your account. If there’s high demand for your product, you can produce it in mass and fulfill that demand.
- You can create a new product or modify existing products to create better versions. Some sellers make their business entirely out of research the product reviews of top selling items, finding customer complaints about the product and then manufacturing an improved version of the product.
Disadvantages of working directly with foreign suppliers
- This is a lot of work and more complex than reselling – you will have to communicate often with your manufacturer and plan appropriately so you have orders placed at the right times based on when you want your product finished and how long it will take to arrive so you don’t have too much or too little product in-stock.
- You will have to build your own brand instead of riding off the established brand equity of someone else
- Your minimum order quantities may be higher than you would like
- Shipping for large quantities or large items will be down by ocean freight and it takes time and planning
- Importing product through customs can be a real pain if your factory misclassified your product or if your low on the totem pole during the busy holiday shipping season
To find a foreign supplier you can directly work through (in no particular order):
- Talk to your Friends & Family to see if they know of anyone who manufacturers overseas and get their contact information.
- Your rolodex of business associates may provide you with referrals to foreign suppliers.
- Look on Odesk or Elance for hired help.
- Here’s an example of an individual who specializes in helping businesses like you find suppliers to produce their product:
- China & Amazon Supplier Sourcing Specialist: Translator & Interpreter.
My Full-time China-based Freelance Coverage includes:
- Product sourcing & Procurement
- Amazon supply sourcing
- Price Negotiation
- Production Process Oversee & Follow-up
- Preshipment Inspection
- Logistics Arrangement
- Dispute Resolution
- Translation & Interpretation
Some of our clients rave about this site. Sellers are utilizing their services to figuring out where specific products are being sourced. It’s valuable information to know the details of the supply chain of your current and potential competitors.
We’ll cover this in more detail in a minute
Reducing Your Risk When Trading Online:
- Always verify a trading company’s contact details and address.
- Always verify a trading company’s legal registration number.
- Ask suppliers to provide you with customer references (preferably from your own country) who have purchased from them within the last 12 months.
- There are many ways to pay suppliers. Some common methods include
- Open Account (OA) – not recommended.
- Letter of Credit
- Documents Against Acceptance (D/A)
- Documents Against Payment (D/P)
- Wire transfer
- Alibaba’s Secure Payment.
A quick google search should provide clarification on all of these payment methods. Please look into each option carefully before committing to one.
Use A Trading Company (E.G. Vox Marketing Group)
Wouldn’t it be nice if you could pay someone a little bit more for your product if they would:
- Help you conceptualize your product
- Work with you to refine your product design
- Work with factories in foreign countries to find several that will produce samples of your product (and do that for free or just roll the sample cost into your production run)
- End those samples to you so you can discuss changes that need to be made
- Repeat this process until your samples looks acceptable
- Work with the manufacturers to produce your product
- ensure timely deliver for your event or scheduled deadline
- charge you when the product arrives, instead of before production
Trading companies do just this. Many of them began only supplying promotional products for large corporations like Microsoft, GE, or Adobe.
But most of them now produce any type of product for a variety of clients. Most of them will work with businesses ranging from Start-ups to SMB to Enterprise level companies.
Advantages of working with a trading company include:
- Better terms than sourcing direct. Instead of 30% down, 30% upon shipping, 40% when product finally arrives, you’re probably looking at 100% on receipt of goods, or even for some clients who’ve established tenured relationships with their trading partner payment 30 days AFTER the goods arrive at your facility also known as a NET 30.
- Help you develop the product and provide samples for approval
- Inspect the product for quality control
- Help the product through customs
- Guarantee the product quality
- Ship the product directly to your warehouse (or Amazon)
Disadvantages of working with a trading company include:
- Price mark-up from the factory’s quoted price
This markup should be qualified though. Although the trading company marks up the manufacturer’s price by 15-20%, many sellers have received lower prices on goods produced through trading companies than when they went directly to the manufacturers.
How is that possible? Well, if a trading company is large enough, and been around long enough, they have the right relationships and enough leverage to push through smaller quantities with their factory partners at a lower price. They also work with the best factories which don’t usually take on one-off customers like you.
We have included a list of trading companies with their contact information in our Additional Resources section entitled Trading Companies. Not all of these companies are created equal. Do your due diligence on them, and it may be wise have a non-compete or NDA signed with them if you’re producing something revolutionary.
Find a manufacturer through Alibaba
On Alibaba, the process of finding a manufacturer is rarely as simple as finding some decent-looking product, then ordering from the manufacturer.
You will also need to research companies, do your due diligence, and work to establish relationships with suppliers.
Many sellers have encountered scammers and counterfeit items through Alibaba. You will need to learn some tactics to find more legitimate suppliers.
And realize that even when you do connect with a good supplier, you often are dealing with a middle man, and sometimes the broker for a middle man.
In other words, you may be multiple steps away from a direct connection with the factory producing your goods, and you may be paying a premium for it.
Let’s cover some basic elements that will help you be more successful on Alibaba:
Many users create an Alibaba specific email address for use on the site like [email protected] or if you don’t want to use or don’t have your own domain name [email protected]. Using such an alias for communication on this channel reduces the spam you’ll receive from solicitors.
Finding & Contacting Suppliers
On Alibaba.com, after entering item keywords into the search toolbar and clicking on “search”, you’ll be directed to a results page. Click on the tab “suppliers” to be begin your search for manufacturers.
Search For Suppliers With Filters
Some important filters to choose, in order of importance are:
- “Gold Supplier” – Gold suppliers are prequalified suppliers
- “Onsite Checked”, Onsite operations check by Alibaba and legal existence confirmed by a third-party verification company
- “Assessed Supplier”, Assessed by a third party inspection company. An assessment report is available for download.
- Trade Assurance On-time shipment and Pre-shipment product quality safeguards. 100% refund up to the trade assurance amount.
Send A Message
Write a generic message to each supplier requesting any information you would want to know about the manufacturer or products they produce. If their company information is confusing ask for clarification about their terms or the products they product specs they’ve supplied. Click the “Contact Supplier” link next to the supplier information to send your message. Here’s an example:
Hi Ms Jenny Su,
Our company needs a large supply of wireless, over-the-head headphones in red, gray, white, and blue. Could you send me your price list for these headphones, along with any shipping and payment information?
I would also like to request a sample from you as well. My business is located in Phoenix, Arizona, USA. What is your lead time to produce orders and what is your MOQ? Is your MOQ color specific or for the entire order?
Depending on the time of day you send your message your foreign counterparts may respond within a few minutes or within 12-24 hours. Some may respond a little later. Compare your price sheets and MOQs. Narrow down your suppliers to 3-4 and request your samples. Some sellers use these samples as a beta-test to try their product on Amazon or another site to see how well it will sell before they purchase in bulk.
If this is your first time ordering product from overseas, it may surprise you how much it costs to ship one sample to you.
Evaluate Your Product
Whether you are listing your sample product for sale, running a focus group to get feedback, or sending out a survey over social media or to a customer list, ask additional people about your product. You need more than one set of eyes to give your product a fair evaluation.
Purchase The Minimum Amount The First Time
Even if you use Alibaba’s secure payment service, receiving crummy inventory is a pain. Limit your stress and risk by going small at first until you become more comfortable with the supplier. And always use Alibaba’s Secure Payment service or Paypal. What is Secure Payment? Secure Payment holds buyers’ payments while orders are being processed and delivered. When both buyer and supplier have verified that the transaction is complete, then the money is released.
Other Options include:
- AliExpress.com, Alibaba’s site for smaller orders
- AliSourcePro: here you post a Buying Request and after approval, suppliers send you quotes which are audited by Alibaba.com and Alibaba picks the best ten and sends those to you.
How long does it take to find the right supplier?
Experienced sellers can find good, new suppliers quickly. However finding your ideal supplier is more difficult, and requires some time and sometimes some good old fashion luck.
In our experience you’ll probably have to work with a few good manufacturers before you develop a great relationship with one that supersedes the rest.
Part of this process is your sales volume. As you sell more product and place more orders, you become a bigger, more important customer to your manufacturer and they start to treat you differently.
- Gray market details: http://www.thoits.com/resources/gray-market-goods-u.s.-trademark-law.pdf