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By now you have already identified your niche market and you know all about the competitive advantages that you have on lock as well as who your target audience is. You are more than ready to start sorting out the details for sourcing the products that you will sell online.
Remember, you always know more than you think you know.
Although this can be one of the most challenging parts of the process of starting your ecommerce business, there are some great ways to streamline the experience so that you don’t run into any pitfalls along the way.
What is Product Sourcing?
Let’s first define what product sourcing is. This is the process by which sellers source their products. You might be utilizing a combination of things, or your supply process might be very straightforward. There are many moving pieces in most product sourcing models, however.
For many ecommerce sellers, dropshipping, wholesale, customer manufacturer, and print on demand all have a place in their sourcing process. Combining these elements can make all the difference between being able to make a profit off your products or losing money on them.
You will always need to consider if your sourcing methods or plans are going to help your product and your brand or if they are going to harm it. There are many ways to streamline and improve your existing plans or processes. So don’t worry if you are already identifying issues that you might need to attend to.
At the end of the day, the right sourcing model will depends much upon your long-term plan for your brand as it does upon your current ability to buy and ship a product. K now your own limitations and your own inclinations for involvement in the sales process. This can help you to narrow down your product sourcing options.
Ways to Source Products
There are three primary ways that you can source your products.
- DIY products and services
- Work with a wholesaler or a manufacturer directly
- Hire a dropshipper
These are all viable options for your needs and you might even leverage more than one of these ways to source your products.
DIY products and services
This is the tried-and-true method that people have used for years to sell goods and services. There are merits to this method and the direct control of each step of your process from creation to sales can be a nice added benefit. Items that sell well in this model are things like handmade jewelry, crafts, and even personalized services.
The best part of the DIY model is that your costs will be low This is usually how ecommerce businesses start out, assembling products at home or in someone’s garage and then selling and shipping them through online services or ecommerce platforms.
This might be a great method to get your business on its feet. Maybe you are happy with keeping your ecommerce business at a size that allows this to be your model for good. There are limitations to this model, however, if you are thinking about scaling your business.
If your business is a success and you start to get really busy, you may not be able to keep up with the product demands. Running your business and managing to ship so many completed items might start to get in the way of your ability to actually create or advertise your products. Always have in mind ways that you can scale your business away from DIY if that is your ultimate goal.
- Source materials for DIY businesses
You might be buying locally or from other vendors in your area. You might also be getting a portion of your materials from a wholesaler. Always make sure to consider the price that you are paying for these items and make sure to pass on as much of this cost as you can to your customers. If you can get something at a better price from a different location, consider making the change to save yourself money.
- Shipping for DIY businesses:
Are you planning to run all of your orders to the postal drop-off or postal store yourself? What about packaging all of the items that you need to sell? This can be a big job and you might want to consider other solutions right away for your shipping needs.
No matter what size your business is, shipping is usually best handled by a shipping service of some kind. You can customize your packaging far more effectively using one of these services and if they offer a fulfillment service as well, they will typically handle your returns as well.
- Inventory Concerns:
How long does it take to make a product? What are your labor costs? You need to know this information when you consider how much inventory you need to have on hand at any given time.
- Inventory Storage:
Where will you keep your inventory? You may not be able to store it at your home depending on how much inventory you need to keep on hand. This is where a storefront or a 3PL can be a big help.
- Set Expectations For Each Order:
Always make sure that you are communicative about fulfillment times when you are using DIY as your sourcing model. You do not want people to assume that they will be getting their products within a couple of days if you cannot actually meet that demand.
Manufacturer or Wholesaler Sourced
This is a great step to take if you are comfortable accepting a partnership relationship with another party for sourcing your products. You are effectively working with another partner to source your product using this model, but the costs can be significantly lower than if you were making the entire product by hand at home.
There are some products that you may not be able to make yourself and you can scale any kind of product sales much more readily when you use a manufacturer partnership or a wholesaler. You will still have control over much of how the end product is designed and how it looks without all of the hassles of making the product yourself.
The downside to this model is that you will need to invest heavily upfront to buy a large batch of products. Once you start selling, buying new products will become much more affordable for you.
The other challenge for many people trying to leverage this model is that you have to do some legwork to make the connections needed to foster this partnership. It can be hard to find the right wholesaler to work with. You will probably need to divulge a variety of information about your business model to possible partners before they will be willing to work with you.
There are options to connect with wholesalers through other Etsy Wholesale as well as Alibaba and some other general sites. But sometimes you need to leverage connections in your larger network of ecommerce contacts to find a good wholesaler to work with. This can take some time, so you will want to be patient as you work to find the right fit for your needs.
The Better Business Bureau can be a great resource for this need as well. You can check on the companies that you are considering working with to make sure that they are actually legitimate businesses. Make sure that you can see related tax information and licensing information for each possible business before you agree to partner with them.
Questions that you will need to have answered before you choose a wholesale partner for your ecommerce business:
- What the contracts and terms of the contracts look like? Can you customize any part of the contracting process for your unique business?
- Is there an evaluation period?
- What are the terms for termination on both sides of the contract?
- What will the total cost of production and shipping be?
- Are there hidden fees?
- How long will it take for your wholesale partner to create, fulfill, and then ship products for you?
- How do they handle shipping and inventory management?
- Will they ship and store for you or is this an extra charge or cost to you?
- Can you design or control package branding?
- How does support or communication work?
- How frequently will they update you about inventory needs or shipping issues?
- What are their minimum order quantities?
- Do you need to commit to a set amount of units or spend up to a certain amount?
All of these questions are important to ask before you sign any kind of agreement or contract with a wholesaler. If you do not read the fine print or discuss the details of your arrangement, you might end up with an unfortunate surprise later when you cannot make the alterations to your products or the shipping method that you wanted.
If you have partners in your business, make sure that all of you agree that this is the best option for your needs. You may need to discuss everyone’s comfort with charges for samples and other considerations as well before you dive into a partnership.
What is dropshipping?
Dropshipping is a method of sourcing that allows you to purchase from a vendor’s list of products in an online store. The vendor will charge the products as they are sold and then ship on your behalf.
This is a great way to start a new business but it can also help you to expand an existing list of products readily with less risk on your side at the start.
The problem with dropshipping is that it can be a much more competitive arena. Additionally, many of the products that are offered by dropshippers are also common elsewhere with other ecommerce sellers. It can be hard to stand out as unique in this space.
The key to succeeding with this sourcing model is to make sure that you have a wide selection of products that are available to you. This will make sure that you can sell enough to make a profit. The products offered by dropshippers are typically offered with a lower profit margin, so this can make it harder to turn a profit unless you sell enough goods.
Often the best route to go for this sourcing model is to work with an aggregate dropshipper who works with a variety of dropshippers for you. This will mean that you will have access to all of those products without having to work with those other dropshippers too.
This model works a lot like engaging a manufacturer to work with you.
You will follow many of the same steps and processes:
- Decide which products you like
- Check the references of the dropshipper carefully
- Ask for samples
- Pick the samples and the contract options that you prefer and get started selling!
This is a great model for those who want to sell a lot of products without having to fork out the capital to buy inventory for all of these items. Your success will ultimately come down to your ability to market these items successfully. Your awareness of your target audience and the niche that you are selling in are also important.
It can be hard to stand out in the crowd in this space, but if you are good at advertising yourself and your products, you should be successful with this sourcing model.
It can feel like you are not signing a contract when you are looking into dropshipping because you are not actually handling the inventory yourself. You will need to remember that dropshipping is an agreement just like signing a contract with a wholesaler. You will want to check out all of the fine print related to that contract.
Supply chain considerations and other kinds of shipping arrangements are not going to be under your direct control. You should look into the costs associated with each part of the process before you sign up. The profit margin with this model is much smaller than in the other two sourcing models, so be careful about this set of costs.
Another consideration that you will need to look into before you agree to a dropshipping contract, is how returns are handled. In the other models, you have some say over the returns process. But with dropshipping, you will want to be sure that there is a process in place for dissatisfied customers to get their money back or be able to get a replacement item.
It can be worth the money to have a legal expert take a look at your contract with a dropshipper. This will ensure that you are getting a deal that makes sense and offers you protection from some of the common pitfalls associated with this model. Researching the dropshipper through the Better Business Bureau will only tell you so much. However, the contract will have all the details that you need to know before you sign up.
How to Select a Sourcing Model
You might find that you could easily fall in between different sourcing models with your selected product type and business style. There is no one method that is the right method for many products that you can sell online. You also might have your own preferences as far as how much you want to be involved in the process of creating and shipping your products for sale.
Always consider if you are able to actively manage another new product. If you are already selling other items using one model, it might be wise to handle your new products in the same manner. It can be taxing to try and manage products that are sourced in many different ways and there can be a high learning curve for each model if you have not tried it before.
If you are just starting an ecommerce business, you should look at all three of these sourcing models carefully before you decide which one is right for you. Look at your product’s costs, your shipping costs, and the amount that it actually will cost you to make each item. The numbers will not lie to you, and careful analysis of your real costs can make it clear which sourcing model makes the most sense.
If you are planning to scale your business in a big way, you may need to rule out DIY as your sourcing model. Then, you will need to choose between dropshipping and wholesaler sourcing. If you are adding a new item to your lineup of products, it may be too expensive for you to do anything but DIY at first. So, you should consider ways that you can shift this product into another kind of sourcing model.
Read the Fine Print and Order Samples
No matter what model you decide to use, always read the fine print carefully. Whether you are looking at dropshipping or at wholesale relationships, you should never go blind into a contract arrangement. It can be expensive and difficult to break one of these contracts early. Plus, you will have no grounds to do so if you never asked for clarification about the details of your contract in advance.
Signing up for the wrong contractual arrangement with another entity can end up costing you more money than your products are making for you. You also might lose customers due to issues with fulfillment or returns. Brand loyalty is tied directly to brand experience. People will not want to do business with you again if you are not reliable and the products that you sell to them are not high quality.
This is where samples become very important, particularly for clothing items. Making sure that the products that you are agreeing to sell are the quality that they should be and that they meet your own standards is essential. You do not want to attach your name to shoddy products. Ordering samples may cost you money if they are not returnable. But you will be spared making the wrong decision and being forced to sell this low-quality product for the duration of your contract.
If you are in business with partners, make sure that all of you agree with the terms and conditions of each contract that you sign. There is nothing worse than finding out that an essential business partner is not going to be willing to work with a contract that is already in effect. These kinds of hang-ups can cause major issues related to brand identity and reliability that you should avoid at all costs.
Involve Legal Experts
It is always wise to take the time to get the advice of a legal expert if a contract does not make sense to you or if you think that the language is questionable. Even straightforward contracts might need to be adjusted to fit the needs of your business model. A legal expert can help you with this process.
It will cost you a fee to have someone review your contract, but being engaged in a contract that is not favorable to your business will cost you far more in the long run. There is no better protection for your business than being self-educated and looking before you leap. Remember that your business partners will likely all do the same process of review and redrafting for each contract. Taking this important step can ensure continued success for your business.
What To Do Next
Phew! Now that you know where you are sourcing your products from, you are ready to progress to the next step in the planning process. Read Chapter 7: How to Create, Launch & Showcase Your Online Business to find out how to make your brand stand out from the crowd on launch day and hit the ground running!