Sourcing products to sell online can be a challenge. It’s a big decision that impacts your profits, your running costs, even your mission statement and values. Where do you start?
If you’re starting a business, there are seemingly dozens of product-sourcing options that your business can use to populate its store with in-demand items, partner with suppliers who specialize in certain goods, or even add a creative spin to white label products.
Exporta Wholesale is here to help whether you’re an entrepreneur, small business owner, or hobbyist. It doesn’t matter if your online store is set up, or still in planning stages. This article will show you options for sourcing products for your online store.1
What is Product Sourcing
Product sourcing is simply finding the products that you want to sell.2 Sourcing products starts with some questions: Should you purchase from a manufacturer, wholesaler, or dropshipping supplier? How will each option affect your margins, branding, and business growth?
These questions are important because your product sourcing strategy will serve as your business’ foundation and will have a significant impact on your overall success. Get this right and you’ll set the stage to scale your business. Get it wrong and you could waste countless hours and dollars.3
That’s why we’ve put together this product sourcing guide. In it, you’ll learn all about the three main methods of sourcing products.
Three Common ways to Source Products
The first step when sourcing products is to decide which type of supplier you want to partner with: manufacturers, wholesalers, or dropshippers.
These product sources are very different, and each one will heavily affect the foundations of your business. Before you start sourcing products, it’s vital to understand their differences, strengths, and weaknesses. Only then can you choose the method most suited to your business.
Below is a summary of the three product sourcing methods:4
- Manufacturers
Manufacturers are the companies that make the products you want to sell. Working directly with a manufacturer is a great way to source products if you have a unique product idea. This could be for a new product that’s not currently on the market or a variation of an existing product.
Before developing a new product, you would need to validate the market demand and be confident that it will sell. You’ll also need to carefully manage the design process and create prototypes in partnership with the manufacturer. This process can be lengthy, complicated, and expensive.
Manufacturers are typically more focused on making than selling. As a result, they often prefer to work with a small number of large retailers and traders. For this reason, manufacturers usually sell products in substantial quantities. Think four figures, or even five. It can also be challenging to build relationships with manufacturers at first – especially if you plan to outsource manufacturing to a foreign country like China or India. In these cases, time zones and language barriers can make communication difficult.
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Pros |
Cons |
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Low cost per unit. Sourcing products directly from manufacturers means that there are no middle-men. Consequently, you should be able to attain a low cost per unit – and higher margins. |
Large minimum order quantities (MOQs). Most manufacturers set high minimum order quantities that require businesses to invest significant capital upfront, with no guarantee the products will sell. |
Easy to expand. Once you have a working relationship with a manufacturer, it’s easier to create new products and expand your business. |
Logistically challenging. You need to manage product development, prototyping, shipping, duties, storage, and order fulfillment. |
Unique products. You’re able to create unique, branded products that help to differentiate your business from competitors. |
Long lead times. Creating a new product and bringing it to market can take months, if not years. If you work with a foreign manufacturer, the shipping and customs clearing process alone can often take a couple of months. |
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Potential for fraud and foul play. If you source products from abroad, it’s possible that manufacturers may try to scam you. As a result, you’ll need to do a lot of due diligence before placing an order. |
- Wholesalers
Wholesalers are brands that sell goods and products in bulk to both brick-and-mortar and online retailers.
Wholesale product sourcing is a straightforward process that’s far easier to manage than working with a manufacturer to create products. And by purchasing products in bulk, you’re still able to get a low-enough cost per unit to enjoy healthy margins.
Most wholesalers list their products on product sourcing websites, so it’s easy to find new products to sell. Plus, there are countless product options to grow and expand your business.
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Pros |
Cons |
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Good margins. You’ll usually find larger margins when manufacturing and smaller margins when dropshipping – wholesaler distributors offer a comfortable middle ground. |
Differentiation is challenging. It can be challenging to differentiate your business from competitors when selling the same products. |
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Quick and Simple. Wholesale product sourcing is relatively fast and straightforward – especially when using a platform featuring only pre-vetted and curated suppliers, like Handshake. |
There’s still some risk. You still need to purchase inventory upfront with no guarantee the products will sell. |
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Validated products. Other businesses are usually already selling wholesaler’s products, so you know they sell. As a result, there’s less risk than when bringing a new product to market. |
Need to manage inventory and fulfillment. You may need to store inventory and fulfill customer orders. |
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Less capital is needed upfront. Wholesale product sourcing typically requires less money upfront than you’d need to manufacture products. |
Supply management challenges. As your business grows, you’ll likely start sourcing products from multiple wholesalers, which can become difficult to manage. |
- Dropshipping
Dropshipping isn’t just a way to source products, it’s also a method of fulfilling customer orders.
Here’s how it works: You partner with a supplier and list their products on your online store. Then, when a customer places an order with you, your supplier is notified. The supplier then ships the order to the customer on your behalf.
Here’s a detailed breakdown of the dropshipping sourcing process:
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Pros |
Cons |
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Inexpensive. Dropshipping is by far the cheapest and easiest way to start selling online because you don’t need to purchase inventory upfront. As a result, your investment could be as little as $29 per month – the cost of a Basic Shopify plan. |
Competition. The low barriers to entry mean that almost anyone can start a dropshipping store – this is amazing, but it also creates plenty of competition. |
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Little-to-no risk. Because it’s possible to run a dropshipping business where your only expense is a Basic Shopify plan, the only thing at risk is $29 per month and your time. |
Tough to differentiate. Most businesses sell dropshipped products that aren’t branded or different from competitors’ products. This makes it challenging to stand out from the crowd. To compete, you’ll need to develop a strong brand and stellar customer service. |
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Large selection of products. Because you don’t need to take ownership of any products, you can offer a large selection of products from the get-go. |
Smaller margins. Another business is sourcing, storing, and fulfilling customer orders for you – this makes your margins slimmer than if you source products wholesale or through a manufacturer. |
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Easy to scale. Dropshipping sources manage the storage, packaging, and shipping for you. As a result, you can focus on growing your business without infrastructure or logistical barriers. |
No control over inventory. You’re reliant on your dropshipping suppliers. For example, you may establish a profitable product, only for your dropshipping supplier to run out of inventory. |
Conclusion
It’s important to weigh each product sourcing method’s pros and cons to decide which is the most suitable for your business’s needs. Most large, established businesses prefer to work directly with manufacturers to cut out middle-men, have more control over the design process, and purchase products in big quantities. They’re also more comfortable handling the sizable upfront investments, long lead times, and complex shipping processes.
On the other hand, smaller businesses that are keen to minimize risk, source products quickly, and simplify logistics tend to avoid working directly with manufacturers. Established small businesses, confident entrepreneurs, and growth-minded retailers are likely to prefer wholesale product sourcing. This method doesn’t require such large investments as sourcing products from manufacturers. However, it still provides good margins, control over inventory, and branded packaging opportunities.
New entrepreneurs and those with very little startup capital should consider sourcing products from dropshipping suppliers. There’s no need to invest in inventory upfront – which means there’s little-to-no risk. It’s also a great way to learn the ins and outs of ecommerce, selling, and digital marketing. At Exporta Wholesale, we’re here to help you meet your business’ sourcing needs with confidence.
About Exporta Technologies
Exporta Wholesale is the largest marketplace connecting suppliers in Latin America with buyers in North America. Today, we have a network of over 5,000 Latin American suppliers serving a variety of consumer goods and product categories in the United States.
Exporta’s marketplace offers buyers a full service experience in the origination, sourcing and managing of products. The platform was founded on the idea that curation and service are the most important elements in the buyer’s journey. Exporta’s marketplace is building technology that addresses the pains of sourcing products internationally at attractive prices.
References
- https://www.websitebuilderexpert.com/building-online-stores/sourcing-products-to-sell-online/
- https://www.shopify.com/blog/product-sourcing-apps
- https://blog.handshake.com/product-sourcing/
- https://blog.handshake.com/product-sourcing/
