The Definitive Guide on How to Source Products from China
- 1 A Quick Introduction
- 2 What is The Goal of This Definitive Guide to Sourcing from China?
- 3 2 Key Reasons Sourcing Matters
- 4 Sourcing From China Should NOT Be Intimidating
- 5 WHY IS SOURCING SO IMPORTANT?
- 6 HACK #1 – START SMALL AND LEVERAGE A HYBRID MODEL
- 7 HACK #2 – USE A SOURCING AGENT
- 8 7 REASONS TO USE A SOURCING AGENT
- 9 6 ROLES OF A SOURCING AGENT
- 10 3 OPTIONS ON HOW TO FIND A SOURCING AGENT
- 11 HOW MUCH SHOULD YOU PAY A SOURCING AGENT?
- 12 STEP 1 – SOURCING DATA RESEARCH
- 13 HOW TO COLLECT DATA
- 14 HOW TO FIND MANUFACTURERS TO COLLECT DATA FROM IN CHINA
- 15 STEP 2 – VETTING FACTORIES
- 16 QUESTIONS TO ASK WHEN VETTING A FACTORY
- 17 STEP 3 – COLLECTING SAMPLES
- 18 4 METHODS TO GET A LOWER SAMPLE PRICE
- 19 STEP 4 – TESTING AND COMPARING SAMPLES
- 20 STEP 5 – FACTORY INSPECTION
- 21 WHY ARE FACTORY INSPECTIONS IMPORTANT?
- 22 STEP 6 – FORM ORDERS | DETAILS AND LOGISTICS
- 23 STEP 7 – NEGOTIATING PRICING AND QUANTITIES
- 24 STEP 8 – MAKE DEPOSIT
- 25 5 PAYMENT OPTIONS IN CHINA
- 26 STEP 9 – PRODUCTION
- 27 STEP 10 – QUALITY INSPECTION AND PAYMENT
- 28 STEP 11 – SHIPPING
- 29 ACTION STEPS FOR SHIPPING BY AIR
- 30 SHIPPING BY SEA
- 31 ACTION STEPS FOR SHIPPING BY SEA
A Quick Introduction
My name is Daniel Audunsson and in the last five years or so, I have sourced and sold over 200 physical products with the bulk of them being from China.
I have personally been to China over 20 times and run and operate most of my businesses from Hong Kong. I have permission to reside in Hong Kong or China as an entrepreneur and have had numerous employees in my product sourcing office there.
I have also had the pleasure of teaching thousands of entrepreneurs how to source products successfully from China and have personally taken many successful entrepreneurs over the border into China to show them how to source products.
What is The Goal of This Definitive Guide to Sourcing from China?
This article will lay out every step to successfully source products from China.
I will also reveal all of the surprising twists, tricks, tips, and hacks I have learned to be successful in doing so. Sourcing and selling products from China is the backbone, the most fundamentally important thing for eCommerce, since almost every product we sell online is made in China.
In my opinion, knowing how to successfully find and source great products from China at a great price is the biggest key to success in eCommerce, especially with private-label selling online. And all of this knowledge transfers right over to sourcing physical products in other countries too.
2 Key Reasons Sourcing Matters
Not only is sourcing critically important in order to have a great product to sell to your customers, but the skill of sourcing makes a huge difference in terms of the quality and kind of product you will actually buy.
Also, the cost at which you’re able to buy the product ultimately makes the biggest impact on your profit margins. As you know, profit margins are a critical element to your success. Without profit, what is the purpose or point of running a business?
Not only that, but sourcing also ties heavily into other elements of our business such as research and even the opportunities that we’re able to tap into.
Once you have the skillset of sourcing successfully from China, you’ll know you can get any product at a great price that is high enough quality to compete with the best of the best.
Now, a new world of opportunity opens up for you as an entrepreneur selling physical products online!
Sourcing From China Should NOT Be Intimidating
Before we dive in and explore the actual blueprint for sourcing, I want to make an important note. Do not feel intimidated. This can be done by anyone, anywhere without ever stepping a foot in China. I’m going to show you exactly how you can do that.
Sourcing is not hard once you know how.
The key is to understand the process so you’re able to follow the right steps and avoid the big mistakes to ensure you’re successful in finding and sourcing a new product from China.
WHY IS SOURCING SO IMPORTANT?
First, we don’t want to source just any product. We want to source a really great product!
That is the key to gaining a following and truly building long-term success as an eCommerce entrepreneur online. It will make the difference between incredible versus average success for you long-term and will help you build a really valuable brand, which is a true commodity.
Remember, even if this is a business that can be built entirely behind a computer screen, this is also a real business with actual physical products. You need to put yourself in the shoes of your customers. You want the best products in your life and so do they.
Your job is to give them the best, most satisfying solutions in terms of physical products.
A lot of our profit margin is largely built through our skillset of sourcing which greatly determines the price at which we can sell our products.
Our expenses related to the product also determine our profit margin—the cost of goods sold. Before we dive into the actual step-by-step sourcing blueprint, I want to share with you two really important hacks. These are hacks that I’ve learned through experience and both of them are quite contrary to what most people would tell you to do, but they will make all the difference!
HACK #1 – START SMALL AND LEVERAGE A HYBRID MODEL
If you’re starting a new eCommerce business on a silk-string budget, this hack will change everything for you.
So what does this mean?
It means you can actually start selling a new product under your own brand, a private label, for much less than you might think. You can literally start with as little as one unit!
One of the most intimidating things to new sellers of private label products is the minimum order quantity (MOQ)—the belief that you have to buy at least 300 to 500 units of a new product in order to sell. This is simply not true, especially when you leverage it with the next hack.
You can actually buy as little as one, two, three, or four units of a new product. Of course, we recommend you start a little bit higher, like 10 to 25 units, but that’s a great number to start with. You can do this because almost every product can be bought in a generic version.
What I mean by that is there is not any branding on the actual unit. The only reason there is an MOQ is because a factory has to run a production of a product, which would include branding that product with your own symbol or logo or customizing a version for you.
But there’s no need to do this when you’re just starting up. That can come a little later once you’ve established this product and it’s selling well for you.
To start, you can buy any good product that is not branded but is generic.
You will need to find a high-quality version of the product. Again, you can utilize Hack #2 to help you do this. Once you have your hands on a really good, high-quality unit, even if it’s not branded, you can still buy 10 to 25 units and package it in the simplest manner possible to make it your own brand.
One way to do this is to put the product inside a simple bag or box and sticker the package with some information or branding, identifying and marking this product as uniquely yours. All of private labeling is essentially done this way.
Of course, with a full, private-label order, you go further by creating your own packaging in every way and really creating your own version of the product. However, it’s usually as simple as just putting your branding on the product or customizing the colors and materials. This is a scaled-back version of private labeling, but the product is just as good.
The customer cares more about whether the product is high-quality and satisfies their needs. Doing this allows you to get into the game really cheaply—with 10 to 25 units and literally $100 to $200 or $300 as your initial investment.
Then, once you establish sales, you will buy more and you can continue using this methodology.
Eventually, you will fully private-label the product, but only after you establish the sales and this product becomes profitable for you.
HACK #2 – USE A SOURCING AGENT
Here’s a big secret – a sourcing agent will save you money, even if you’re just sourcing one product from China.
Here’s why: If you’re sourcing any product, and we’ll talk about this in the blueprint, you should always collect samples to ensure the quality of the product you’re sourcing is high enough to satisfy your customers.
Instead of asking five different suppliers to ship samples separately, have the sourcing agent collect the samples for you locally in China and then ship them in one package to you wherever you are in the world.
By doing this, you will save as much, if not more, than what you might pay a part-time sourcing agent per month. That alone is reason enough to use a sourcing agent because it not only saves you money, but also time. Plus, the sourcing agent should be able to get better quality samples for you faster.
We use this setup in our business. We have a team of sourcing agents in China now and we started with just one.
7 REASONS TO USE A SOURCING AGENT
- They save you time. In my experience, sourcing is the most time-consuming part of selling physical products online. By being able to delegate the entire process of finding suppliers and getting samples—by having one person take care of that entire process for you, you pave a way to success and scale with eCommerce. The shocking thing is most sellers or eCommerce entrepreneurs never hire a sourcing agent
- They’re inexpensive.
- They will take you to the next level of efficiency and quality.
- They’re quicker.
- They can use the phone.
- They can visit factories.
- They can find suppliers, which will take you much more seriously because you’re actually working through a local agent.
6 ROLES OF A SOURCING AGENT
- To find products. They can do the sourcing research for you
- To negotiate pricing. They speak Chinese and understand the culture so they can negotiate for you, earning you a lot of money.
- To do quality control. It’s very important to inspect the products and facilities to make sure the quality is good.
- To collect samples.
- To take care of shipping and get shipping quotes.
- To find the best prices.
They really are an invaluable member of your team. There is no reason to delay. You can find a sourcing agent part-time right away!
3 OPTIONS ON HOW TO FIND A SOURCING AGENT
Option 1: You can use oDesk, or similar sites like Upwork or Elance, but the rates are going to be high, so I recommend a second option.
Option 2: Go again to a site like Upwork or Elance and hire a person there to place an ad for you in a local newspaper like gamji.com.
Doing this will not cost you more than $20 to $30 and then you will find a sourcing agent to hire part- or full-time for much less that is fully qualified and in China. It’s not going to charge you more than the normal rate in China because you hired them locally, essentially through a newspaper advertisement.
Option 3: Probably the least recommended, but in some cases it would make sense, is to do what is called pirating.
Basically, you hire someone away from a supplier. If you have already worked with a supplier and there’s an agent at that manufacturer who is good, who you have a good relationship with, who communicates well, and you understand them, then you can simply hire that person away from the manufacturer. Offer them a better job.
Again, this is probably the least common way of doing this. But communication is really the key with a sourcing agent. You need someone you can communicate with and who will understand you well. That’s why pirating can be a good option, if you know someone that is really good.
HOW MUCH SHOULD YOU PAY A SOURCING AGENT?
The first sourcing agent you use must speak good English so you can communicate with them properly.
A full-time person in China who speaks English well is only going to cost you $700 to $1000 per month. But you don’t need to pay that much because you most likely don’t need to hire a full-time sourcing agent right away.
You can start with a part-time agent, which will only cost you $100 to $600 per month.
Here’s a big tip: You can split the sourcing agent with someone.
For example, you would pay $250 for your own sourcing agent, which would give you 20 hours per week or 80 hours per month. That sourcing agent can handle three to four new products for you each and every month. A full-time agent can handle six to eight products at a time.
You can see how incredibly powerful even a part-time agent is and how much they can actually do for you.
You can also hire a sourcing agent on a project-by-project basis and pay them even less.
Now, let’s dig into the actual step-by-step sourcing blueprint.
STEP 1 – SOURCING DATA RESEARCH
In this step, we will reach out to and collect some important initial information from multiple different potential suppliers for our product. This will allow us to compare different options and give us a general idea of the most important numbers behind the product we are looking to source.
We will also be reaching out to collect a standard self-data for any product. This process will allow us to quickly get an understanding of the rough costs, lead times, MOQs, and so forth, that we’re looking at for this particular product. It also gets our feet wet, so to speak, and enables us to start the actual process of sourcing.
From this initial data collection phase, we are going to be able to narrow down our potential choices of manufacturers to only a handful, who we then collect samples from. This will then enable us to eventually choose a single supplier.
This is a critical first step.
When reaching out to suppliers, here are four key pieces of information you want to collect:
KEY #1: Ask them to do your private labeling, assuming you want a private label for this product.
KEY #2: Ask them the cost per unit. They may give you the cost for different quantity levels, but try to get a baseline from all the suppliers so you can compare at, let’s say, 500 units.
KEY #3: Ask them what the MOQ is, or minimum order quantity. By the way, Hack #1 will enable you to easily make your MOQ as low as you want.
KEY #4: Ask them about their lead times. Find out how long it will take the manufacturer to ship your product starting from the day you make your deposit until the day the product is ready to be shipped to your warehouse or fulfillment center.
Use these questions to eliminate certain suppliers. You can compare the answers of 10 to 20 different suppliers and quickly see which ones look the most promising, simply based on the data they give you.
You’ll also know which suppliers you can eliminate altogether because they don’t meet one or more of your requirements such as private labeling or offering lead times less than 30 days, etc.
HOW TO COLLECT DATA
There are many options for collecting the data, but I’ll offer you three:
Use a sourcing agent to collect the data for you. It is my number one recommendation, even if you’re just starting out. By doing so, you don’t go through the process of collecting any of this data yourself. Instead, your sourcing agent does all the work for you. This, by far, is the quickest, most efficient, cost-effective, accurate, and reliable way to get this done.
Call the supplier yourself. Choose this option if you’re not using a sourcing agent for some reason.
Email or message through a site like Alibaba. That’s the last option I recommend because it’s the most tedious, inaccurate, and the least likely to prompt a favorable response from the supplier.
HOW TO FIND MANUFACTURERS TO COLLECT DATA FROM IN CHINA
Use a sourcing agent. It’s my number one recommendation. They have the greatest, quickest, most reliable access to sourcing any product you’d like. They have access to directories and plenty of resources in China that you will never be able to leverage on your own. This is a major benefit and will get you to the best manufacturers of the products you’re looking to source.
Use Alibaba. If you want to do this yourself instead of using a sourcing agent for some reason, Alibaba is the biggest online resource for finding manufacturers or any kind of product in China. There are certain products you won’t be able to find, but most every product you can find through Alibaba. I’m personally not a fan of weeding the haystack of Alibaba suppliers, but it can be done. In fact, I’ll give you some best practices now.
Alibaba is a search engine, similar to Amazon, where you can search for any kind of product and you’ll have multiple different suppliers pop up. The key here is to then look at the manufacturers in more detail and see what kind of certifications they have. The great thing about Alibaba is they do a lot of the work for you.
They will certify suppliers, visit the factories, and make sure they’re good, reliable, and trustworthy.
Manufacturers will also be reviewed so you can see the feedback they’ve gotten from their customers over time. This is great and extremely useful. You want to make sure any supplier you work with has at least three years of history. Be fully warned that there are going to be snakes, frauds, and middlemen on Alibaba as well. That’s why certificates and verification that Alibaba provides is extremely useful if you’re going this route alone.
Alibaba’s Escrow service is also excellent protection, especially for your first few orders with a new supplier while you’re building that relationship. That is a great option I highly recommend you utilize if you’re doing this with Alibaba. Also, be aware of the difference between trading companies and manufacturers.
Some of the suppliers in Alibaba are actual manufacturers, meaning they literally create every single element of the product. Others will be trading companies, meaning they buy the products from manufacturers. Then they sell them as the middleman or they buy the parts of the products from different sources and assemble the final product themselves. In either case, manufacturers and trading companies are not setup the same.
Generally speaking, the best quality and the greatest ability for customization happens when you deal directly with the manufacturer. The only problem is they may require a much higher MOQ, be less flexible, and have longer lead times.
Trading companies can be a great option to start with, but you must make sure they are trustworthy, reliable, and actually provide high-quality products. Another good thing about Alibaba is the suppliers often will have quick response times and efficient communication through the direct messaging platform.
Often times, you’ll get a response within 30 to 60 minutes and be able to get samples quickly. Again, utilizing a sourcing agent is much easier, quicker, and more cost-effective.
There are more options than just Alibaba when doing this yourself. You can also use globalsources.com or made-in-china.com. The last thing I want to make you aware of is where the products will usually come from because this can help you narrow down your search and do more reliable and efficient sourcing online. Usually the consumer products come from Yiwu, which offers great quality and is the favorite location of many for sourcing in China. Ningbo also has a lot of consumer products and they usually have cheaper costs, but some of their products are poor quality. Of course, it’s best to get samples before going into mass production.
Electric products are usually made in Shenzhen, which is right next to Hong Kong. Generally speaking, Shenzhen has better quality than any other area in China. Shenzhen is the most modern city in China and has been my go-to source for products, especially since it’s so close to Hong Kong. The clothing products always come from Guangzhou and Dongguan.
Use a sourcing company. They’re efficient and get great results, but they’re more expensive than using your own sourcing agent. They tend to be very organized and can do everything for you, but they may not have your exact process of sourcing down, so it can be a bit frustrating and confusing. They usually have vast experience and a large network of suppliers.
They may even have decades of experience building a network of suppliers, manufacturers, and sources to get exactly what you want, but this usually means your profit margins will be smaller. However, it can be a great way to start with a new product because the speed of implementation and quality may be the highest when you go through a sourcing company.
Attend trade shows. This is not the most direct approach because it goes in the opposite direction of what we usually want to do. Normally, we find an idea of a product through research, then find that physical good and source that exact product, but trade shows are more about going, getting inspiration, and doing research.
You can also meet product suppliers. These are conventions of manufacturers showcasing their products, so you get to see a lot of different products and meet many suppliers, which is good!
You benefit from building relationships in-person. In China, you can go to Canton Fair, which is the biggest in the world. It happens twice a year and lasts three weeks. It’s absolutely huge! In Hong Kong, you could go to the Global Sourcing Fair or HKTDC. Both are held two times per year. There are even great trade shows in other countries like the United States including CES, held once per year, and ATS, held twice per year.
I would recommend going to at least one trade show because it provides great inspiration and ideas to test. You can also go there with certain products in mind and try to find sources. It’s a great way to network and meet like-minded individuals. However, since we typically source data and research online first, this is usually not the go-to approach.
STEP 2 – VETTING FACTORIES
Now that we have some initial suppliers and factories to look at from all the data we collected in the sourcing research step, we are going to be able to filter out some of them based on the data. To do so, it’s best to get the same information from all of them and then compare that information. We will do that by asking them questions.
We can already compare them based on the sourcing data and possibly rule some of them out. Those were our initial four factory vetting questions. Now, we want to ask more questions that can tell us about the relationship you will have with the factory and the overall quality of their products and brand if you choose to work with them.
This is important.
Do not skip this step.
Remember, this can be done by your sourcing agent if you have one.
QUESTIONS TO ASK WHEN VETTING A FACTORY
Question #1: What is the cost per sample?
Question #2: Does your factory make its own packaging or do you have a packaging supplier?
Question #3: Is there a United States patent or a trademark on the product?
Question #4: Who is the main contact or representative at your factory?
Question #5: Where is the factory located and what is the address?
Question #6: Can I visit the factory? (We call this the factory visit test.)
Question #7: Is the factory clean, organized, and in good condition for the employees?
Question #8: Can you send me pictures?
Question #9: How many employees work at your factory?
Question #10: Does your factory perform quality control tests to ensure the quality of your products?
If so, please explain what they are.
Question #11: Who is the person or organization responsible for your quality control?
Question #12: Do you have an English-speaking representative I can talk to directly?
How do you vet these factories based on the answers they give you?
First, they must respond. Some of them will not actually respond to all of your questions and that’s not a good sign. You want them to take the time to respond. As I just walked you through, there are some answers, or lack thereof, that would basically rule the factory out immediately.
Now, we have more reasons to rule some of these factories out. We have more information to compare them to each other. Their level of communication, responsiveness, and willingness to answer these questions is very important.
This is a strong indication of what it will be like to work with them and how reliable they will be. Those things, along with actual answers they give you, should enable you to rule out probably half of the factories you’re considering. Then you can take the most promising options into the next step of sourcing.
STEP 3 – COLLECTING SAMPLES
Now that we’ve narrowed our list of potential suppliers down even further, it’s time to start collecting samples. Our first step is to negotiate on product sample costs. There are a lot of things you can do to get them cheaper. Most factories have high sample fees because people don’t end up buying from them, so they don’t want people wasting their time and just trying to get products for cheap. They want to make sure you’re serious.
This is why there are some barriers of entry that suppliers sometimes put up when it comes to samples.
*PRO TIP – This is one area where having a sourcing agent is very beneficial. Not only are suppliers going to take you more seriously than if you were coming from Alibaba, but they’ll also be able to save you time and money collecting the samples and shipping them to you in one package versus collecting multiple international deliveries. Plus, the sourcing agent may be able to rule some of the samples out before they even ship them to you. Make sure the sourcing agent labels each product with a factory label before sending the samples.
4 METHODS TO GET A LOWER SAMPLE PRICE
#1 Be transparent. Tell them you’re working with a budget and you don’t want to spend too much on samples.
#2 Stock on hand instead of a custom sample. This will be cheaper, so make sure you ask for a sample that is an on-hand sample instead of a custom sample. You don’t need that. You just want to see samples that are already made.
#3 Put the cost of the sample toward your order. This won’t matter upfront, but almost every factory will agree to this and it will save you the cost of the sample in the end.
#4 Use a sourcing agent. Again, having them collect samples on your behalf, instead of you doing it yourself from Alibaba, greatly increases the odds of the supplier lowering or even completely waving sample fees.
STEP 4 – TESTING AND COMPARING SAMPLES
You must become an expert on the products you’re selling. You want to create and sell the best products. In order to create the products, you must intimately know what is good and what is not. This will enable you to innovate long-term and help you with customer service and marketing.
How do you become more knowledgeable before sourcing the first product? You can buy your competitors products. What do you and don’t you like about their products?
Read your competitor’s reviews. What do and don’t others like? Then test your competitor’s products and the samples you receive.
For example, if you collect a bunch of competitor’s products, look at those and look at the quality. Also, look at the samples you receive and their quality. How do they compare? That’s really important to test and verify.
First, you or your sourcing agent will need to collect all the samples from your top factory prospects. Once you receive the samples, you will test and compare the different product samples for quality, durability, and accuracy.
Compare the pros and cons of each sample. You may want to tweak your favorite version so it has all the pros of the other versions in addition to its own. Sometimes this doesn’t even cost extra. Remember, these are just samples.
Then, based on these samples, it’s time to choose the factory you want to approach with an order. I recommend just choosing one at this stage to take into the next step. You can choose two or three if you want.
Choose the best product based on quality, price, MOQ, lead time, and other business factors we explored in the factory vetting step, along with sample quality.
You have to balance price and quality. Profit margins are so important, but so is product quality. At this stage, it’s likely, but still not 100% certain you’ll end up ordering from this manufacturer.
STEP 5 – FACTORY INSPECTION
This is a very important step, especially when ordering large quantities. You don’t necessarily have to do this on your first order if you’re dealing with a verified, reputable supplier, utilizing Hack #1, and doing a hybrid, private-label version, but this is definitely recommended.
Just as in every step, you can have a sourcing agent do this for you or you can do it yourself. You can also use an inspection service. We recommend one called V-trust.com.
We actually like to combine this with the pricing negotiation step. For us, this works well because we have sourcing agents do both. They will go to the factory and do the inspection and negotiation at the same time.
WHY ARE FACTORY INSPECTIONS IMPORTANT?
It shows you’re serious. This is important to the supplier and will give you leverage when it comes to negotiating. By going to the factory for an inspection, you’ll immediately have more pull when sitting down to negotiate the order.
You’ll also get to see the factory conditions, which is important, especially if you care about human rights and people working in a good environment. You can see what it’s like so you don’t do a business with a factory that doesn’t have good conditions for their employees, which does happen from time to time in China, but less than it used to. You get to witness and ask about their manufacturing processes. It builds your relationship and trust.
You can go there yourself, have a sourcing agent do it, or simply do it through an online platform like Skype. You can have them walk around and show you the factory through Skype. If you send a sourcing agent, they can inform you with pictures and details of the processes. If you get a chance though, doing it yourself is a great experience!
I highly encourage you to visit at least your top suppliers personally because it will build a relationship and enable you to get a better feel for the way they operate and what you’re actually buying.
If the factory doesn’t allow you to visit and do a factory inspection it’s a big red flag and you should immediately discontinue the possibility of working with that supplier. If they don’t allow you to visit the factory, they most likely have something to hide and you should immediately stop considering the supplier and find another one to consider.
You want to see at least normal conditions for the workers. Take note of their manufacturing line processes. Look at other products as they come off the manufacturing line to make sure the quality is good. Actually visiting and seeing the factory in action will tell you a lot about what the factory is really like.
Here’s a quick note on location: China is huge, so where the factory is located within China can affect a number of things. For example, it will affect the cost of doing the inspection because you will need to send the sourcing agent to the factory.
It also impacts the cost of shipping the products. It’s best to get both your product and packaging made in the same city, even if they’re from different sources. It’s going to save you in shipping and lead times. Make sure you specifically ask for the location of the factory. In Alibaba, for example, a manufacturer may list the address of their headquarters, which could be in Hong Kong or Shenzhen, but the factory is not, so make sure you ask!
STEP 6 – FORM ORDERS | DETAILS AND LOGISTICS
Now you need to decide on the details and logistics of the order. Here are some questions to ask yourself:
Should we source our own packaging from a specific packaging factory or utilize the packaging the product factory offers?
Will they manufacture and handle shipping or will someone else?
If we’re bundling with another product, where is that coming from?
Will this manufacturer be the one to put all the parts together?
You need to fully map out the logistics and details of your order. At this point in sourcing, you need to decide and be clear on these details and logistics before you sit down to negotiate the order.
STEP 7 – NEGOTIATING PRICING AND QUANTITIES
It’s a very smart, natural, and expected part of the sourcing process in China to negotiate pricing and quantities with your supplier.
WHAT TO NEGOTIATE
Minimum order quantity (MOQ) and price breaks. This will greatly affect your initial total order cost. Sometimes it’s more about getting more products for the same price than fewer products for a lower price.
Keep in mind, it generally costs the manufacturer a certain amount just to run the production line, so if you’re doing a full, private-label order of 500 units, it may cost the same as 300 units. Decreases in price with higher quantities are called price breaks. For example, sometimes you can negotiate the same pricing for 500 units as you can for 1000. Occasionally you can negotiate an even lower MOQ, but that is often hard to do.
In that case, remember Hack #1. What you can do is buy a bunch of samples or unbranded inventory. Most suppliers will have this in stock. Immediately, you can start with 20-25 units packaged in a very simple white box or plastic bag with a sticker on it and the lead time could be as short as two to five business days.
That’s another option and something you can definitely do when you’re starting out, but for more serious, private-label orders, we continue to the next step.
Cost per unit. Ask them to lower the price on the first order so you can test the quality and the market. Tell them this will be the start of a long-term relationship if all goes well and that you’ll order a lot in the future if they’re flexible on this first order.
Quality-variable pricing. The Chinese will assume you want the lowest-quality product to get the best pricing. That’s greatly misunderstood by most Westerners sourcing in China. Be aware of this. This means you must specify that you want the best quality or one of the best qualities available for the product. Most factories can make multiple different levels of quality for each product. Of course, each comes at a different price point.
You can look at and evaluate different quality levels in the factory. I recommend choosing the best or one of the best qualities possible, because you’re most likely selling to a market that will expect a good quality product. That’s how you build customers relationships, a successful brand, and brand loyalty.
Mold fees. This refers to creating a new mold for the product. That’s not really what private labeling is about. This usually only applies to customized products, but sometimes this can come up for non-customized products.
If you see them charging you a mold fee, ask for a generic, previously-made, non-trademarked, unpatented mold.
Certification fees. Make sure you understand exactly what you need to sell your product. Do you need to license, insure, or certify your product in some way? Will Amazon require proof of these things before allowing you to sell the product? If so, make sure you understand whether or not the manufacturer has and can provide those.
If they can, is it included in the price? Make sure you ask. If it’s not, you can negotiate on this now and get them to include it in the price before you place the order. It is much more effective to do it now rather than later.
Sourcing packaging from a third party. If you will not be using the packaging they offer with the product, make sure you get the price down due to the decreased costs for the manufacturer. Having packaging made separately can actually save you money because third party packaging usually will be cheaper and better quality.
If you use a third-party packaging factory, make sure you clarify how and when in the process the products will be put in the packaging. If you want the manufacturer to do this, they may charge you a small fee.
After you’ve done all of these, you should have made a much better deal and can move forward to the next step – the pro forma invoice or PI.
What is a pro forma invoice? A pro forma invoice is a document that states a commitment on the part of the seller to deliver the products or services, as notified to the buyer, for a specific price. It is thus not a true invoice. It is more like an order ticket. PI’s are extremely important, they’re not just formalities. Almost every single new person selling and sourcing products from China messes this up and doesn’t understand the importance of this step.
You want to double- and triple-check the pro forma invoice for accuracy because it tells those making your product what to create. It’s like an order ticket at a restaurant. If it does not detail exactly what you want, there’s a good chance you will not get the product you expect.
The Chinese have a tendency to make a lot of mistakes here, so you want to make sure everything is correct such as measurements, add-ons, product name, materials, and so forth, before placing a deposit. Be sure it includes every single detail that is important to you and ask the supplier to amend the invoice to meet your requirements.
Also, calculate the math on the pro forma invoice to ensure the price is correct. Double check both company’s info on the PI as well because you may need to provide this to Amazon.
Doing all this greatly increases your chances of getting exactly what you want. In case you don’t, you can easily refer to the pro forma invoice and request the product be fixed or given to you for free. If the supplier messes up and doesn’t produce what’s in the invoice, they should fix it for you.
If you don’t have it outlined in the pro forma invoice, it’s impossible for you to prove the manufacturer messed up and you won’t be able to get them to amend the invoice or fix their mistakes. You want the invoice to be accurate.
STEP 8 – MAKE DEPOSIT
Once you have made sure your pro forma invoice is correct, it’s time to make a deposit for your order to start production. Normally, this is 30% of the total order amount. This is not negotiable as it serves as the factory’s guarantee.
Even when the order is very small, a deposit is not accepted. Often times, on smaller orders, the payment can be done via PayPal, but usually it will be done through a bank or wire transfer. Local or Western suppliers often accept credit cards as well, but the Chinese usually do not. It can be trickier to pay your Chinese supplier than a domestic one, but if you can send a wire transfer, you should be able to pay everyone.
You can also use an Escrow service, such as the one Alibaba provides, for protection.
5 PAYMENT OPTIONS IN CHINA
Option #1 – International wire transfer. It’s secure, but you must trust the supplier. There’s a flat fee and it takes three to five business days for processing.
Option #2 – PayPal. It’s very secure and they have instant processing, but fees may vary and sometimes it’s not available. Especially for large orders, it’s not really a good option.
Option #3 – Western Union. Processing takes less than 24 hours and it’s easy, but it’s not the most secure. Fees vary and it’s inconvenient because you usually need to do it in person and it’s inconvenient for suppliers as well.
Option #4 – Alibaba Escrow Service. It’s the most secure, but also the most costly. It’s done in milestone-based payments and offers support and the greatest protection.
Option #5 – HSBC. It is the most commonly used bank in Hong Kong. Many Chinese companies have bank accounts in Hong Kong. If you have one too, that’s very convenient for trading in China. You can make a local transfer because it’s much faster and more cost-effective than an international wire transfer.
STEP 9 – PRODUCTION
Once your product goes into production, there’s not much more for you to do. You or your sourcing agent can check in from time to time, but you also need to trust the factory and let them do their thing. That being said, you must be truly diligent when it comes to inspecting the quality of your manufactured units.
It’s a good idea to have a sourcing agent visit the factory once during the manufacturing process, especially during the first production run of any new product, to inspect how the product is actually being made and the quality.
Trust me, it’s a lot better to spot issues early on in the manufacturing process rather than later, after you’ve sold the units to the customers. That’s the worst time to discover defects. The later you discover flaws, defects, and other issues, the larger the problem will be for you.
STEP 10 – QUALITY INSPECTION AND PAYMENT
You should always inspect your units for quality before selling. It’s not very common, but errors in the manufacturing process can certainly happen and are to be expected from time to time. There are a few things worse than selling bad products online. For example, one production run with an unforgivable defect can kill your product, especially on a site like Amazon, due to all the negative feedback and reviews you will get.
You must inspect the units for quality and fix any major issues before selling. Thankfully, you don’t have to inspect every single product. As a general rule of thumb, inspecting about 10% of the products is enough. It will give you a good sample size to base manufacturing quality on. You must choose products at random from the start, middle, and end of the manufacturing process. If you see issues in that 10% of units, then those issues are going to be present in the remainder of the order.
If you don’t see any issues in the 10%, chances are, there won’t be any issues in the remainder of the units either. Again, your sourcing agent can do this for you.
With quality inspection, you want to focus on the details. You want to inspect every minor thing. This is your last chance to ensure you are getting what you paid for. Don’t accept anything less than what you agreed to and remember what you put in the pro forma invoice. Look for quality in finished form – any damage, errors, typos, dirt, scratches, etc. As long as you have the pro forma invoice done correctly you can use it as your tool in case something is not as expected. You can show it to them and they should fix it.
Unless you completely trust the sourcing agent or factory, also inspect some units yourself. If you’re working with a sourcing agent, have them send you pictures or videos, or better yet, a couple units so you can personally look at them before accepting the order. If your sourcing agent thinks the quality is good across the board, have them ship some of the products to you again. That way, you can see if their definition of “good products” matches yours. This is important to understand, especially when working with a new sourcing agent.
Once you’ve inspected the products for quality and are satisfied and confident, it’s time to make the final payment to the supplier and ship the products out.
STEP 11 – SHIPPING
Finally, let’s cover shipping your products from China. The key is to know your options well. Shipping is so important because it greatly affects your profit margin. It’s also important to know how well you’re able to handle replenishing stock to avoid costly shipping issues.
SHIPPING BY AIR
The first option you have is shipping from China by air. This is definitely the best option for your first shipment and also for beginners. Shipping by air is categorized two ways – fast, or express shipping, which is expensive, or slow, the standard option, which is cheaper.
With both options, you can utilize the same companies such as DHL, FedEx, or UPS and choose either slow shipping, which usually takes four to seven days, or fast shipping, which usually takes three to five days. However, the fast option is usually twice as expensive, so it only makes sense to use the express option in very special, super urgent situations.
PROCESS FOR SHIPPING BY AIR
The factory ships your products to the freight service.
The products arrive at the sorting facility in the country of departure.
The shipment gets processed and sent to the destination country.
The shipment arrives at the sorting facility in the destination country.
The shipment moves via truck, train, or airplane to the final destination.
The fast option follows all of these steps except the first. Instead, the freight service goes to your factory themselves to pick up the goods. This saves two to three days. You also get the highest possible priority handling with the express option.
ACTION STEPS FOR SHIPPING BY AIR
STEP #1: Compare pricing between different freight services. Also, ask the factory for a quote. Chinese-based accounts may have better pricing, so if the factory is shipping a lot of units internationally, they may have good pricing with their carrier of choice. You can also use a freight forwarder, but they’re not really needed unless you’re shipping by sea.
STEP #2: Understand customs fees. Do the quotes include customs fees in the country of destination? This is important because they can be expensive. Is there a threshold for customs fees, for example, $1000 or $5000? Does this mean I should break my shipment up to avoid these fees?
STEP #3: Decide on shipping. Pay and arrange for pickup with shipping instructions.
STEP #4: Track shipment. Stay on top of the shipment. If you spot delays, then reach out.
STEP #5: Customs clearance. You must pay the customs fees yourself for packages to clear if the freight service didn’t include it in their quote.
STEP #6: Confirmation of delivery. If you’re selling through Amazon FBA, make sure the packages get delivered to them properly and the inventory gets put into stock correctly. Do the same with any warehouse you’re using.
SHIPPING BY SEA
Overall, shipping by sea is actually a lot easier and more straightforward than most people think. It takes a bit more work to set up than shipping by air, but it’s very worth it in the long run for any product that is selling well. It’s a lot slower so you need to stock up more and the average shipping time is about 20 days, but the prices are much cheaper, often times twice as cheap or more. Using a freight forwarder is the key with shipping by sea.
A great freight forwarder I would recommend is Shapiro.com. It’s much easier than trying to arrange it all yourself. It takes longer and there’s more hassle to set this up with paperwork and fees, but again, the freight forwarder can do a lot of that for you or even the sourcing agent. Shipping by sea doesn’t have to be difficult.
Just make sure you get the help and support you need. I would discourage you from navigating this shipping method by yourself. You may increase your profit margins by more than 25% when you switch to shipping by sea, so it’s very worth it. Shipping by sea is an essential part of every product’s life cycle. As it grows, you work to make it more profitable.
PROCESS FOR SHIPPING BY SEA
STEP #1: The factory ships your products to the port of shipment.
STEP #2: The products get placed into containers.
STEP #3: The container gets filled with other products and goods. This is called Less than Container Load (LCL) and takes an additional two to five days.
STEP #4: Once the container is full, it gets loaded onto the ship.
STEP #5: The ship travels to the destination port.
STEP #6: The ship unloads the cargo and then each container is unloaded, which takes days.
STEP #7: The products are transferred to a truck or train and shipped to the destination.
STEP #8: The products get delivered to their final destination. This could be Amazon FBA or a different warehouse.
ACTION STEPS FOR SHIPPING BY SEA
Compare pricing between different freight forwarders. I recommend working with Western-based companies.
Understand customs fees. Do the quotes include customs fees in the country of destination? You can expect processing fees, tariffs, and other possible fees.
Decide on shipping. Pay and arrange for pickup with shipping instructions.
Track shipment. Stay on top of the shipment. If you spot delays, reach out.
Customs clearance. You must pay the customs fees yourself for packages to clear if the freight forwarder didn’t include it in their quote.
Confirmation of delivery. Make sure the packages get delivered to Amazon, or any other warehouse properly, and inventory gets put into stock correctly.
Finally, I have a quick note on communicating about shipping with your Chinese manufacturer. It is very important you do this to avoid any misunderstandings and issues. After you have chosen your shipment method, create the shipment inside Amazon Seller Central, if you’re shipping to Amazon, and prepare the labels Amazon provides for you for your supplier.
If you have multiple destinations, make sure you organize everything so you indicate shipment number one, destination number one, number of boxes, number of units, etc. Double- and triple-check all the information.
Everything must be correct.
Make sure you’re incredibly clear when it comes to the shipping instructions and how to ship your products with your supplier. Once again, it is extremely useful and beneficial to be working with a sourcing agent at this stage. This can help make sure this is all clear and done correctly.
I hope you enjoyed this definitive guide on how to source from China and this step-by-step, in-detail process for sourcing and shipping products successfully from China.