One of the biggest decisions every eCommerce store owner needs to make is how to source products. This decision impacts everything including profit, cashflow, logistics and more. Ask any current eCommerce store and they will tell you, this decision will impact you and your business for years to come.
Generally speaking, there are four different ways to source products for your store: 1) Buy them from manufacturers 2) buy them from wholesalers 3) dropshipping and 4) making the products yourself. In this article we will first explore the possible pros and cons of each of these methods and then give some quick food for thought for those who are thinking about which sourcing method might be the best fit for them.
Working and buying directly from manufacturers
If you want to sell unique products in your store and do not have the means or knowledge to create them yourself, you should try to get in touch with potential manufacturers. These days the simplest way to find manufacturers is by going to your favorite search engine and simply searching for “manufacturer” + “your product category”.
The odds are that you will end up finding multiple manufacturers that look promising. In that case it is advisable that you contact each of them and ask questions at least about product materials, pricing, delivery times, minimum order quantity and guarantees.
While sourcing products from manufacturers can sound attractive as it gives you lot of control over the products & might make it possible to sell products that your competitors cannot easily copy, it certainly also has some drawbacks. And maybe the biggest of those is the fact that manufacturers tend to require large orders, and especially if you are just starting with ecommerce you might not have the capital for that.
Additionally, being able to work efficiently with manufacturers might require the type of negotiation and product-related communication skills that many ecommerce store owners might not have.
Buying products from wholesalers
Wholesalers are companies that have existing relations with manufacturers and are buying products in bulk from them. Those wholesalers can then in turn sell the products to you and you can then sell them to your customers.
Buying products from a wholesaler has some of the same elements as sourcing products directly from manufacturers but might make life easier especially for new ecommerce store owners. That is as wholesalers often know which type of products sell well and as such reliable wholesalers can advise you in product-related decisions. Additionally, going through wholesalers puts less effort on you having to be able to efficiently communicate every product-related requirement – although communication is also in this case a key factor for successful sourcing.
Maybe the biggest downside of sourcing from wholesalers is that even they can require quite large orders in order to be willing to supply you with products. And that then might require significant financial resources from you. Additionally, because wholesalers also want to make money, they will add a markup on the manufacturer’s price and that then might decrease the markup that you are able add when pricing the products for your store.
Likely the quickest way to find wholesalers is by doing an online search for “wholesaler” + “product category”. When trying to find a reliable wholesaler, it is advisable to look for reviews of that wholesaler.
The basic idea of dropshipping is that instead of first buying the products to yourself and then selling them to your customers, you are simply sort of a middleman between your customers and a wholesaler or a manufacturer. How that works in practice is that you find suppliers who allow you to list their products in your ecommerce store without you first buying the products from them and then if a customer clicks to buy such product from your store, you forward the order to the supplier.
When doing dropshipping you make money by making sure that the total cost of product + shipping is higher in your store than what a supplier charges from you to send the product in question to a customer.
One might assume that it would be difficult to find suppliers that are willing to do dropshipping, but luckily there are these days a lot of different ecommerce store apps through which you can find dropshipping-friendly suppliers. Additionally, you can find dropshipping suppliers also through search engines.
Dropshipping has some clear advantages when compared to many other forms of ecommerce. Likely the biggest one of those is the lower risk: when you don’t have to buy the products yourself before listing them for sale, your potential losses from products not selling are non-existent.
The second big advantage of dropshipping is that you don’t need a place for storing the products. The fact that you don’t need storage can help with both keeping the costs of running your ecommerce store down and with being able to scale the business quickly. And the third big plus of dropshipping is that it gives you a lot of flexibility for testing different products.
Due to its advantages dropshipping might sound like a particularly attractive way of doing ecommerce. However, dropshipping also has some downsides. The first of those is that, because of how easy it is to do dropshipping, the competition among dropshippers is fierce. And as such the profit margins on dropshipped products tend to be very low.
Additionally, quality control can be quite difficult when doing dropshipping: with dropshipping you don’t usually have a good way of ensuring that the products suppliers are sending to your customers are as good as they should be. And in fact, if the product quality is bad you might only find out that when customers start complaining about it publicly, for example, on social media – and that obviously could make it harder to convince new customers to buy from your store.
And the third possible downside of dropshipping is that the shipping times can be quite long. That is particularly likely to be the case if the dropshipping suppliers you are using are, from example, from China (as is often the case) and your customers are, for example, located in Europe.
Making the products yourself
Making yourself the products that you are going to sell is a quite self-explanatory way of sourcing products. And it also has a couple clear advantages. Firstly, you will know exactly what the benefits of the products are and how they were made and as such selling and marketing them can be easier. And secondly, creating the products yourself can allow you to have a quite good profit margin on them as you don’t have to pay for the labor of anyone else.
However, there is also a clear downside in just creating the products yourself. That is that it can be very difficult to scale the business as you might struggle with being able to produce enough products to match the (hopefully) growing demand. That obviously assuming that you are creating physical products – scaling a digital product business can be much easier as you can in practice sell the same product to an unlimited number of customers.
Conclusion – what is the best way to source products?
The boring but truthful answer is that it depends. However, when thinking about which sourcing method to choose, you should ask at least the following questions from yourself: What are my goals for the business? What am I good at? Which sourcing method suits my resources the best? And, how important is it to me that I am familiar with each product that is sent to customers?
Regardless of which method of sourcing products you choose, it is good to know that you do not have to use that method forever. Instead, you might want to start with a low-risk method, such as dropshipping and then move to a more resource-intensive but also potentially more lucrative method, such as working directly with manufacturers on your own products.