When it comes to finding eCommerce manufacturers or suppliers for your online eCommerce business, you have to be very careful.
You’ll know if you’ve done some digging that this is where most of your monetary risk comes in so you want to make sure that you follow these steps to make sure you’re doing it correctly. I’ll be publishing a new article soon on how to avoid scams as well with manufacturers.
1. To Outsource or Not To Outsource? Doesn’t Matter when it comes to ecommerce manufacturers!
You can research different suppliers yourself or you can pay someone 5$ on Fiverr China to find a supplier for you.
To find suppliers yourself, head over to Alibaba.com and type in your product or Google and type in “[your product name] supplier”. Browse until you find something that looks promising and then contacts them.
Make sure if you’re on Alibaba, that you’re choosing products that have 4+ ratings and very highly rated suppliers,
This decision is ultimately up to you. You know that my take is always to outsource what you can and 5$ is not much money to spend to save hours of agonizing over which ones you’re going to choose from. I would ask whoever you hire, however, to give you options.
Regardless of which option you choose, you want to keep track of options using a supplier spreadsheet.
2. Always, Always, Always Sample Before You Order!
Get 1 sample from your supplier if possible after you’ve already discussed any logo designs that you want to be implemented on the design.
If you can implement your design before ordering your sample for a bit more money, skip to #3 and then come back to #2,
Most of the time, however, the manufacturer will only do customizations of the product if you order in bulk. If possible, choose the manufacturer who will let you customize and then order but if you don’t have a choice, then order the sample of the generic version.
Either way, you want to be 100% sure that you can actually customize the product. So, ask your supplier if you can make changes to the product (color, size, remove or add some element and don’t forget packaging) or change the label to make it your own “private label”. If you can’t, then the supplier is a hard no – go back to step #1 and repeat.
It makes things 100x easier if your manufacturer can do the packaging for you but if not and you otherwise love the product, then it’s not a deal-breaker, you’ll just have to get your distributor to do it or you’ll have to do it yourself.
This way you’re still getting the best sense possible of what the final product is going to look like.
Make sure it is not easily breakable and try it out for yourself. If it’s washable, make sure you try washing it. See if it can go in the dryer or not.
Just use it as it should be used for a week or so.
You love it – the product is a go!
After this, you’ll not only have a good idea of whether it’s a quality product but you’ll also have a ton of FAQs and Descriptors for your store.
If you’re comfortable with a camera, you can even make some marketing videos. If not, hire someone on Fiverr or you might even want to go to Freelancer for this and pay them a bit of money, ship them the product, and get them to make some stunning marketing videos for you.
You hate it – the search continues for another supplier
Return to Step #1 and repeat!
3. Customizing Your Design
Change the product into YOUR OWN BRAND. Ask the supplier for a photo of the product before you order another sample or batch so that you can see your changes and make edits.
Once that’s done, get 1 sample of the altered product from your supplier so that you can see your changes. If it’s getting too expensive with the shipping, but the photo looks great, then you might be able to cheat here.
Just remember to minimize risk and play it safe, it’s always best to order another sample of the final product.
This again gives you the opportunity to make marketing videos and take pictures with your customizations and your brand logo on them.
This is also where you design your packaging. Make sure it’s got your brand logo/name on it. A nice touch is having a note written to the customer that includes your name at the bottom and your website and also perhaps your social media accounts so that they can find you!
4. Take the Extra Steps to Minimize Risk
Ask the manufacturer about any factors that influence payment terms.
Make sure you ask them about:
- minimum order quantity (MOQ)
- how much that’s going to cost
- shipping costs
- what discounts do you get for ordering higher quantities
- how much do individuals samples cost + individual shipping (could you drop ship?)
The higher your order value is the most advantage you have in terms of getting preferable payment terms. The more you order, the more your supplier is going to want to work with you.
Note that this is relative to the supplier size (30,000$ may be large for one factory but low for another).
Once you build a little bit of a relationship with your supplier and they see you as a good long-term opportunity, they will usually start lowering costs.
If you have already ordered a lot from the supplier, then you are in a good business position to renegotiate payment terms relative to what you have been offered the first time around
Companies that tend to be a lot more flexible about payment terms are:
- Large suppliers
- Monopolies (small and large)
- State-owned companies
If you are a big company (Coca-cola, Disney, Sony) you can literally dictate payment terms to suppliers but if you are a new importer, you have to look for companies that have a good market reputation because they tend to avoid competing on price with the big companies.
This is important because:
- If you’re competing with a HUGE company you can’t compete on price
- You need to compete with them on value, on quality of product
- This is why you need to brand your product and make it your own
Once you get bigger, it may be worthwhile establishing a local presence in China. You can get an office in China and hire your own representative or hire people in Fiverr or Craigslist China to become your representative or middleman.
Of course, you only should be doing this if you’re going full-time and you planning to be importing a bunch of different products.
Having a local presence in china often helps better payment terms. If a supplier knows that you have an office or a representative in China, it can make a big difference from what is expected from a lot of Western clients.
Other benefits of a local presence are scouting out:
- Factories that do not have enough business at a given time tend to be more flexible on payment terms to avoid internal issues
- Laborers leaving the factory due to lack of work
- Small and medium factories are more likely to offer preferable payment terms
- Certain industries have more negotiable prices than others
- Suppliers looking to aggressively grow their businesses will often give preferable terms in order to attract more business
5. Negotiate Payment After a Few Orders
Initially, the price stays in place for a while, but after a few shipments, this price becomes more flexible as your relationship with the supplier improves.
You want to make sure after every 2-3 orders, you try to re-negotiate payment terms.
Of course, don’t lose suppliers negotiating too hard but don’t lose negotiating opportunities being too soft. You have to be firm but always respectful.
Remember that fraud also happens to suppliers so remember that there may be genuine suppliers who may not agree to your preferred payment methods especially for the first few orders because they want to minimize risk too.
Concluding with Some Pro Tips
So to conclude, you want to make sure you follow these 5 simple steps and you’re good to go!
Another pro tip is that you can negotiate to break up the payment. There are general standards in China for accepting 30% pre-payment or down payment and 70% upon completion of the product.
In case your product is customized, which it should definitely be, the advance will be higher like 50% because supplier risk is higher in such cases.
Remember to always get samples!!!
Be sure that you’re clear on the timing of payment. This is something that many new buyers and often experienced ones tend to miss during negotiations.
Paying the balance depends on the trade term and agreement between you and the supplier but when a proforma invoice or contract reads, “Balance on Completion” this could mean:
- After completion of product but before shipment
- After completed goods pass pre-shipment inspection
- After the container has sailed
A pre-shipment inspection could be employed by you before the balance is paid to the supplier by hiring pre-shipment companies like:
- Asia Inspection
- China Quality Focus LTD.
Don’t worry too much about that if you’re just getting started though.
What’s important to take away is:
- Get samples
- Make sure you know your agreement
- Get samples
- Structuring payment terms carefully and choosing the right payment method can be effective levers for risk management in international trade, especially in terms of management of payment and quality risk
- Get samples
Hope this helps!
As always, let me know if you have any questions by posting a comment below.