Product Sourcing 101: How to Source Products in 2020
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 are big questions.
Why? 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.
No pressure then…
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. Plus, we’ll share an eight-step product sourcing strategy to help you get started.
Let’s dive in.
What is Product Sourcing?
Product sourcing definition: Product sourcing is the process a business uses to acquire the products it plans to sell. Businesses can source products from manufacturers, wholesales, dropshipping suppliers, or print-on-demand services.
3 Common Ways to Source Products
The first step when sourcing products is to decide which type of supplier you want to partner with:
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.
Let’s take a closer look at each product sourcing method.
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.
Where to Source Products from Manufacturers
- 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.
- Unique products. You’re able to create unique, branded products that help to differentiate your business from competitors.
- Easy to expand. Once you have a working relationship with a manufacturer, it’s easier to create new products and expand your business.
- 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.
- Need for storage space and infrastructure. You’ll be responsible for storing and shipping orders. (Although, it’s possible to simplify this process with the Shopify Fulfillment Network.)
- Logistically challenging. You need to manage product development, prototyping, shipping, duties, storage, and order fulfillment.
- 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.
- 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 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.
Where to Source Products from Wholesalers
I know – shameless plug, right? But for good reason.
Here at Handshake, we’ve vetted and curated a unique selection of independent creators. These suppliers and products are handpicked to make it easy for you to source products that help your store stand out from the crowd.
- Good margins. You’ll usually find larger margins when manufacturing and smaller margins when dropshipping – wholesalers provide a comfortable middle ground.
- 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.
- 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.
- Less capital is needed upfront. Wholesale product sourcing typically requires less money upfront than you’d need to manufacture products.
- No need to develop products. Wholesale product sourcing doesn’t require you to spend time, effort, and money developing new products.
- Branding opportunities. Although you’re usually unable to differentiate the product itself, many wholesalers offer private labeling services that allow you to brand products, such as Stoney River.
- Differentiation is challenging. It can be challenging to differentiate your business from competitors when selling the same products.
- There’s still some risk. You still need to purchase inventory upfront with no guarantee the products will sell.
- Need to manage inventory and fulfillment. You may need to store inventory and fulfill customer orders. (Again, you could get around this issue by using Shopify’s Fulfillment Network.)
- Supply management challenges. As your business grows, you’ll likely start sourcing products from multiple wholesalers, which can become difficult to manage.
To learn more about wholesale product sourcing, check out The Ultimate Guide to Finding the Best Wholesalers Online.
3. Dropshipping Sources
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:
Where to Source Products from Dropshipping Suppliers
There are two main ways to start dropshipping.
- Strike up direct partnerships with wholesalers who provide dropshipping services. Then, create a way to manage orders and payments.
- Use a platform that connects you with dropshipping suppliers, which also automatically manages orders and payments for you.
The first option allows you to find super niche products that not many other businesses are selling. But it’s a lot more difficult to set up and manage.
Other dropshipping sources include print-on-demand services like Printify and Printful. These services allow you to customize your products. You could also check out niche dropshipping sources like coffee supplier Dripshipper and art supplier Creative Hub.
- 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. (Oberlo is free!)
- 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.
- 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.
- Easy to test new products and expand. You can test as many products as you like without any risk, because there’s no cost to adding additional dropshipping products to your store.
- 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.
- Easy to work remotely. Because you don’t physically deal with products, it’s easy to run a dropshipping business entirely online – so you can work from home or while traveling.
- 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.
- 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.
- 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.
- Difficult to reinvest. With smaller margins than wholesale product sourcing, you’ll have less money to invest in marketing activities to grow your business.
- 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.
Which Product Sourcing Strategy is Right for Your Business?
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.
That said, you may consider using more than one of these product sourcing methods.
For example, it’s not uncommon for a business to design and manufacture a flagship product and then source complementary products from wholesalers or dropshipping suppliers.
How to Source Products: A Step-by-Step Product Sourcing Strategy
If you want to know how to source products for your business, here’s an eight-step strategy to help get you started.
1. Conduct Market Research
Before you begin sourcing products, it’s vital that you conduct some market research to ensure there’s a demand for your idea. Make sure to research competitors, pricing, and your target market. Plus, create a plan to differentiate your business.
2. Choose a Way to Source Products
Do you want to work with manufacturers to create a new product or source products from wholesalers and dropshipping suppliers?
3. Use Product Sourcing Websites
4. Decide Whether to Source Products Locally or From Abroad
Are you interested in global product sourcing from countries like China or India? Perhaps you’d prefer to source products from the USA? Make sure to weigh the pros and cons of domestic suppliers vs. global suppliers.
5. Verify Your Product Sources
Before you place a large order, make sure to verify your product sources. You can do this by asking for official documentation and verifiable testimonials.
6. Verify and Test the Products
You also need to verify the products themselves. The best way to do this is to order samples. It’s also a good idea to start with a small test order. This way, you can see how the product sells and how customers respond before making a larger investment.
7. Have Backup Suppliers Ready
When sourcing products from wholesalers and dropshipping suppliers, it’s important to ensure that you don’t run out of stock. However, you don’t have control over the supplier’s inventory, so it helps to have other suppliers waiting in the wings.
8. Keep Sourcing Products
Don’t wait until sales slow down to start sourcing products. Plan for the future – consumer preferences may change, and competitors will catch up. When sales are strong, start looking for your next best-selling product.
Summary: Product Sourcing 101
Product sourcing is a process businesses use to obtain products to sell. In summary, there are three main types of product sources:
- Manufacturers make the products you plan to sell. They typically provide the greatest level of control and the lowest cost per unit. However, they usually set sizeable minimum order quantities and require businesses to handle complex logistical and communication challenges.
- Wholesalers source products from manufacturers and sell them in bulk to businesses. They typically provide good margins, and the product sourcing process is far simpler than working with a manufacturer. However, businesses often need to comply with the wholesaler’s pricing rules and manage their own inventory and fulfillment.
- Dropshipping suppliers own and store the products you sell online. When a customer places an order on your website, the dropshipping supplier will ship it to the customer on your behalf. This product sourcing method offers little-to-no risk and allows businesses to test as many products as they like. However, this method usually provides the smallest margins, and it can be challenging to differentiate from competitors.
Make sure to evaluate each product sourcing strategy’s pros and cons to ensure you choose the right method for your business.