Product sourcing done right - 4 tips to keep in mind

December 22, 2017
Product Sourcing

The hardest problem every Shopify seller has to solve, is how to source great products. The products you sell are the bedrock of your business, and by far the most important thing about your store. But most blog posts and Youtube videos aimed at solving this issue, typically give great sounding advice without the required level of detail. It seems easy enough to:

  1. Go to Alibaba.com or AliExpress.com
  2. Research products in your niche
  3. Buy in bulk

But when it comes to actually following through, most new Shopify sellers realise that there is a lot more to sourcing great products. Although this approach can work for some, it’s fraught with unforeseen difficulties. Before we jump into those, let’s first define what product sourcing is:

Product sourcing simply means finding products to sell.

The key here is to understand that we are talking about arbitrage. Essentially buying products at wholesale prices and reselling at retail prices for a profit.

This differs significantly from making or producing your own merchandise (think Etsy) which is typically even more time and money intensive.

What’s wrong with typical product sourcing advice?

As mentioned previously, advice on product sourcing typically centers around the chinese wholesale platform Alibaba. This makes sense because prices are low and the product quality overall is high.

In short, Alibaba is a fantastic place to find cheap products, but there are some tough challenges to overcome.

Because the vast majority of wholesalers on Alibaba are located in China, conversations in English can be difficult. This is not all always the case, and most of the blame lies with us for speaking zero Chinese. 

Nevertheless, you should be aware that you may come across the perfect products with a decent price and a reasonable minimum order quantity (MOQ), just to find that your level of Chinese, or the sellers level of English, is not sufficient to do business.

Additionally, the great distance between you and the wholesaler typically results in very long shipping times. Expect to wait 40-50 days for your products to arrive.

It's worth noting at this point, that some entrepreneurs think that 2-6 weeks shipping time does not necessarily impact conversion rates negatively. Here is a video from Wholesale Ted arguing cogently that good customer service is often enough to mitigate the effect.

 

In my opinion however, this is far too long for retail customers to wait for their delivery. In order to work with wholesalers from China effectively therefore, you’ll have to buy in bulk and store the products near your customers in order to guarantee fast shipping. 

Finally, it’s important to point out that Alibaba is the first port of call for the vast majority of Shopify sellers, especially newcomers. This means that you may well be sharing your supplier with a number of competitors.

All this should not be interpreted as a slight on Alibaba. It’s an amazing platform and you should definitely include them in your product research. That being said, there are important points to keep in mind. 10 of which we will discuss now.

Product Sourcing - 4 tips to keep in mind

1. Decide which type of supplier you need

OK, this is a basic one but it’s vital to understand the different types of suppliers that exist. Let’s quickly discuss the pros and cons of each.

Dropshippers

Dropshipping is particularly popular among Shopify sellers. The main reason for this, is that Dropshipping does not require the storage of stock. Instead, when a purchase is made through your Shopify store, a notification is sent to the wholesaler who dispatches the product directly to the customer.

The level of sophistication depends on your budget and the capacity of your supplier. The most efficient approach is often to use a Shopify APP like Oberlo which connects your store directly with suppliers on AliExpress.

Alternatively, you can simply auto-forward purchase notification emails from your Email Address to your supplier. This is the quickest way to set up a connection, although it’s easy for orders to fall through the cracks.

To find dropshipping partners, simply head over to Salehoo (more on them later), AliExpress or Alibaba. Now navigate to the search bar and enter: “dropshipping” + product keyword, or change the filtering on the left for Salehoo.

As a next step you will have to dig a little deeper into the information provided by the suppliers. How long are shipping times? What are their minimum order quantities? How responsive are they to your messages?

These are all of vital importance, but quality can often only be measured on a case by case basis. As a guideline, insist on same week delivery, minimum order quantities totalling less than $300 (to start with), and minimum same-day responses to your questions.

Taking this approach will ensure that customers make purchases, that your initial capital investment is low, and that problems are quickly communicated and fixed.

If this is the first time your hearing about dropshipping, you may well be getting hyped. It’s important to understand however, that dropshipping has a number of disadvantages.

The first one being that quality control is very difficult. Besides the initial product sample, you will never get to hold the products you are selling in your hands. This means that you are at the mercy of your supplier.

If they do a bad job, prepare for a flood of negative reviews and bad word of mouth. Of course, some of this can be mitigated with great customer service, but if the products are sub-standard there is little you can do.

That being said, there are plenty of great suppliers out there, and if you find the right one, dropshipping is an excellent solution. No wonder it’s becoming so popular.

Wholesalers

The next most popular type of supplier is the Wholesaler. Wholesalers work on the basis of reduced per unit prices for larger volume purchases. Essentially, they are the middle-man between you and the manufacturers.

To specify this, imagine you wanted to purchase this dog toy on Amazon. You can see that the retail price for a three-pack is $10.89. Obviously your chances of buying this toy and then reselling it for a profit are slim-to-none.  

However, you can buy them in bulk from a wholesaler for a substantially discounted price. Below is the same toy being sold on Alibaba for a fraction of the cost.

In contrast to dropshipping, this approach gives you excellent quality control. The products are delivered to a destination of your choosing, and you can inspect them before shipping. Additionally, you can also respond more quickly to problems, for example sending replacement items or improving packaging.

On the other hand, buying in bulk from a wholesaler requires the storage of a potentially large amount of stock. This in turn either results in a cramped garage or extra costs being paid to storage services.

Manufacturers

The third and final type of supplier we are going to look at is the Manufacturer. This is simply the person or company which is creating the products you plan to sell. Dealing directly with the manufacturer is the best way of ensuring a healthy profit margin. As you will be negotiating the price yourself, you can set terms which are beneficial to you.

You will have a much greater level of control compared to the two types discussed previously. Not only will you be able to influence the design and function of the product, but you will be in charge of the entire supply chain.

Platforms like Maker’s Row, have done an excellent job of matching entrepreneurs with manufacturers. This kind of service allows you to find the right people quickly, and communicate with them without the need to travel.

The downside to this approach is that it is by far the most time intensive. Communicating with manufacturers, negotiating terms, organising packaging, handling storage and shipping all take a huge amount of time and money.

2. Salehoo offers a great alternative to Alibaba and AliExpress

Did you know that Alibaba’s makes more online sales and profits than Amazon, eBay and Walmart combined? Without doubt, Alibaba is the big kid on the block, and you might be tempted to think that there are no credible alternatives for sellers looking to source products online.

Let me introduce you to Salehoo.

Salehoo is a membership based wholesale directory with a vast number of suppliers from all over the world. Below you can see a query for wholesalers offering “pet toys” in Europe.

With over 45 suppliers in my niche, this is a great starting point to research product catalogues and pricing models. As these suppliers are in Europe, the shipping times will be correspondingly short and Salehoo has an integrated messaging dashboard with which to contact suppliers directly.

Additionally, the advanced filtering provided by Salehoo is more sophisticated than that of Alibaba, allowing you to find targeted wholesalers more quickly.

Specifically, you can filter for four different types of supplier:

  1. Dropshippers
  2. Wholesalers
  3. Liquidators
  4. Manufacturers

This is a huge advantage over Alibaba, where the services provided by wholesalers are not clearly visible and require communication to understand.

The final point I’m going to make about Salehoo, is that the minimum order quantities are often much lower than on Alibaba. Typically you can expect MOQs of at least 1,000 units on Alibaba, which at $1-2 per unit, requires a substantial capital investment straight off the bat.

On Salehoo however, many suppliers offer their services from as little as $100. Below you can see that 31 suppliers in Europe are offering wholesale pet toys for $100.

This is a great starting point for me, as I can test new products without having to break the bank.

With this in mind, don’t forget Salehoo when starting off on your product sourcing journey.

3. Use Google’s Keyword Planner to in-demand products

If you haven’t heard of it already, I’m happy to introduce you to an indispensable tool for product sourcing: Google Keyword Planner.

Google Keyword Planner gives you usable data regarding the online demand for products. This is extremely valuable because it allows you to find products which you may otherwise have missed. Further, it let’s you gauge the demand and competition you would likely face selling a certain product.

Above you can see the monthly search volume (SV) for “pet toys”. With 1,600 monthly searches in the United Kingdom, it’s easy to tell that pet toys are in relatively high demand. Using the graph, we can even determine if this demand is natural or due to some temporary spike.

Helpfully, Google also provides an estimate regarding the competition we would likely have to face for this keyword. For “pet toys” we can see that competition is “High”. This is most likely because the keyword is quite general, with many sellers of different niches vying for top spot.

Finally, Google’s Keyword Planner is a fantastic way to find new products to source. I know for example, that I want to sell dog toys, but I have a poor understanding of all the different kind of toys that people might be looking for.

Using the Keyword Planner’s suggestions I found five related products with high demand, that I hadn’t previously thought of:

  1. Dog puzzle toys SV 1,600
  2. Puppy teething toys SV 1,000
  3. Kong dog toys SV 6,600
  4. Stuffed dog toys SV 390
  5. Squirrel dog toy SV 260

Using this information I can now search for wholesalers with some of these products in their catalogue.

4. Use eBay and Amazon for product ideas

Most online sellers don’t know that Amazon publishes their best selling items in each category here. In addition to the Google Keyword Planner mentioned earlier, this is a great place to find in-demand products to sell. The list is updated every 24 hours and therefore gives you fresh product ideas on a daily basis.

This is particularly valuable for new Shopify sellers, because you can essentially create a product catalogue with the help of these bestsellers. If for example, you are planning on selling card games in your Shopify store, you can use the information provided in the Amazon bestseller list to make sure you stock those products that are in particularly high demand.

In this case it would be “What Do You Meme”, “Cards Against Humanity” and “Exploding Kittens Card Game”. As a next step in our example, you would get in contact with the makers of these games and inquire into their wholesale prices. Typically, they will be happy to give you a 5-15% discount depending on the volume you can commit to.

In addition to Amazon’s best sellers, you can check out their “Movers and Shakers” category. This is a categorised list of products that have seen a substantial increase in sales over the last 24 hours.

Using this handy Chrome extension you can scrape the data from the webpage into a spreadsheet and update it on a day-by-day or month-by-month basis. Below you can see (unformatted) the biggest movers and shakers of the past 24 hours, including their percentage increase in sales.

By continually evaluating this data in a spreadsheet, you will quickly be able to make more informed product sourcing decisions, and devise a more substantial sourcing strategy.

Likewise, you can see what niche-specific product is popular on eBay using this awesome WatchCount tool. Essentially, eBay gives visitors the chance to “Watch” products they are interested in, a feature which provides them with regular price updates. The WatchCount website tracks the number of people watching each product and lists them in order of popularity.

With this information you can easily find which products in your chosen niche are in-demand and which aren’t.

Conclusion - 4 product sourcing tips

With these four tips in mind, you are now able to:

  1. Identify which type of supplier works best for you
  2. Research demand for products more effectively
  3. Find similar in-demand products
  4. Find local suppliers with lower MOQs using Salehoo

Finally, I’d like to leave you with a short list of great product sourcing platforms:

Salehoo

Alibaba

Thomas Net

Makers Row

MFG

Kompass

Thanks for reading and see you back on the blog soon ;)

Chris Grundy

Chris is the co-founder of Product Percy and a lifelong Shopify enthusiast. Follow him on Twitter or connect via LinkedIn

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