How to buy product for a Fulfillment by Amazon (FBA) Business

The ‘Fulfilment By Amazon’ (FBA) business model is gaining traction as more people discover the ease with which they can tap into Amazon’s immense market and consumer loyalty. As of January 2016, nearly half of all U.S. households had an Amazon Prime membership. There are many articles, online courses and podcasts dedicate to establishing this type of work-from-anywhere business. As sourcing professionals, our niche is perhaps the least-discussed aspect of this business model – the physical product.

This post gives some quick tips on how to find and buy the best products for your FBA business.

The ideal product for a FBA business will meet all of the following criteria:

1.     Simplicity

To avoid headaches for yourself and minimize returns, choose a product that does not have a lot of components (especially electrical components) and which does not require an instruction manual to operate. It should be durable enough to withstand the multiple stages of shipping it will pass through en route to your customer. You should also find out if the product has any FDA requirements that might cause it to be held up in customs.

2.     Lightweight and Small

Shipping costs will erode your profit margins, so be sure to select a product that will ship cheaply. Keep the packaging sturdy but simple and the overall size of the package as small as possible. A target weight of under 2 pounds is ideal.

3.     No brand names in your category

There is little point competing in the same category as an established brand name with a large marketing budget and a well-oiled production system. Instead, look for areas in which a generic product can excel.

4.     You can sell it for 4 times the cost price or higher

Keep in mind that access to the Amazon marketplace is not free. You will need to factor in shipping costs, seller and other fees into your margins. To test the potential profitability of a product, first find the average sale price on Amazon. Cross-reference this with the listed FOB purchase price on websites such as Aliexpress (keep in mind that these prices are negotiable).

5.     It sells for between $10-$30

A customer is unlikely to think too carefully about a product in this price range. This increases your chance of securing ‘impulse buy’ customers and higher sale volumes.

6.     There is demand all year

It might be tempting to stock your FBA business with Halloween or Christmas items in the hope of heavy seasonal sales, but a product that sells year-round is better for a FBA business. Not only does it lead to more consistent sales over a longer period, but you are less likely to be left with unsaleable stock.

7.     The top 3 keywords related to your product are highly searched

Check websites such as Google Keyword Planner and Merchantwords.com for the keywords associated with your product. Ideally, those keywords should have more than 100,000 searches per month.

8.     You have a reliable supplier for the product

An FBA business cannot exist without a reliable supplier. Sourcing from China is the most popular and efficient method of securing products for a FBA business, but the process is not foolproof. The ideal supplier will have all the features listed in our previous post here. Additionally, they will be flexible enough to allow you to place a small ‘test’ order (400 – 1000 pieces), reliably deliver a quality product on time and have short lead times so that you can re-stock as needed.

Sourcing is our specialty! Contact us today for more information on finding reliable suppliers and quality products for your Fulfilment by Amazon business.

 

When do I need to visit the factory?

If you are thinking about producing a product in China, you will probably be wondering if and when you’ll need to stump up for a trip over there. Luckily, technology today makes it less necessary for you to do so. Here we outline three common reasons business owners make the trip, and whether or not they are worth it.

1.     You are not sure that your factory exists

This is a common concern for new manufacturers. Having established a conversation with a manufacturer via Alibaba or another forums, you begin a dialogue and they seem able to make your product. Before you know it they’re asking for a deposit, but you’re just not sure…

Unfortunately, in this circumstance an hour-long factory tour is no guarantee. Some unscrupulous operators have been known to take unsuspecting manufacturers-to-be on tours of factories they have simply ‘borrowed’ for the day, staff and all. The reassured business owner transfers the deposit for production and the correspondent simply vanishes into thin air. Or, your contact may own a factory but take you on a tour of a better-looking factory, just to save face.

If you are concerned about the authenticity of your factory, it is far more reliable to conduct an official background check on them via a company that specializes in China business, by asking for references from current customers, or by obtaining verification of their manufacturing status through the manufacturer’s bank (using a verified translator). This is also a service we offer here at WeSource.

 

2.     You want to see your samples

Another common situation we hear about is when a business owner organizes to travel to a new factory to inspect product samples and the factory that produced them. Unfortunately, these business owners frequently waste a lot of time and money on travel only to find out in one glance that the samples are unsatisfactory.

Save yourself the journey by insisting that your manufacturer send you detailed photographs of your product before they leave the factory. These photographs can also include the production process, if you request this in advance.  Once you approve the photographs, the factory can easily post you the samples for a fraction of the cost of an airfare. 

 

3.     You have a product that you are already importing, and want to further the relationship with the manufacturer

This is one of the few situations in which we would agree that a visit to your factory makes sense. The concept of guanxi is an important one to know about when doing business with China. Guanxi is the soft side of business - the social networks and influential relationships that help business and other dealings run smoothly. In this situation, your visit might include a tour of the factory, a visit to the warehouse, meetings with your contacts there (expect to drink a lot of tea) and probably a meal or two with the factory management. While not a lot of business discussions happen over meals, if you follow up later via email with business questions or concerns you will almost certainly find that these are received more favorably than if you had sent them without visiting at all. In short, if you plan on expanding your current product line or working with this factory for a long time, a visit can be more than worth the time and money taken to get there. 

Still unsure? Feel free to email us for more advice before you book that flight.

Is this factory for real?

We have all heard the horror stories of small businesses swindled while trying to order from factories. It pays to be cautious, especially when you have limited experience buying from China. Below we have compiled a few ways to help you identify any glaring disparities before you sign on the dotted line.  However, keep in mind that it is very difficult to undertake thorough due diligence on factories yourself, even if you speak Mandarin.

To Alibaba or not to Alibaba

When browsing through Alibaba, don’t make the mistake of trusting those blue or yellow stars, or even the fancy medals. The most important thing to look for when assessing the trustworthiness of a supplier is previous customer feedback. We would not recommend placing a substantial order from a supplier with less than one hundred detailed, legible positive reviews, preferably on the same product you wish to order.

Another strategy is to request the contact information of previous happy customers in your country. You can then contact them directly to find out about their experience working with your factory. 

Go direct to the source

Ask the factory to send you a copy of their business license, then find a Mandarin translator, preferably with a legal background (UpWork is great for this) to have them verify it. They should check when the company was formed, where it is located and the type of business the company is engaged in. This information should match any information they have given you so far, and what is listed on their website (in both Mandarin and English). The translator should also confirm that the information listed on the license with the the information posted about the factory on the State Administration for Industry and Commerce (SAIC) website.

Or, go pro

Shameless plug time – here at WeSource we can organize these due diligence checks for you easily and inexpensively. While the above steps will help you avoid the most obvious scams, for true peace of mind it is better to go through a third party agency that knows exactly what to look for.

It is important to know that a Chinese factory also has misgivings about you – especially if you are a first-time customer. If you have gone to the trouble to engage a local company to undertake your due diligence then the factory will understand you are serious about your order. Establishing trust on both sides will make your manufacturing process much easier and give your partnership the best chance for long term success.  

Contact us today to discuss the best way to undertake due diligence on your potential manufacturing partner. 

Key terms you may encounter in working with China

Bill of Lading
A document issued to an exporter by a common carrier transporting merchandise. Think of it as a receipt that travels with the order.

CIF - Cost, Insurance and Freight
A quote that includes all costs delivered to the import port. Duties, fees, customs clearance, and local delivery are the responsibility of the buyer.

EXW - Ex Works
A quote given that is basically only the raw, packed order; ready to be picked up at the factory. No transport, no insurance, etc... 

FOB - Free on Board
A quote that includes the goods delivered to the port and boat, with all domestic fees paid. International shipping, fees, and import duties are the responsibility of the buyer.

FCL - Full Container Load
Indicates the quantity that is needed for a product to fill a container. This could be a 20 foot or a 40 foot container. It is the most economical way to ship product.

HTS - Harmonized Tariff Schedule
A tax table for goods imported into the US and their subsequent duty rates. If you don't know your products HTS code (every product has one), you can search the website to find the best match. Having the correct duty rate on your order is extremely important. No one likes surprises.

Landed
A quote encompassing all the costs associated, including shipping, packaging, commissions, inspection fees, duties, exchange rates, etc... Make sure you pay attention to where the product is being quoted to 'land' as you may have to still factor in local shipping.

LCL: Less than Container Load
A quantity that is not enough for a full container. If shipped by sea, these orders can be expensive (if you need them fast) or delayed (by trying to place it together with other orders going to a similar location, while waiting to fill a container).  

MOQ - Minimum Order Quantity
The minimum number of pieces that a supplier is requesting in order to start production.

OEM - Original Equipment Manufacturer
This is a company that makes a part that is used in another company's end product. They may be the ones who invented the product or just might be the ones who were selected to produce it for the first time. They may or may not have a patent on that product. OG for life.

PO - Purchase Order
The official order that is placed at the factory.

PSS - Product Specification Sheet
A worksheet that outlines all the technical standards and specifications of a product. Created together by the factory with the buyer. Standards, necessary certifications, and all critical specifications should be finely detailed in the PSS. Materials, finishes, accessories, add ons, and packaging should also be included. 

QC - Quality Control
By far one of the most important aspects of sourcing to have on lock, quality control procedures vary widely depending on the product that you are buying/sourcing. Quality Control documents are made intending to ensure that a manufactured product adheres to defined criteria and meets your requirements. 

TT - Telegraphic Transfer
Also known as a wire transfer or a bank transfer, the TT is the fastest and most direct way to wire money from one account to another. Money wires can be sent to domestic or international recipients.

 

Four questions to ask before signing with a manufacturer

Have you found your dream manufacturer? Are you ready to confirm your first order? Here at WeSource we suggest you ask yourself four quick questions before you sign on the dotted line.

Are they communicative and responsive?

Right now, you and your prospective factory are in the early stages of dating, and you are the catch. They should be doing all they can to make you feel like a priority, including answering your calls and replying to your emails in full.

Pro Tip: Communicate briefly and simply. Consider breaking your points into numbered paragraphs. If your requests for information are consistently ignored or you find yourself waiting more than 24hrs for a response, you might want to swipe left. 

Do they respect my time?

As a new client, it is unlikely you will be able to impose penalties if a manufacturer fails to meet your deadlines. This means you need to look for other signs that they will deliver on time. 

How quickly did you receive your samples? Did they promise to have them to you in two weeks, but take two months? Gather clues and decide if you think this manufacturer respects your deadlines. 

Pro Tip: Make sure your quote includes a lead time in writing and emphasis that you are on a tight deadline. Also ask if there are any public holidays that might cause delays. Delays can happen; it is how they are handled that is important. Does their response inspire your confidence? 

Am I really happy with the samples?

It is not until you hold a sample in your hand that you know the true quality of your prospective manufacturer's products. What you see here is what you will get, so inspect samples thoroughly for spots of glue, funny smells, poorly sewn seams, etc. How did they factory respond to your feedback on the samples? Were they willing to make any changes you requested, or did they brush off your concerns? Anything less than a total willingness to fix your concerns should set off warning bells.

Pro Tip: Request an additional sample if you are not satisfied. Many manufacturers will ask you to pay for this and we advise that you do so, asking that the fee be absorbed into the cost of the final order. Any sample fee will be a fraction of the final order and it sends the message that you will be paying close attention to the quality of the finished product. 

Is the price really right?

Wait, didn’t we agree on this already? Make sure there are no miscommunications when it comes to what is included. Is the price per unit, per color or per design? Is it FOB, EXW or CIF? What is the MOQ, and does your order meet it? Does the price include all packaging? What exchange rate was used to calculate your price, and has it changed since? 

Pro Tip: Ask for all of the above information in writing to avoid any nasty surprises down the line. Sometimes, there are many additional costs behind that attractive first price. 

Seeing your dream product come to life is such a thrill. Check your excitement for just a second and ask yourself these four questions - they are sure to make your sourcing process a whole lot easier.

Know your business before looking to China

When you first consider manufacturing in China it can be tempting to dive straight into comparisons between factories. At WeSource we know it is the businesses that know their own operations back-to-front that have the most success moving their production off-shore. To increase your chances of success, take a minute to consider these four aspects of your own operations.

The pros and cons of your current supply chain

How many components does your product have? How many stages does it pass through before it reaches your consumer? Can your entire product, including packaging, be made in one location? If your product contains multiple, generalized components, you may find it easier to produce in China. This is because you can develop a process by which the factories coordinate to arrange the delivery of components to each other. If your product contains specialized, custom or handmade elements, especially in small numbers, you may be better off producing domestically.

Your manufacturing 'story' and how it relates to your brand

In a market where consumers have a relationship with your product long before it hits the shelves, the origins of your product form an integral part of your brand. How does your choice of manufacturer influence your branding? While China used to be synonymous with large scale production, brands such as Everlane demonstrate that it is increasingly possible to create a brand that promotes small-scale production and sustainability while manufacturing in China.  Consider how important the manufacturer is to your overall brand, and select accordingly.

The complexity and flexibility of your designs

Many businesses make the mistake of developing designs for a product without finding out if they can be easily produced. In most cases, designers need to work with the manufacturer to tweak the designs before they can be made. Do you have an in-house design team that will work side-by-side with your manufacturer? Or, will you be reliant on your manufacturer to make any necessary changes? Determining how ‘hands-on’ you want your manufacturer to be will help you navigate any design changes later on.  

Projected sales and product turnover

If your product were to sell out tomorrow, how soon would you need a new delivery? How many widgets do you expect to sell next week? Next month? Next year? Manufacturing in China means longer lead times, difficult when you need an extra shipment to fulfil unexpected orders. If you have a business where you are able to make clear sales projections, you will find it easier to manufacture in China as you can minimize your ‘unknowns’ and accept longer lead times for lower prices.

Shining the light on your own operations makes it easier to decide what you need in a manufacturing partner. Still unsure? Get in touch and let us help you find the right manufacturer to grow your business. 

Sourcing through Alibaba 101

Alibaba brings the vast production capabilities and expertise of Chinese manufacturers to small businesses worldwide. However, it can be tricky to navigate. 

Once you have found a seller who can produce your product you want to make sure you place an accurate, complete order. Here are 7 tips to help you do it right. 

Hit them with your best shots

A picture tells a thousand words, especially when you and your seller don't speak the same language. If you have a sample of your product, send 5-10 clear photographs. Shoot in natural light and be sure to include images of zippers, hardware, joins, seams, studs and buttons. 

Pro Tip: Photograph your sample alongside a measuring tape to show scale. China uses the metric system so make sure your measuring tape is in both inches and centimeters. 

Link it up

If you are sourcing a product that is sold online, send your seller links to example websites. Not only will the detailed images and specifications save you both time, but the seller will know that you are doing your market research (and offer comparable pricing). 

Pro Tip: Make a note of how other online retailers are shipping your product as this will help you design your shipping methods and packaging.

Show your hand

Be honest about the number of units you are looking to source. A seller must decide if your order is worth dedicating their materials, time, equipment and staff. Promising an order of 100,000 pieces when your budget is for 1,000 is a waste of time for all involved.

Pro Tip: If your order quantity is short of their MOQ, ask for the minimum price per unit at which they will produce your order. Some sellers will accept smaller orders for a higher price per unit. 

Know the costs

Do your research and know the rough cost per unit before you contact a seller. Check retail websites including Amazon and even brick-and-mortar stores. As a rough guide, to find the cost price of items you find in stores, halve the retail price for the wholesale price, then halve the wholesale price for the cost price. Online sites have lower margins and tend to price somewhere between the retail and the wholesale price. 

Pro Tip: AliExpress (AliBaba's shopper-friendly sister site) is your best friend when it comes to per unit costing. If your seller offers a cost price close to the best price available on AliExpress, you are probably getting a good deal. 

Pack it right

Know how each unit in your order will be packaged, as well as how the entire order will be packed. The cheapest option per unit is typically a ‘mailer box’; a white cardboard box with no labeling (think Ikea). The cost increases as you add color, vacuum packs and customization. Ask the seller for their recommendation. 

Pro Tip: Check how other websites are packing your product. Do they use protective packaging? Do they dismantle longer sections into shorter-sized pieces (e.g. mop handles)? There could be some hard-learned lessons there. Let their experience guide you. 

Set the date

A seller might be willing to produce your hexagonal beach towel, but that won't be any use if they can’t deliver until the end of summer. Give the seller the date by which you need your product (typically 3 months before it will go on sale) and have them confirm it in writing. 

Pro Tip: Sellers use the acronym 'E.T.D.' in conjunction with dates. Do not confuse this for ‘Estimated Time of Delivery’. It means ‘Estimated Time of Departure’, i.e., the date it will leave China. 

Get tested

Have you seen those faulty hoverboard videos? If your product contains electrical components make sure they meet National Standard Testing. An untested product is not only dangerous, it is likely to languish in customs while they figure out if it should be released. Products that have been tested for export come with certification and testing documents - ask for them!

Pro Tip: Do not place an order for uncertified products. A reputable seller will have all the certifications on hand or be willing to get them. Make sure you have copies before you place the order. 

When navigated properly, Alibaba is an incredible resource for your business. Make a note of these tips and be on your way to placing accurate, complete orders every time.