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 options above, 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.
Editor’s Note: If you are interested in learning how to start your own online store, click here to take my FREE 6 day mini course on ecommerce.
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 (between 10-25%) 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 fulfillment.
In a nutshell, you are staking the reputation of your business on a 3rd party who may not have your interests in mind.
In most cases, it’s easier to become an affiliate rather than drop ship. This way, you take your cut and you’re done. There are no hassles.
Finding Dropship Suppliers
That being said, drop shipping is an excellent way to fill in gaps in your overall product line. For example, let’s say I sell handkerchiefs but I only have 3 private label styles of my own to sell.
Instead of launching a store with only 3 products, I can fill out my selection with drop shipped goods. Most people aren’t aware that you can mix and match drop shipping with your own inventory but you can!
For those who are apprehensive about starting a business, drop shipping is also a good way to dip your toes in ecommerce without risking a lot of money.
While I would never base my online store solely on drop shipping, an easy way to find companies willing to drop ship is via a service called Worldwide Brands.
We’ve used them in the past to quickly find vendors to fill out our inventory for sparse categories.
That being said, most wholesalers will not want to drop ship for you unless you can demonstrate that you are a legit business that can drive sales.
And while many vendors don’t openly advertise that they’ll drop ship, you can sometimes negotiate a drop shipping arrangement if you just ask.
For information on how to approach a dropship vendor, read my post on how to approach a new wholesale vendor when you are first starting out.
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 domestic vendors for our online store, all of the “wholesale” dealers in the US were offering extremely high prices.
Sure, they were cheaper than MSRP (MSRP is just a made up number anyway), 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 many products are not 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 domestically 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.
The simplest way to find wholesale vendors in the US is by Googling the company of the product you want to sell, going on their website, and finding out who their wholesale distributors are.
Smaller companies most likely won’t have distributors and will sell to you directly. Typical wholesale discounts are on the order of 30-50% off MSRP. And depending on the item and the brand, the minimum order can be as low as a hundred dollars.
Another great way to find wholesale vendors is by attending local trade shows. For example, a site called WholesaleCentral.com lists all of the trade shows in the US based on product category.
If you live near a major city, you should definitely go and check out a trade show if you have the time. All you need is a sellers permit and in most cases admission is free.
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.
My general rule of thumb(for textiles at least) is if you are buying from a vendor in the United States, you aren’t going to get the best pricing for your products.
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.
- Communication can be an issue – Most Chinese vendors don’t speak english very well so you often have to rely on written communication like email.
- Product definition is a slow process – Manufacturers in Asia have really crappy websites and it’s often hard to get an idea of their merchandise quality online. As a result, you have to get samples made and sent across the country which takes a long time.
- The minimum order quantity is higher – Since you are dealing with factories, you have to order in larger quantities than you may be comfortable with
- Importing from a foreign country requires more work – The logistics of shipping product overseas in addition to dealing with customs is an extra hassle you have to deal with.
- You have to manage quality control – Whenever you are producing a product in quantity, maintaining consistent quality is always a challenge.
- The lead times are long – Getting products made often takes months so you have to plan your inventory requirements carefully.
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 can design your own custom products and that is where the big money starts to kick in.
If you can fabricate your own designs or make small improvements to existing ones, you have the potential to sell completely unique goods that no other store can offer.
How Do I Find Overseas Vendors?
Once you’ve found some potential vendors, send them email or give them a call. Get a feel for whether they truly carry or manufacture the products that you’re interested in.
Once you’ve narrowed down potential vendors, it helps to have a Skype or WeChat conversation. And if you can, hop on a plane and visit them directly.
Especially if you are dealing with Asian vendors, face to face communication is strongly preferred in order to establish a good relationship.
By speaking to your vendor face to face, 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.
Before meeting our first vendor face to face, I remember picturing him as 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.
Because face to face communication is so important, my wife and I travel to China and Hong Kong every other year to visit our vendors.
Attending Tradeshows In Hong Kong And China
While finding and contacting vendors via Alibaba and Global Sources is fairly straightforward, it is a very slow and cumbersome process.
Not only to do you have to get individual samples sent back and forth from Asia, but there’s also a major communication slowdown because exchanging emails is highly inefficient.
Add in the time difference and you only have a small window of time everyday to communicate.
But what if you could contact and see sample products for thousands of Chinese vendors all at once in a single location?
What if you could see and touch all of the merchandise without having to wait several weeks?
That’s what you get if you attend a major trade show like the Canton Fair or the Global Sources Expo.
Because so many different vendors congregate at these fairs and bring their merchandise with them, you can easily cover hundreds of vendors in the span of just a few days.
There’s no back and forth or delay in communication. You don’t have to get samples made and sent overseas. Everything is right there at your fingertips.
I’ve written about the Canton Fair extensively in the past. Check these posts out!
- My Guide To The Canton Fair And China’s Largest Wholesale Product Sourcing Trade Show
- Canton Fair – How To Buy Wholesale Direct From Chinese Factories
GlobalSources Vs Alibaba
If you are finding your Asian vendors via Global Sources and Alibaba, keep in mind that these two services have different strengths.
If you are sourcing electronics, then Global Sources is by far the better service. In fact, the vendors you’ll find on Global Sources will tend to be higher quality because they vet their companies more closely.
But on the flip side, the vendors on Global Sources are more established and prefer to work with companies with greater purchasing power. As a result, the minimum order quantities tend to be higher.
Alibaba has a much larger selection of vendors but it’s going to be a mixed bag in terms of quality and legitimacy.
Some companies on Alibaba are trading companies. Some listings are individuals doing wholesale arbitrage online.
Make sure you do your due diligence on every company before you make a large purchase.
When To Source Product From Asia Vs the United States Or Your Home Country
While the prices for your goods will tend to be cheaper if purchased from China, importing from Asia will not always be the right answer for everyone.
There are many factors that you need to take into account. First off, the main advantage of importing from China is that the labor costs are significantly cheaper.
Therefore if what you want to sell is labor intensive, going with China will almost always be cheaper. So textiles, clothing and anything that needs to be handmade are ideal candidates for importing.
But let’s say you manufacture plastic toys and you already own the molds. The cost of plastic between the US and Asia will probably not differ enough to warrant manufacturing in China.
The other thing you need to consider are the minimum order quantities and the cost of shipping and customs.
Note: I created a true landed cost of goods shipping calculator that you should check out if you plan on importing from overseas. Click here to check it out
A lot of people come to me and ask if China is the right answer when manufacturing t shirts and dresses. If you are doing huge volumes, then the answer is yes.
But for most beginners, making clothing in China is overkill. You’re much better off buying fabric in the US and finding a local seamstress to make your goods for you.
Only once you have the patterns down and know that you can sell in sufficient volume should you import a large quantity.
If you want to manufacture your own products in the US, there are a lot of ways to find vendors.
For textiles and clothing, you can visit the local garment district in your area.
If you want to manufacture your own goods in the US, check out ThomasNet.
You can also use Google and look for local manufacturers and product designers.
It’s amazing what you can find if you just sit down, search on Google and pick up the telephone. Legwork always pays dividends.
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.
Editor’s Note: If you are interested in learning how to start your own online store, click here to take my FREE 6 day mini course on ecommerce.
photo credit: danielfoster437 Chinese Factory
- Product Sourcing Nightmares – Bad Experiences We’ve Had With Overseas Vendors
- How To Approach A New Wholesale Vendor Or Supplier When You Have No Store, No Site And No Sales
- Buying Wholesale Versus Buying From A MiddleMan
- 4 Ways To Find USA Wholesale Suppliers And Avoid Paying Tariffs
- Where To Buy Wholesale Clothing In The USA And My Trip To The LA Fashion District
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