My business changed when I figured this out.
Sourcing products for eCommerce is one of the hardest and most frequently talked about issues we see in this industry. I think with the information brokers selling get rich quick Amazon FBA courses a lot of miss-information is being spread on how to source products and also with a poor understanding of China, Chinese culture and incorrect expectations we see a lot of disappointment in this area when done wrong. So we compiled 5 of the most common mistakes we see and how to avoid them.
1.) You get what you pay for.
This is very true in China especially when margins are very thin and with the tendency of the Chinese sellers to low-ball the initial price quotes online. For Chinese negotiations are a skill, and they will never say NO to your request for a lower price if they think they can do it for less. You ask them for a lower price and they give you a lower price, but what is lost in translation is a lower price also means a lower quality good. I always find asking for the absolute best products up front and insuring the supplier knows I am willing to pay more for a better product, with better materials, and better packaging I am less likely do be disappointed in what I get. I also get to find out more about what the actual capabilities of the suppliers are.
2.) Devil is in the Details.
Akin to number 1 process for getting a better product, I also find that if I supply the details the suppliers are very good at following directions. They give you EXACTLY what you ask for. If you ask for cheaper you get cheaper in every way. If you ask for better you get better, and if you ask the for the best you get it. So know what you want, all the details up front, if you do not know what you want it may be time for you to educate yourself a little on materials, stitching, packaging, printing, labeling,m etc. I also find by asking questions from my suppliers like “what other material options do you offer?” or “what packaging is available?” I can help get a better picture of what the actual capabilities of this supplier are. You may find they do the best widget but outsource packaging to a different company. In which case I would find packaging at another location independently to insure I get what I want and ovoid translation issues.
3.) Time is money.
This is true on so many fronts it is not funny. There is product development time, product sourcing time, product manufacturing time, shipping time, prep time, and you should ask your suppliers about this information so you can understand what the real time to launch a product is. Why? Because there is also something called product lifecycle. Which is the time that the product is hot and sells well to the time the product slows down and starts the downward trend in demand. Hit the front end and you make loads of money, hit the back side and your trying to figure out how to give the product away and get your money back. How do you know what the product life cycle is? I like to see how many people are searching for it online over time and if the search stats are declining over time then I reconsider.
4.) Large orders, large problems.
We have all heard this. Your first small order will be good, but as the orders get bigger the quality goes down? Do you know why? Because most businesses in China are run from the home. Yes every single home in China is pretty much the same. (no worrying about the Jones’s yard or house yours is the same. It is 5 stories tall, and the 1st floor is a shop/store, the second floor may be offices, the third and maybe 4th floor are rentals, and the 5th floor is the home where you live with the rest of your family, (Gma and Gpa included). So a lot of products are made in small assembly type facilities. So when your order is better suited for a larger supplier you need to see about properly vetting these suppliers to insure they can facilitate your order. Not saying there is anything wrong with smaller suppliers but understanding the true capabilities of these suppliers is very important to getting what you expect from them. Seriously I was just there and while a man sat in his store waiting for customers, he was doing assembly work for a “factory” and many many products are made this way. It seriously is amazing that so much is produced, so well when Mr Lee gets 50 or 60 people to assemble 10 units each of your product in a day or 2 in their home or office. Now this is not 100% the case but I did want you to know it is normal and wide spread in certain segments of the market. This could lead to QC issues for you and should be known ahead of time.
5.) Shipping Cost Basics.
This is one of the areas people seems to ignore until the last minute. Incorrect shipping services leads to lower profits, which leads to going out of business. Let’s look at service options.
Express shipping: for me is not an option except for initial samples. Even now I am working on ways to reduce that price, be more efficient, and reduce my spend here to launch more products in less time.
Air freight: is about 30% less than Express, has the same paperwork as Ocean, but will take a few more days to arrive, and you may want to pick it up at the local international airport yourself and same a couple hundred bucks if possible.
Ocean freight: is the most cost efficient service and one that can and should be used above all others. Let’s look at why.
You source a widget from China for .50 cents US. It is selling for $5.99 US and you see that you should sell 100 units a day. (killer product demand) and make $599.00 per day minus $50.00 product cost.
You ship Air Freight 100 widgets to get started.
100 x .50 = $50.00
Air Freight is $400.00 so total is $450.00 for 100 units.
Cost per unit $4.50
We have not even looked at Duty or other costs yet and this .50 cent item is now $4.50. Are the numbers still adding up? No
$599.00 per day in sales minus $450.00 a day in landed costs is $49.00 profit minus all other business expenses. (of course this is very general business math)
Now lets see about ocean freight which costs you $50.00 for 100 units.
Do the basic math yourself and see if the number stack up?
What could you do with the extra money to help your business more?
What we need to do in every case is look at landed costs into your market. You may find you can buy more product, which allows you to launch it correctly, get your sales rank up faster, not sell out as fast, all because you did not ship via the most expensive shipment method in the world. Is this the case on every product? No but if your not tracking it you may have a million dollar a year business that spends $500,000.00 per year in shipping, $400,000.000 on product, and may actually have lost money at the end of the year. Great revenue, terrible margins which is what I have seen with many internet gurus. They only promote the top line revenue, but do not show you how much they spent getting that revenue.
As you can see there are many things other than the 5 mentioned above that can make or break your business but armed with the very basics I hope to help you avoid costly mistakes as your getting your feet wet and launching a new importing and eCommerce business. Do you have any other items you think should have made the list? Or did we completely miss the mark on one of the items listed? Please comment and let us know.
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