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How to Make Money From Sourcing Amazon FBA – Your Price and Supplier Strategy
Starting your own Private Label Business isn’t easy. Even after you’ve found the perfect product, getting it to manufacture is one of the biggest challenges you will face as an Amazon FBA seller.
If you’re just breaking into sourcing, don’t be fooled by how familiar Alibaba looks. It’s not a one click shop like Amazon. Finding the right supplier takes a lot of research. You need to be sure that who you are working with is trustworthy, can supply your product at a price that works for both you and your customers, and you will need to make sure that you have the right protections to keep your investment is safe.
It takes a lot of work, but with some serious commitment and the right advice, you can overcome these challenges.
To help you on your Private Label journey, in this post I’ve set out the five most common obstacles that Amazon FBA sellers must overcome, to provide you with the Easy Peasy Sourcing Price and Supplier Strategy.
I strongly recommend that you read this entire guide before committing to any supplier on Alibaba.
Finding A Reliable Supplier
You’ve found the perfect product. Great! Now you need to find a supplier you can trust.
It sounds easy enough, but how can you be confident that you can trust a supplier that you’ve never met, and probably never will meet?
If you’re reading this, I’ll happily bet that you’re not based in China, so this is the situation you’re about to find yourself in.
So what do you do?
Make sure you pick the right supplier, first time.
That means critically reviewing every supplier’s credentials before you even commit ordering a sample from them.
You can achieve this through a mixture of probing questions and independent research.
- Confirm that the supplier exists. Make sure you review the supplier’s location, Google their factory address and check local maps. You need to be confident that their factory actually exists.
- Understand their business. If you’re getting in touch with a supplier, get them to confirm the size of their workforce, details of their manufacturing processes, and whether they have the right certifications to manufacture your product. If they can’t answer simple questions like these, or you discover that they only have five employees, then they’re not the supplier for you.
- Work with a Sourcing Agent. Make the whole process a lot less painful by working with a good Sourcing Agent. They will act as your eyes and ears on the ground, helping you find the right supplier, and providing you with the reassurance you need to be confident that they can get the job done for you.
- Always trust your gut. If something doesn’t feel right, never be afraid to walk away.
Ultimately, your business is your product. If you don’t have a reliable supplier, you don’t have a product. If you don’t have a product, you don’t have a business.
Rethinking The Right Price
Don’t be shy, we’re all in this to make money.
But while this may seem counterintuitive, the cheapest price isn’t always the right one.
Remember, when sourcing products you’re goal is to find a product that Amazon customers want to buy. That means sourcing something that matches their expectations on both quality and price.
You need to trust your market research and use that to help you find the right product. When you’re confident that you know exactly the type of product your business needs, you’re ready to start approaching suppliers.
Lots of Quotes And Samples
To assess which suppliers are providing the right prices, you need to get as many quotes as possible.
Five quotes might sound like a lot, but trust me, it isn’t.
When you’re looking for a great product that satisfies your price and quality requirements, you need to have a thorough understanding of what’s available on the market, and that means seeking quotations from a minimum of 20 suppliers.
To assess the quality of a supplier’s product, you need to order samples. There’s no way around it. It’s important that you do this, because the price and quality of products manufactured by Chinese suppliers are often unrelated.
I’ve found very expensive products that are extremely poor quality, while very cheap ones can sometimes be exceptional. Unless your assessing product quality, there just isn’t a way around it.
While this may seem like an expensive investment, understanding your eventual supplier’s competitors will give you better leverage during negotiations, and it will help you find a product that meets your standards at the best possible price.
Top Tip: You can significantly reduce the cost of sourcing and shipping multiple samples by working with a Sourcing Agent. Agents can collate and ship your product samples together, allowing you to review them all at once at a price that’s less prohibitive than you’d think.
Never Be Afraid To Negotiate
In China negotiating is a way of life. Stop worrying about offending people when challenging their base price. You won’t, they’ve designed their listings and base prices to be haggled with.
- Starting Negotiations. Negotiating begins as soon as you start speaking to a supplier. They’re first impression of your company will determine how high they set their base price. This means first impressions are incredibly important, so before you start contacting suppliers, make sure that you can present yourself as a professional and knowledgeable business.
- Know The Right Terminology. While when trying to achieve the best prices, it helps to speak Chinese, it’s more important to speak the language of sourcing and your product. Make sure you are familiar with the correct industry terminology. If you don’t know what abbreviations like MOQ, Inco-terms, FOB, or EXW mean, it’s time you started learning.
- Aim for Big Price Reductions. Remember that China is a completely different country with a completely different culture. When negotiating, shaving off 2% to 3% from the supplier’s base price is not a good outcome. You should instead be aiming for massive cost reductions in the region of 20% to 30%. Suppliers set their base prices high because they expect to be negotiated down.
- Negotiations Aren’t Limited to Price. Don’t accept the first minimum order quantity that you’re quoted. Try and get it down. Trust me on this, I’ve never agreed to a minimum order of more than 500 units. It’s important that you don’t order too many products when you’re starting out, because if things don’t work out, there’s no way that you want to end up with thousands of units that you’re unable to sell.
Keep Your Money Safe
When committing to significant investment, particularly abroad, it’s normal to want to keep your money.
To protect my money, I follow these two simple rules:
- Don’t pay anything until you’ve agreed terms. Before paying anything to a supplier, agree on all of the details of your product and the specifics of your working relationship. This means includes everything from the colour of your product, the standards required by law and any NNN clauses you wish to include in your contract.
- Never pay a supplier in full upfront. You need to retain some of the payment until the supplier has successfully delivered your products to your distribution centre.
These rules are important.
Remember, as soon as your supplier has been paid in full, you no longer have any leverage.
That means that they no longer have any incentive to deliver your product on time, or even ensure that they deliver a product that meets you agreed requirements.
While you will be expected to provide a proportion of the payment when agreeing a contract, it should never be the full payment. I always recommend a down payment of 30%, followed by realistic payment releases when production milestones have been met.
Consider adding some extra protection to your investment with a Punishment Fee. This is a simple but effective mechanism that reduces the amount owed to the supplier by a certain percentage for every day that a product is overdue, or when a certain percentage of products do not meet the agreed quality standards.
Punishment Fees help you recover costs, while incentivising your supplier to deliver your goods on time, to the agreed standard.
Protecting your Product
It’s surprising, but sometimes your own suppliers will have the gall to copy your designs, and then compete with your products directly on Amazon.
If you’re sourcing a generic OEM product, even if it carries your brand logo, unfortunately you cannot protect it from copycats.
However, if your product has been designed specifically for you, there are contractual arrangements that you can use to protect your intellectual property in China.
Seek legal advice to include an enforceable NNN agreement in your contract. This stands for a non-use, non-disclosure, and non-circumvention clause.
It may seem like an unnecessary step, but if you’ve developed a great product, in a game as competitive as Amazon FBA, people will be on the lookout to steal it.
Get To It!
Now you know how to overcome some of the most common sourcing obstacles, there’s no reason to lose any more time! Put what you’ve learned into action and start making money sourcing Amazon FBA today.
Tell me how you’re getting on.
Do you have any other tips for up and coming Amazon FBA sellers looking to perfect their Price and Supplier Strategy?
Let me know in the comments below.