Starting a new direct-to-consumer brand and looking for a product supplier? Read our interview below with Stephen Petith, founder of Ebiz Concierge on how to find, vet and manage suppliers from both domestic and international sources.
What should people ‘get right’ before they start?
Sure. When you’re starting out, there are a few things you need to have in order to get going properly.
You need to have a really good idea of what you want. That means the design of the product, the features, how it works (if you are manufacturing).
Next, make sure you know what price points you are aiming for in order to be profitable. When you know your price points that you have to hit to be profitable, you will be in a position to evaluate suppliers in the market and have something to negotiate to, in terms of getting production costs towards your target.
Read more: How to start an eCommerce store (Australia)
Do you recommend any products for sourcing currently?
A tip here is that when you’re looking for products or creating one, try to find a product that solves a problem and that can’t be easily replicated.
Also try to avoid products that course merchants are suggesting as they are likely not going to work as the window for making profitable trades with these products has passed. The problem here is that you’re always competing against the lowest common denominator. Profits may be wearable to begin with but eventually they’ll come down and start losing money.
Instead, try to pick products that aren’t fast moving consumer goods (FMCG).
Think somethingThink of something handmade, B2B or products that are logistically harder to handle.
An interesting example here is prefabricated spas. These are large products, high-ticket and particularly difficult to deliver to remote areas. But if you can make it happen, you’ll be rewarded for it.
What is the process of sourcing products?
1. Financial Feasibility Research
Ok so first you’ll need to do the math on your market, and what you can buy. Knowing your numbers means knowing:
- That you can make around 10x markup
- What your advertising cost can, and should be
- What your MOQ order costs would be
- How much a smaller, retail-purchased trial run would be (example, 50 products from Alibaba)
- Packaging costs
Research the industry and websites to know what you can sell for and what you may be able to buy for. Find out how much you’ve historically spent on ads, or others are spending on ads, to estimate your average marketing costs.
2. Choose a Test Product
Next, find a product that’s 80-90% of what you want. Then consider testing it on a ‘whitebox’ basis.
‘Whitebox’ means you’re getting the product unbranded, and add the labels inside the box. The idea here is that if you know you can sell without branding, you’ll know that there is enough demand for you to make profitable sales with branding.
Try to buy the MOQ. If that’s too expensive, do about 50 products in your first run from somewhere like Alibaba and buy more when you have 25 remaining.
What you want to avoid here is buying stock you can’t sell. So fail fast until you’ve found that the product works.
3. Once Proven, Apply Branding
Now that you have proven the product’s demand, you can consider investing more in branding. You can continue to use the whitebox offering but just repackage the item yourself to use your branding.
4. Find a Manufacturer
Now that you have the product selling and using your own branding, you can start working with a manufacturer.
There’s no such thing as a perfect product, so have in mind that you’ll need to work with a manufacturer that produces something very similar and work from there, making interactive improvements with each production run, rather than missing the market completely due to delays.
If you’re overseas, I recommend you find a local agent to help you select and build relationships with manufacturers. If you’re working with domestic suppliers and manufacturers, you can do this yourself.
The benefit of working with agents is that they often have a better understanding of each supplier’s capabilities, work history and an existing relationship that can help make purchasing and delivery smoother.
5. Develop Your Relationship and Product Mix
With a supplier in place, you can now focus on developing two core assets. Your relationship with your supplier and your product mix.
For developing your product mix, consider products that sit alongside your existing product. For example, if you sell coffee kits, find someone to partner with to sell the coffee.
What are some alternatives to DIY sourcing? Why would, and why wouldn’t you use these services?
You can consider a product development firm. In fact, I would use such a firm nearly all the time as this gives you:
- Boots on the ground
- Expertise in sourcing
- QC (checking for faulty products)
- Logistics assistance
This will help you prevent a sourcing disaster. For example, some buyers have been ripped off by suppliers where they end up with weights instead of products. But sometimes the end result is less dramatic but equally bad, such as receiving the wrong product.
For many overseas suppliers, unfortunately, there is a culture where if it is not believed that you can turn up, they will care less about your order. So for this reason, having the right local presence will make the relationship a lot smoother.
How do you vet a prospective supplier?
There are a few key things to do here.
First, check if they own the factory. Sometimes you’re not actually dealing with the factory and just dealing with a middleman. Some middlemen are professional, others are casual sales agents that will just waste your time. So where you can, make sure you’re dealing with people who are as close as possible to the factory.
Next, use a QC firm on the ground. These firms will do a 1 in 100, or 1 in 1000 test
forof the products in FMCG, or more often for high-end products.
Also, try to visit the factory yourself- and make sure you visit the right factory! It can be easy to get mixed up in these commercial areas and end up visiting a similar but totally different factory.
Finally, buy from the supplier yourself and do a blind test. Look out for slow shipments, poor labeling, poor product quality and anything that would disappoint you if you were an end customer.
Where to find fast shipping products? Or how do I get my products produced faster?
Most of the time factories bring in orders, and then ship them out by volume, starting with the highest volume orders first.
So if you order 500 and someone else is doing a thousand, you’ll be put to the back of the line. The factory won’t tool up for you. Some may even hold your order until they’ve the minimum factory run, which is a different quantity to the minimum order value.
A key way to get your orders handled better is to get in the graces of the factory. Another way is to find a manufacturer to your point of shipping. For example, instead of waiting 90-120 days for something from China to the US, find a supplier in Mexico that does the same thing.
Also consider whitebox and branding it somewhere else. Sometimes there is an issue with getting things done on brand and this slows down the process.
What are some typical mistakes people make in the sourcing process?
There are a few common mistakes people make.
A lot of the time, people forget that they need to build relationships with their suppliers and visit them. Your relationship is so crucial to your business, by smoothing out communication problems and logistics and increasing trust. It really is a big asset to your business.
Another mistake people make is not realising that factories require MOQs (minimum order quantities). Be wary of anyone who says they don’t. Factories operate on runs of orders, so knowing their MOQ will help make sure you have enough of a purchase to do business.
Finally, another common mistake people make is to spend a lot on product development before validating it. It’s the other way around. You need to validate the product before spending lots on development. There are no new ideas. Most things have already been done, so start with that and iterate from there.
How can people connect with you?
Frequently Asked Questions
To some degree, I don’t think you can rely on IP protection too much these days. Invest in trademarks, but trying to get and rely on a patent will cost a fortune and often be very expensive to enforce it.