It’s been a while since I’ve written about product sourcing, but I’ve gotten several questions lately on how to deal with new vendors so I thought I’d devote another post about the topic. Picture this scenario… You’ve put together a list of potential vendors that you want to work with either from a tradeshow or from a manufacturer’s distributor list. You’ve never purchased in bulk before. You don’t even have your online storefront up yet and as a result you are extremely apprehensive about contacting your vendors for the very first time.

Photo By Youssef Hanna

Don’t be shy! Unfortunately, you can never be sure what to expect when calling a vendor for the first time. Are your order quantities going to be too small? Are their prices going to be too high? Are they going to give you the time of day?

The most important thing is to be prepared and to speak with confidence. Your vendors are busy people and the worst thing that you can possibly do is to act clueless on the phone. Here are a list of questions and strategies when dealing with vendors for the first time even if you don’t have a website.

Practice On Some Vendors You Don’t Care About

As you go down your list of vendors, you need to realize that the majority of these vendors are not going to be working with you for some reason or another. And before you start contacting them, you need to prioritize your list. Which vendors do you absolutely want to land? Which ones do you care less about?

Especially if this is your first time sourcing product, you should do some practice runs on vendors that you don’t really care about until you have refined your pitch. I remember sounding like a bumbling idiot the first time I contacted one of our Asian vendors and that was over email! I had no idea what the proper procedure was nor did I even know how to make a payment overseas. I was also unfamiliar with the terminology when it came to shipping and importing goods from abroad.

In any case, it took me a few iterations and a few lost vendors before I fully understood the lingo. In my case, my ignorance drove away a few key vendors early on that I really wanted to work with. Don’t make that same mistake!

What Questions Should I Ask?

Before you begin refining your pitch, you should make sure that you know ahead of time which products you want to carry as well as all of the details and configurations the product comes in. Ideally, you want to come across as someone who knows what they want already and are ready to buy if the vendor is a good fit. The more prepared you are, the more likely that a vendor will take you seriously and be responsive.

Realistically, the most important questions that you need to ask are the following.

• What Is The Price? – Wholesale vendors are never going to publish their prices. Instead, they usually have different pricing structures depending on the client. While my experience lies primarily with Asian vendors, I’ve found that prices tend to be a bit higher when you place your first order. But over time as you establish yourself as a reliable client, you can start asking for price breaks on your highest volume products.
• What Are The Lead Times? – I remember early on, I made the boneheaded mistake of placing an order without clarifying what the lead times were. When the vendor said 2-4, I assumed that he meant 2-4 days. In reality though, he meant 2-4 months! Depending on the volumes that you are interested in, make sure that you find out how quickly the vendor can actually ship you product once you place the order.
• What Is The Minimum Purchase? – Once of my most famous blunders was placing an order for 100 handkerchiefs when that was nowhere near what the minimum order was. When I said 100, the vendor assumed 100 dozen! Needless to say that I was surprised when I received the invoice. Get this out of the way first, otherwise finding out the price is pointless.
• How Do You Ship and What Are The Payment Terms? – Most vendors will offer both air and sea delivery depending on the quantity. Make sure you understand all of the shipping and payment lingo before you contact your first vendor especially if the vendor is overseas. In addition, make sure that the payment terms are what you are expecting. Some Asian vendors require some amount of payment up front whereas others will let you pay once the order has shipped

People Skills 101

Whenever I contact any vendor for the first time, I try and gauge their personality and stress level right away. In fact, I usually allow them to do most of the talking and adjust my level of conversation accordingly. For example, if the vendor seems in hurry, then I get to the point right away. If the vendor wants to shoot the breeze, then I make small talk. Ultimately, you are going to be establishing a long term working relationship with your vendors so you need to be tactful and respectful.

These days, our relationship with our vendors is so good that they are willing to ship us thousands of dollars worth of product in advance without us even paying a deposit for it up front. Likewise, our vendors are less likely to ship us shoddy product now that they understand what our product standards are.

If all goes well, your vendor won’t even care if you have a website or an established business. As long as you can pay for your products and you are dependable, that is all the vendor cares about.

The 5 steps outlined in my guide on How Create A Profitable Online Store do not have to be completed in order. Some people like to work on getting their website up first. Some people choose to take care of all the legal issues ahead of time. And some people try to nail down their product sourcing strategy before doing anything else.

What usually ends up happening though is that most people save the product sourcing problem for last because it requires human interaction and an active effort to develop business relationships. Recently, I received this email from one of my readers who was a bit apprehensive about contacting their first vendor.

Photo by Star5112

Hi,
Just want to say thanks for the extensive information you provide on your site. I have found it quite valuable and encouraging.

I’m just starting out with my new venture and was hoping you could help? I have decided on the kind of product I would like to work with but I’ve come to a grinding halt at the thought of contacting my supplier. The kind of things that run through my mind are:
1. How do I approach my supplier e.g. what kind opening letter/email should I write?
2. Should I have decided on a company name and have my website up and running before I make contact with my supplier?
3. How do I deal with the question – How long have you been in business for?

So, I was hoping you could shed some light on the above and whether you have any samples of letters/emails you may have used in the begging when first making contact with your potential new supplier?

Be Up Front And Honest

The first point I want to emphasize is that your relationship with your vendor is going to be based on mutual trust and honestly so it is important not to exaggerate your current state of affairs. If you don’t have a website up yet, it’s not a big deal. If you haven’t been in business that long, don’t sweat it. Every successful business has to start from somewhere.

The important thing to realize is that there are a wide variety of vendors who cater to different classes of customers. And it’s essential to figure out if you and your vendor are a good match up front so that you don’t waste any time. For example for our wedding linens store, we are still considered a small fry when it comes to our purchasing volume so it wouldn’t make sense for us to contact a large linen manufacturer directly.

When I contact a vendor for the first time, I always prefer contacting them by phone rather than email. If possible, I try to arrange a face to face meeting, but of course this isn’t always possible. After the initial phone conversation, I always follow up with an email.

In general, I don’t use standard form letters because I purposely write my correspondence in a more personal tone based on elements derived from the initial phone conversation. Remember, you are dealing with real people here and you are trying to develop a relationship. I try to treat all of my vendors like I would treat an old friend or coworker.

Make An Educated Guess About Your Volumes

Assuming that you’ve already determined that the vendor you are contacting carries items that you would like to sell, I usually try to address the minimum purchase or volume question first.

Before you contact your vendor, you should already have an idea of how much you are willing to buy and how often. While this is a difficult question to answer if you don’t have any customers, the reality is that you need to make an educated guess and not be wishy washy about it. Make sure you get this out of the way first.

One time my wife and I spent a few hours talking to vendor only to discover at the end that their minimum purchase was something like 50k worth of merchandise. There are different vendors and distributors that deal with different classes of customers. Make sure that you are dealing with the right one that fits your business.

Once you’ve determined that your purchasing power is a match, the next question to ask is how soon the items can be sent and how they are shipped. If you are looking to carry your own inventory, you should ask about the lead times. If you are dropshipping, you should ask about how soon the products are shipped once an order is placed. You should bring up the payment terms as well.

Here are some other questions we like to ask. Depending on what you are trying to sell, you probably need to address more specific issues related to your niche.

• How long have you been in business?
• How large is your facility?
• What products do you specialize in?
• Who are some of your existing customers?
• How do you deal with product quality issues? Is there an easy way to return defective product?
• Can you provide product pictures?
• Can you provide samples?
• How do you prefer to communicate—phone, email etc…
• How easy is it to contact you? Do you return phone calls and emails promptly?
• Are you willing to do custom manufacturing of designs given sufficient quantities?

Since we deal primarily with overseas vendors, we usually have to pay a small upfront fee to cover the cost of materials and then pay the remaining balance once our products are ready to ship. Our lead times are typically 2-4 months.

Have Your Business License Ready

If you are dealing with vendors in the US, you may be asked for your business license. Having your business license ready to go allows you to purchase your supplies tax free. It also demonstrates to your vendor that you actually have or are trying to start a real business.

If you would rather not deal with any of the legal stuff first, that is understandable too. But just keep in mind that you will need to get your business license eventually and it usually costs under 100 dollars to obtain. Incidentally, if you are dealing with foreign vendors or suppliers, showing them that you have a business license isn’t necessary.

Do I Need A Website First?

There’s no real point in throwing up a website if it’s not ready. If you tell your vendor about your website and it’s empty or incomplete, then they may not take you seriously.

Once again, it’s best to be upfront and honest. You don’t necessarily have to say that you are just starting out. But it’s important to convey that you would like to feature their products for your business. You can always throw up a website later.

Vendors Are Just Regular People

If you feel intimidated by contacting your vendors, you need to remember that they are just people running a business and that they are in the same boat as you. It all boils down to establishing a good business relationship and finding the right fit. If a vendor is rude or doesn’t give you the time of day, then they are not the right fit for your small business.

Sure you can pretend to be larger than you are to get your foot in the door but the truth will come out eventually when you can’t afford the minimum buy. I can guarantee that once you find the right vendor, you will not feel intimidated at all.

As part of running our online store, we get requests from businesses all of the time that want to carry or purchase our items wholesale or in bulk. Some of these people greatly exaggerate their volumes and some of them pretend to be much larger than they really are to get discounts. In almost all cases, we do our due diligence and find out the truth one way or another.

The bottom line is that I’d much rather work with someone who is upfront and straightforward. You are trying to build a business relationship here, not just buy products. You need to know that you can depend on your vendor to deliver and they need to know that you will pay on time. The rest will work itself out.

Sorting Out The Various Vendors

Initially, my wife and I found it a major pain to find vendors who were willing to ship in the low volumes that we were comfortable with when we first started out. And we wasted a bunch of time cold calling vendors and sorting them out through trial and error.

If you ever find yourself getting fed up with the whole product sourcing process, keep in mind that there are services like Worldwide Brands that can save you time by sorting and categorizing a large database of vendors for you. You still have to develop the necessary business relationships but at least you won’t waste time contacting vendors who are out of your league. Whatever happens, don’t be intimidated. Rest assured that there exists a vendor out there that will fit your business needs.

Recently, one of my readers asked for some details involving importing goods, dealing with customs and paying importation taxes. The process may seem complicated at first but isn’t really that bad once you’ve gone through the process once.

Importing your goods from overseas is the best way to obtain quality products at rock bottom prices. But as with all good things, there are several logistical issues you have to work out in order to be successful.

In this article, I’ll try to provide a brief overview of what to expect when importing goods from overseas along with some details and tips on how to get your goods shipped directly to your place of business.

Photo by Ronnie44052

What To Expect When Importing

• Long Lead Times – Most overseas vendors won’t even begin making your products until you actually place an order and put down a small down payment to cover the cost of materials. Depending on the nature of your items, expect to wait anywhere from one to four months to get your products manufactured. Very rarely will any vendor actually carry any significant inventory so you must plan ahead. When we order the linens for our online store, the lead times are typically 3 months long so we really have to plan ahead and anticipate demand.
• A Hefty Minimum Order – If you are ordering products to be manufactured overseas, expect to place a pretty large minimum order. Every manufacturer will have their own minimums but don’t be embarrassed to ask before ordering. If you are just starting out, take whatever you consider a large order and multiply that number by 10.
• Payment Terms – Most if not all manufacturers expect to be paid by wire transfer. Usually, you have to put down a certain amount of money upfront to cover the initial costs and then pay the balance once the items are ready to be shipped. There are escrow services available to handle payment issues, but in general, transactions go much faster when there’s mutual trust between you and your vendor. Of course, you’ll have to establish this trust over time.
• Quality control – Quality will be an issue in the beginning. In general, it will take several iterations in order for you to get your products exactly the way you want them.
• Language Barriers – Many vendors in Asia will not speak English very well. But as long as you keep your communication along the lines of email, things will go much smoother. Most vendors are able to read English much better than they can understand the spoken language.

Preparing For Your Shipment

So you’ve ordered your products and they are finally ready to be shipped to you. What now? There are two main ways to get your goods into your home country, by air and by sea.

But before you initiate your shipments, make sure you ask for the following documents from your vendor. These will be required in order to clear customs.

• A Commercial Invoice – The declared value of the items
• A Packing List – What you are importing
• A Detail Sheet – Outlines how the products are manufactured so customs can determine the duty classification
• Bill of Lading

Shipping By Air

Shipping your items by air is by far the easiest option but also the most expensive. Expect to pay between 5-6x more to ship by air versus shipping by sea.

Personally, we use DHL for all of our international air shipments. Our vendors all have accounts with DHL and shipping with them is a breeze because they take care of everything.

Basically, the vendor provides DHL with all of the materials mentioned above and then DHL will transport all of your goods directly to the address that you specify. If this is your first time importing goods from overseas, you will be contacted by customs to provide your social security card or a company id number. Just have this information handy once your goods have shipped and you are all set.

DHL will also send you a bill so that you can pay any and all duties associated with your imported goods.

Shipping By Sea

Shipping by sea is a much bigger headache but totally worth it if you are importing a large volume of goods. As mentioned before you can easily save between 5-6x off of shipping by air.

The key to accepting shipments by sea is to hire a good customs agent. This is absolutely required especially if this is your first time importing by sea. Do not try and do things on your own unless you know exactly what you are doing.

This is what the customs agent will take care of for you.

• Customs Documentation – They will take care of any and all documentation required in the entire process
• Customs Entry – They will take care of getting your goods from the port directly to your office
• Customs Duty – They will take care of calculating and billing you for any duties associated with your goods.
• Customs Single Entry Bond – You are required to buy a bond that acts as insurance with Customs in the event you should default on the customs duties. Your customs agent will take care of this for you .

Of course all of these services come at a cost. For our last shipment, we paid over 300 dollars to our agent but it was worth every penny. We got our goods through customs swiftly and without hassle.

To give you an idea of the savings, our last shipment would have cost 1600 dollars by air, but by sea it only cost us 250 + 300 = 550 dollars. Overall, we saved about 3x. The tradeoff was that it took over 3 weeks to receive our shipment as opposed 4 days by air.

Do you have additional questions? Feel free to drop me a line or check out some of my other articles on product sourcing.

• Finding Products To Sell

Lately, a good number of phone calls that we’ve been receiving have been from customers asking whether or not we sell our products wholesale. I always tell them no, but that we can provide attractive discounts for bulk purchases. More often than not, these customers hear the words “no wholesale” and usually just hang up.

What these customers don’t realize is that the discounts we offer are competitive with many of the wholesalers in the US. This makes me wonder what is going on in the minds of some of these customers. Do they think that wholesale is synonymous with lowest price?

Photo By El Isma

I’d be willing to bet that the majority of people out there believe that buying “wholesale” magically means that they can sell their products lower than anyone else. They probably think that obtaining wholesale pricing means that they can undercut the entire market and make millions.

The truth is that the term “wholesale” is just a bunch of BS. Admittedly though, the word exudes cheapness which is why most people fall into the wholesale trap. Well here’s a dose of reality. Wholesale pricing does not guarantee profit. Here are some things to keep in mind.

You Are Not The Only One

If you were able to find your wholesaler easily, chances are a bunch of other people have as well. Even if you receive attractive prices for the products you want to sell compared to MSRP, the low barriers to entry will lead to severe pricing pressure in the marketplace.

In addition, pricing for wholesale purchases are usually tiered based on quantity. When you are just starting out, guess what? You aren’t going to be buying enough to get beyond the first tier so you can forget about getting better pricing than your more established competitors.

Wholesale Prices Aren’t Always The Lowest

When my wife and I were shopping for vendors for our online store, every single person we talked to claimed to a be a wholesaler. But the price ranges were all across the board. Believe it or not, some of these wholesalers had prices that were more expensive than if I just went to Walmart.

How can that be the case? Shouldn’t wholesalers offer the most competitive prices? The fact is there are many retailers out there who offer only a few products, buy in extreme bulk and concentrate on volume. In many cases, wholesalers are just small businesses that don’t have the capital to purchase large enough quantities to get the best pricing across the board.

The reality is that anyone out there can call themselves a wholesaler as long as they do the paperwork. There aren’t any guidelines or certifications required so the term “wholesale” can mean a huge range of prices.

Take The Road Less Traveled

If everyone can obtain “wholesale” pricing, things look pretty bleak in terms of starting your own online retail business right? This is absolutely true if you choose to sell easily obtainable or highly competitive products.

For this exact reason, I would never sell electronic goods. Not only is this market extremely competitive, but your products have a time element involved as well. If your electronics go obsolete, you may never be able to liquidate your inventory.

In highly competitive markets, your products are susceptible to price erosion as well. Since you’re probably getting similar pricing as everyone else for identical products, a price war is likely to erupt which will erode your margins.

Moral of the story: Pick the market less traveled. Choose a small niche and sell products that are not readily available. In a previous article entitled “How To Find Vendors For Your Online Store“, I recommend importing products from outside the country to obtain unique products at superior prices. If you can find products that aren’t readily available in your home country, you should have no problems making a decent profit.

It’s Not Always About The Lowest Price

Let’s face it. No matter which market you choose to pursue, there are always going to be competitors. If there aren’t any, then chances are your market isn’t even worth pursuing. Most people who want to open a store (myself included) often balk during the research phase because they do a Google search only to find several competitors already in their market space.

Often times, some of these competitors offer rock bottom pricing making you second guess whether you can make a decent profit. The reality is that there’s more to the success of your store than just the lowest price. It all starts by establishing your unique selling proposition. What makes your store special? How can you set yourself apart from the rest?

Our wedding linens store offers similar products to over a dozen other websites and we charge more money for some of these products. And guess what? The stuff still sells. Not everyone is going to make purchasing decisions strictly on price. If the market you have selected is large enough, you will still make sales if you can make your business stand out. With our store, we pride ourselves on our customer service and the useful information we provide on our website.

Do you offer superior customer service? Do you offer higher quality items? Don’t hesitate just because you see a bunch of lowball competitors. If you think you can provide value, your business idea may still be a viable one.

Can You Face The Big Boys?

It can be extremely frustrating to go up against large retail giants, so don’t. Don’t go head to head against the behemoths because you will definitely lose. Instead, offer items that aren’t covered by the large retailers. Large companies have to determine whether it’s worth it to carry a certain product and factor in all of the logistics with physically stocking and transporting items to their stores.

Often times, they need to sell an enormous (to you and I that is) amount of product to make it worthwhile. But for a small business, if you can find that product that is not worth selling for a large company and sell it in your store, you will be well on your way to making some serious money.

The number one question that I receive from readers who want to open their own online store is how to go about finding vendors and suppliers. Do I purchase wholesale? Should I drop ship or should I contact the manufacturer directly?

When my wife and I first started our online store, we faced these exact same questions. But having done a fair amount of research on each of the above options, I’d like to talk about our experiences and our take on each of these ways to stock merchandise for your online business.

While our experiences are primarily related to wedding linens, what we are about to tell you should apply to almost anything that you choose to sell in your online store.

Photo By Slapjack

Drop Shipping

Most people fall into the trap of getting excited about drop shipping when they first open their online store. Drop shipping seems appealing for several reasons. For one thing, you don’t have to stock any items. Whenever an order comes in, you simply place the exact same order to the drop shipper and collect the profit based on the difference in selling price.

There is no inventory, no fulfillment obligations and all you have to do is take orders. Sound like a dream come true?

What most people don’t realize is that the profit margins often suck and you have to provide customer support for problems that are completely out of your hands.

What if the drop shipper screws up the order or ships the product late? What if the drop shipper routinely ships faulty items? Guess what? You have to deal with all of these issues even though they aren’t your fault.

Couple that with the fact that the profit margins are extremely small and you have a situation where you are sacrificing your mental health over things beyond your control for very little money.

Even if you manage to find a reliable drop shipper, customer issues will still pop up and it will be much harder to deal with them when you don’t have control over your products. In a nutshell, you are staking the reputation of your business on a 3rd party that may not have your interests in mind.

Honestly, I’d rather simply become an affiliate rather than drop ship. This way, you take your cut and you’re done. No hassles. The main thing drop shipping is good for is to fill in gaps in your overall product line. I would never base my online store solely on drop shipping.

Buying Wholesale Domestically

I hear the word ‘wholesale’ a lot. Many people contact us about wholesale pricing and where to find wholesale products. The term ‘wholesale’ seems to imply that the price that you are going to get is going to be the lowest that you can find.

Well guess what? Nothing could be further from the truth. When I was shopping for vendors for our online store, all of the “wholesale” dealers in the US were offering extremely high prices. Sure, they were cheaper than MSRP, but the prices were sufficiently high that the profit margins would have been on the low end for the products we wanted to sell.

To make things worse, there were already a large number of competitors carrying the exact same items in their stores at rock bottom prices. So why buy from a wholesale vendor in the US?

Because practically nothing is made in the United States anymore, wholesalers take care of all the hassle of importing and warehousing the goods from the manufacturer. You don’t have to travel to a foreign place. You don’t have to deal with shipping or customs. You just place your order and the merchandise appears at your doorstep.

Buying wholesale also saves you time from having to perform extensive quality control checks on your merchandise because presumably the wholesaler has gone through it all already.

But guess what? All of these benefits come at a price and directly affect your bottom line. What if you could handle everything yourself?

Buying Direct From Overseas Manufacturers

Buying direct from the manufacturer is the holy grail of merchandising, but it also takes the most amount of work, dedication and time. These days, almost everything is manufactured overseas because labor costs are much cheaper over there.

My general rule of thumb(for textiles at least) is if you are contacting a vendor in the United States, you aren’t going to get the best pricing for your products. I would even go as far as to say, if you are contacting someone that speaks perfect English, you aren’t going to get good prices either(Ok, that might be going a little too far).

Buying direct from the manufacturer or from overseas vendors is the best way to obtain the lowest prices, but it also presents the greatest upfront headaches. Here’s a list of things that we had to deal with when finding our vendors in Asia.

• Our vendors spoke poor English so communication was often a big issue
• Manufacturers in Asia have really crappy websites and it’s often hard to get an idea of their merchandise quality online
• You have to purchase product in larger quantities, sometimes more than you are comfortable with
• The logistics of shipping large amount of product overseas can be a major hassle
• You will get sent crappy product at some point and you’ll have to constantly go back and forth with your vendor about quality issues until they are resolved.
• Product returns are extremely complicated
• There are long lead times in order to manufacture products so you have to plan ahead.
• There may be long lead times just to obtain samples of the goods you want to sell.
• Some of these vendors are just downright sketchy

Is Buying Direct From Overseas Worth It?

After reading about all of the hassles outlined above, is it really worth it? The answer is a resounding yes. The prices are unbeatable and the upfront investment is worth it in the long run.

Once you’ve established a good relationship with a vendor, it becomes smooth sailing from then on. You will be able to competitively price your products. You will be able to out price the larger chains and you will be able to differentiate yourself from the competition.

Once you have confidence in your manufacturers, you will then have the freedom to start designing your own products and that is where the big money starts to kick in. If you have the talent to design your own items, you have the potential to sell completely unique goods that no other store on the planet can offer.

How Do I Find Overseas Vendors?

A great place to start is online. There are a variety of search engines for overseas manufacturers. For example, alibaba.com is good place to start for a wide variety of items.

Once you’ve found some potential vendors, call them and email them. Get a feel for whether they truly carry the products that you’re interested in.

Once you’ve narrowed down potential vendors, you MUST hop on a plane and visit them directly. Especially if you are dealing with Asian vendors, face to face communication is absolutely required in order to establish a good relationship.

By visiting them directly, you are accomplishing three main things. One, you are showing them that you are serious about purchasing from them. Two, you will get to see their entire inventory of products in person to judge their quality. And three, you will be able to place a face with a name and get to know them on a personal level.

I remember on the way to visiting one of our first vendors that I was expecting to meet a sleazy asian dude wearing a wife beater and smoking a cigarette. Much to my surprise, our supplier was actually clean cut and a pleasant, honest looking fellow. After meeting him face to face, I had much more confidence in ordering from him. I wonder if he felt the same way after meeting me?

The Choice Is Yours

How you prefer to obtain your goods from your suppliers is up to you, but buying direct is a no brainer in my book. The more work that you are willing to put into your business, the more profits that you will make. No one said that opening an online store was going to be easy. By placing a larger investment of your time upfront, you will pave the way to greater rewards in the future.

Further Reading

• 3 Reasons You Should Stock Your Own Items Instead of Drop Shipping
• How To Open An Online Store