This in-depth guide will get you well on the way towards finding products in China and in turn towards Amazon seller success.
September 29, 2020
As sellers turn to Amazon, there’s no better time to source from China
The coronavirus pandemic has clobbered businesses worldwide with one exception – e-commerce, particularly Amazon. As lockdowns and mobility restrictions in early 2020 drove brick-and-mortar shops to down their shutters, many of them permanently, Amazon sales rose 40% year-on-year in the April-June quarter. It earned $5.2 billion in profits, doubling its earnings from the same period last year. This, despite the e-commerce giant hiring 175,000 new workers to deal with the sales rush and spending $4 billion on coronavirus-related safety measures. The record sales and revenue were driven by locked-down shoppers taking their buying online. And it wasn’t just Amazon that benefited in those early days of fear. According to a Mastercard SpendingPulse report, e-commerce accounted for 22% of retail sales in the United States in April-May, up from 11% in the same period in 2019. In the United Kingdom, this figure was a record 33%. (The US and UK are the world’s second and third largest e-commerce markets with China taking the top spot).
The rise of e-commerce in a Covid-19 world, we believe, underscores a broad shift to digital in the way we live, work and buy. Months on, the virus continues to affect economic and social activity. A return to the old ways of doing business seems impossible, at least any time soon. Hence, many sellers are looking to take their businesses online.
This blog explores what it takes to be an Amazon seller, with a focus on how a trustworthy sourcing agent such as Sourcing Allies can help make the experience a profitable and fulfilling one. If you are not a manufacturer of goods, you might be aware that sourcing the right product from the right place is key to being a successful seller on Amazon. This is where a sourcing agent like Sourcing Allies comes in, with our experience and expertise in sourcing a wide variety of products from China – the world’s factory. Read on.
Amazon sells just about everything, from home appliances, electronics, office supplies, books and toys to food, beauty products, shoes and apparel. Where does it sell this vast inventory? On Amazon.com and Amazon Marketplace, the two entities on the Amazon website that make one whole.
Amazon.com: Products owned by Amazon are sold on amazon.com. It sources wholesale goods from distributors/manufacturers through the invitation-only programme Amazon Vendor Central. The first-party sellers sell their inventory in bulk and pass on ownership to Amazon. Products on this platform come with a “ships from and sold by Amazon.com” tag.
Amazon Marketplace: This is where third-party sellers sell their products (new and used) under their own brands to Amazon customers directly. They retain ownership of the goods but Amazon gets a share of the profits. Third-party sellers account for more than half of Amazon’s sales. Marketplace is open to individuals and companies through the Amazon Seller Central programme. Marketplace products are either Fulfilled by Amazon (FBA) or Fulfilled by Merchant (FBM).
Fulfilled by Amazon (FBA): The seller sends inventory to an Amazon fulfillment centre and the company handles packaging, shipping and customer communication. This saves the seller the hassle of logistics and makes their products eligible for Amazon Prime’s fast shipping benefits.
Fulfilled by Merchant (FBM): The seller takes care of packaging and shipping. The benefits include lower Amazon fees – no need to pay FBA storage/fulfilment charges – and higher profits. The seller also has immediate access to inventory and can respond quickly to customer complaints.
5 ways to sell on Amazon
Drop shipping: A third party manufactures and ships the product on the seller’s behalf. Amazon’s drop shipping policy, however, requires that all packaging, invoices and communication carry the seller’s name.
Retail arbitrage: The seller buys goods on discount from a retail store and sells them at a profit on Amazon. Arbitrage is associated with low margins. The trick is to pick the right product.
Selling wholesale: The seller buys wholesale goods in bulk and sells them on Amazon. This isthe business model favoured by a quarter of third-party sellers.
Selling private label products: The seller buys products made by a third-party company and sells these on Amazon after branding and marketing them as their own.
Manufacture and sell: The seller is the manufacturer too. The profit margin is higher and they have greater control over product quality, but they also incur manufacturing costs. Additionally, Amazon has an artisan-only community, Amazon Handmade, for handcrafted goods.
Household name: Everyone knows Amazon and trusts it.
It’s easy: Joining Amazon is simpler than launching your own website. Amazon also does a lot of the heavy lifting for you (marketing, logistics).
Big savings: With FBA, Amazon stores your inventory, for a fee. But you’re still saved the expense of getting your own storage space.
Grow your business: If you’re not with Amazon, you might get left behind.
But beware! Some drawbacks
Intense competition: This might compelyou to sell at a lower price, especially if you sell a product sold by many.
Gaming the Amazon system: Unscrupulous sellers might hijack your sales listings to sell their products, which might be counterfeit. They might also deface your product listings and leave fake reviews to sabotage your business. Here’s how listings get hijacked.
High commissions: From storage to shipping, Amazon conveniences come for a price. This, and its insistence on free delivery, can narrow profit margins.
If you are convinced Amazon is the way to go, the first thing to do is register:
Pick a selling plan – Individual costs $0.99 per item sold, Professional comes for $39.99 a month. If you’re selling on a smaller scale (less than 40 items a month), Individual is right for you.
Next, set up your account. You’ll need to furnish some information – phone number, email address, physical address, government ID, credit card and bank details, tax information, product specifications. Follow the steps, go through the verification process and you’re in.
What it takes to be an Amazon seller
Setting up your Amazon seller account is easy. The difficult part comes before. You must complete two important tasks before you register. The first is to decide on a product you can make or acquire inexpensively and sell for a profit. The second is to source that product.
1. Find a product
This requires some research of products, market trends, sales data and competitors. For those who don’t already have a product in mind, here are a few things to consider:
Price: Don’t go too high or too low. A range of $10-$50 is considered ideal as it attracts impulse buys.
Demand: A product that sells 10 units a day all year round is safe. Don’t go for seasonal products.
Competition: If there are many sellers of the same product and they’ve racked up some strong reviews, you might want to look for something else.
Durability: Amazon sellers deal with more returns than other sellers. Make sure your product is sturdy.
Weight: Pick something small and light to save on shipping, storage and return costs.
Don’t worry. There are plenty of product research tools, paid and free, that can help you with the research. A few popular ones are:
Amazon Best Sellers lists: Amazon has lists of the top 100 best-selling products in any category. Go through these to get a fair idea of what a good product is.
Amazon Best Sellers Rank (BSR): Each product on Amazon comes with a rank based on orders compared to other products in the same category. It is found in the product description section. The lower the BSR, the better it is.
Google Trends: A simple web search can tell you if your chosen product is in demand all year round.
AMZScout: This tool offers useful information such as BSR, monthly sales, profits, competitor levels.
Keepa: This price tracker comes with comprehensive price history charts and price drop and availability alerts.
2. Source your product
Make it yourself.
Manufacture locally. This might be expensive, but your chances of getting a quality product quickly are high.
Source it from overseas, especially China. This is where we – China sourcing agent Sourcing Allies – can be of help. More on that later.
It’s industrial scale is unparalleled. It is home to diverse globally-competitive industries such as smartphones, clothes, computers and furniture.
A unique feature of China is the existence of clusters of factories producing the same product or related to the same industry in a single city or region. For example, Changsha is known for fireworks, Dongguan for electronics, Ningbo for injection moulds and Yangzhou for leather shoes. Clustering means efficiency in manufacturing and use of supply chains.
China’s supply chains are among the most developed.
China might be export-driven, but it has a huge domestic market.
It shows a dogged devotion to the economy. As the world was going under lockdown in March, factories in China were already reopening.
Where to look for China suppliers?
There are many routes you can take to find a China wholesale supplier:
B2B websites: Look for them ononline marketplaces like Alibaba, Global Sources and Made in China. They provide customer reviews and have rating systems for manufacturers, which can help you select and shortlist.
Trade fairs: If you have the time, money and inclination, visit a trade fair in China or one that attracts Chinese manufacturers in another country. Direct interactions are great for fostering long-term relationships. China hosts several trade fairs every year, including the bi-annual Canton Fair, its largest.
Industry resources: Recommendations from trade bodies and fellow business owners is another way of finding China wholesale suppliers.
Sourcing agents: A China sourcing agent, such as Sourcing Allies, can help you find suppliers and guide you through the often complex sourcing process. Sourcing Allies has been helping businesses in the US and western Europe manufacture and source from China, India and eastern Europe since 2006. When it comes to finding China wholesale manufacturers, Sourcing Allies has a distinct advantage over its competitors:
We have a professional team in China with on-the-ground experience and know-how about the way the country functions.
We can help you find an original equipment manufacturer (OEM) in China. An OEM is a manufacturing specialist that makes a product or component for another company – that would be you – that provides it with the product design and specifications. You can sell this product or component as it is or by adding value to it (assembling it with other components) under your brand on Amazon.
We can help you select and shortlist suppliers by considering production process and product type. Then, our team will provide a quote based on that. In addition, we will carry out a supplier evaluation, which will give you finer details ranging from health, safety and environmental responsibility to production capability and capacity.
At all stages of production, we will clearly communicate your requirements to your chosen manufacturer, conduct quality control inspections, take care of documentation, shipping and transportation, draw up payment terms and troubleshoot any problems that arise. We also offer order financing.
Contact the most promising suppliers and tell them your requirements.
How to shortlist a supplier
The next step is to shortlist, verify and finalise a China wholesale supplier. As a first step, we recommend you contact the most promising suppliers and tell them your requirements. These include:
The raw materials and components you want for your product. Don’t forget to specify their quality. Some suppliers might use recycled material unless otherwise told, which could lead to problems down the road, depending on the product’s final intended use.
The price per item you are willing to pay.
Your minimum order quantity (MOQ).
Whether you want the supplier to help develop the product or come up with a prototype or product sample. Experience tells us that most China wholesalesuppliers are not keen on development projects as these are time-consuming and costly. So, it is important to lay your cards on the table at the beginning.
To know if the supplier is up to the task, ask them a few questions:
Do they specialise in making the product you require, or in that same production process?
Do they export to your place of business?
What MOQs do they usually work with?
How long have they been in business?
Having a China sourcing agent walk you through this process can be helpful, especially if you are sourcing for the first timer. Sourcing Allies can help you:
Sniff out unreliable suppliers and scams
Negotiate fair rates
Make sense of language and cultural differences, which can be a source of unforeseen trouble
Verification: Is the supplier legit?
If the business of sourcing is like going to war, then information is your greatest weapon. A quote by the Chinese general and strategist Sun Tzu holds a lesson:
“If you know the enemy and yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
It is imperative to know if the supplier is who they say they are and has the capability and expertise to produce what you require. To verify their credentials:
Ask for and check their business licences, certifications, audited accounts and tax invoices
Locate the local government office that has jurisdiction over the supplier/factory and check their records
Find out if the factory has engineers or specialized workers with the expertise to produce the type of product you want
Find out the factory’s location. Given China’s cluster system, a location is often an indication of whether the supplier is a manufacturer or a reseller
Ask for a prototype or product sample before finalizing your order
Visit the factory in China or have your China sourcing agentdo it for you. If you go through Sourcing Allies, you can expect multiple factory visits, in-process quality checks and in-person troubleshooting of any problems that might arise during production
Placing your order
Now that you’ve finalised your supplier, you’re ready to place your order. But there’s still a final checklist to cross off:
Buy directly from a manufacturer. That’s the universal rule of sourcing. But sometimes, it makes sense to work with a reseller. For example, if your MOQ is modest, a large manufacturer might not give it the importance it deserves.
Be clear about pricing. Fix a price and the period it is valid for. If not, changes during the production stage – a rise in raw material costs or exchange rates – might leave you with a heftier bill. Be sure to communicate all requirements, packaging standards and quality standards with international specs in the quoting stage itself. Unspecified requirements and expectations that continue to grow through the sampling stage are the quickest ways to a price hike. Try to negotiate an overall bill with packaging, shipping, transport and customs clearance costs included. Never pay in full in advance. Read our tips on favourable payment terms here.
Check your supplier’s production schedule to make sure you haven’t been double-booked. Some China wholesale suppliers double book to avoid loss of business on the off chance that an order doesn’t go through or is delayed.
Don’t blindly leave the shipping to your supplier. They might not be inclined to get you the best freight rates. You can choose a carrier yourself or have your sourcing agent take care of it. When Sourcing Allies handles shipping, we offer the most time and cost-effective solutions. Let’s say, a client requests an urgent and unscheduled shipment of a portion of their goods. We arrange a quick air shipment to meet their immediate needs and send the rest of the goods by sea. We can also arrange priority shipping or have the client’s consignment first off the ship.
Pay attention to lead times (time from production initiation to delivery). Factor in the time it would take your China wholesale supplier to source raw materials, get them to the factory, manufacture the product and ship it. Be aware of potential delays caused by holidays (Chinese New Year, Golden Week) and shipping peak seasons.
Before the product leaves China, make sure it meets your country’s standards on safety and intellectual property, among others. Sending it back is almost always not a workable solution.
Shipping the product
After the products are ready, they have to be shipped – but to whom? If you are an FBA seller, you have two options (which would hold true even if Sourcing Allies were to handle shipping for you).
1. China to Amazon FBA The manufacturer/supplier ships your inventory directly to Amazon’s fulfilment centres.
The goods reach Amazon faster, so you can start selling that much quicker.
If you’re on a tight budget, consolidated shipments from China can help you save on costs.
You have no way of inspecting the quality of the goods before they reach Amazon.
Amazon might request that shipments be sent to different warehouses each time.
2. Shipping to yourself/middleman The manufacturer/supplier ships the goods to you or your nominated middleman. You, or the middleman, then send the goods to Amazon.
You can inspect the goods to ensure they meet your quality requirements.
You can make sure the shipment complies with Amazon’s packaging and shipping requirements, reducing the chance of it getting rejected.
Transit time is longer.
Hiring a middleman means paying them.
If you’re doing it yourself, it takes time and effort.
Made-in China: Can I trust the products?
There are numerous consequences to selling poor quality products on Amazon:
Complaints and bad reviews
Frequent returns and low sales
Removal of products from sale
Suspension/deactivation of Amazon account
When it comes to sourcing from China, there is a perception that made-in-China equals poor quality – though this is gradually changing. Some quality problems do crop up with goods sourced from China, along with other issues. Fortunately, most of them have simple solutions.
Golden sample: The sample your supplier sends you is perfect but the rest of the products don’t match it. To avoid this, be very specific about product quality. Put it in writing, clearly and in detail. Of course, verifying your supplier before placing your order goes without saying.
Cha Bu Duo: China sourcing agentsdread this phrase, which translates into “close enough”. For example, the manufacturer delivers a product that clearly does not meet certain quality specifications but insists it’s close enough. Dealing with this cultural quirk is difficult. But an experienced sourcing agent can find a way around it.
Quality snags: Some quality problems are unavoidable. But with the right collaboration between your sourcing agent and the manufacturer, even a seemingly impossible flaw can be fixed. Sourcing Allies encountered such a problem on a recent project involving die cast components. The component had an inconsistent surface finish whereas the client wanted a high surface finish. A design flaw – the parting line, where the two halves of the die cast mould meet, was on a visible surface – and the need for excessive polishing to correct that flaw had given the component a less than aesthetic finish. Luckily, we caught the problem at the sampling stage. To fix it, we modified the tool so the parting line would fall on a surface hidden from view. Result: We got the desired finish and the reduced polishing cost offset the cost of the tool change.
Price change: Oftentimes, suppliers jack up the product price after signing the contract because they had not fully understood the buyer’s requirements, which might or might not have been clearly communicated to them. The answer, again, is to spell everything out in writing.
Cultural quirks: Dealing with a China wholesale supplier, as opposed to one in Europe or the US, is a vastly different experience. Their approach and attitudes are different. We’ve noticed that suppliers in Asia don’t like asking questions and informing clients about delays and problems. They think this reflects poorly on them. Letting your supplier know you welcome their questions can save you a lot of trouble later.
Delays: Delays are a given in manufacturing. Make sure to send your supplier frequent reminders through your sourcing agent. At the same time, be reasonable about lead times and give the supplier adequate time to procure raw material, make or order components, manufacture or acquire the final product and ship it.
Packaging issues: A good product can amount to trash if not packed to withstand the long overseas journey. Before shipping, ensure your shipment is packed in export-appropriate boxes, secured with pallets and properly stacked in containers. With Sourcing Allies, you can count on your cargo being palletised.
Your goods arrive from China, you discover they are not up to the mark, but it’s too late to do anything about it. Quality control inspections before the goods leave China are the best way to avoid such a fate. You can do it yourself. Better yet, you can hire a company that specialises in it or have your sourcing agent do it for you. Most factories are open to quality checks. Avoid those that show resistance. While inspections add to your costs, they’re worth the expense because:
Manufacturers might be tempted to use cheap, poor quality material if left unchecked
It is cheaper and easier to fix a problem before the product has been shipped
Remaking defective products is not viable for the supplier. Also, refunds are rare in China. The best you can hope for is credit on your next order, if you wish to continue working with the same supplier.
There are three types of quality control inspections:
Pre-production: The prototypes / samples are inspected.
Production: The inspector reviews the first few finished products.
Pre-shipment: The inspector visits the factory in China when the order is 80%-100% complete and ready to be shipped. This is the only option that offers a full inspection and is, naturally, the most expensive.
When a quality control inspector visits your chosen factory in China, they perform the following checks:
Quantity: They verify the order quantity. They also ensure the quantity per carton in your shipment is uniform and complies with Amazon’s packaging and prep requirements. For example, if there are 500 pieces of the same product and five cartons, each carton should hold 100 pieces.
Conformity: The inspector verifies product style and colour as per your specifications. They also check for compliance with labelling, packaging, shipping requirements. For example, Amazon requires readable, scannable labels with white backgrounds. It also demands carton drop tests to determine if the shipment can withstand rough handling during shipping.
Workmanship: The inspector checks the appearance and basic function of the product.
Function: A more detailed review of the product’s function is done.
Others: More checks might be required based on product type. You can provide your quality control inspector with a detailed list of checks.
When Sourcing Allies handles quality control inspections, there are two ways we go about it:
Our team in China handles it. First, we recommend that the checks be performed during the sampling stage, which is the best time to catch inadequacies and fix them. Also, our checks are done to specification, so we require our clients to provide us with clear specifications.
In some cases – when the factory is too far from our office, for instance – we delegate the inspection to a trusted, verified third-party inspection company, whom we have been working with for many years.
Sourcing a product from China or anywhere else, expanding your inventory and growing your business, all of it requires money. Most Amazon sellers start off small and don’t have a pile of cash lying around. Times are particularly hard these days. They could take the classic route to raising capital – a bank loan. However, we’ve noticed that traditional banks are reluctant to lend to small businesses. Thankfully, there are still lending options available:
Amazon Lending: Since 2011, Amazon has lent small businesses amounts ranging from $1,000 to $75,000 through this invitation-only programme. To receive an invitation on your Seller Central account, you need decent sales and reviews for at least 12 months. Amazon charges an interest rate of up to 16% on such loans and the repayment period is 12 months, according to borrowers. The application process is easy and entirely digital.
Line of credit: A line of credit works like a credit card. There is no lump sum disbursal as in a loan. Instead, you receive a revolving line of credit. When you pay back an amount, it is available for withdrawal again. Amazon sellers can raise between $5,000 and $5 million from such lines of credit. Lenders might charge an annual fee apart from interest. One such line of credit comes from Amazon’s own stables, in partnership with Goldman Sachs. The Marcus credit line, as it is called, offers up to $1 million at interest rates of 6.99% to 20.99%.
Merchant cash advance: This is a cash advance against future sales, suitable for businesses with large credit card sale volumes. The lender charges a fixed fee and no interest, instead taking a percentage of daily or weekly sales as repayment. Sellers can borrow up to $250,000. The repayment period is usually 18 months or less.
Peer-to-peer lending: You receive a loan not from a bank but from individuals you are matched with on a peer-to-peer (P2P) lending platform. Once you post the amount you want and the interest you are willing to pay on the lender’s website, potential investors will bid on your loan. A P2P loan is more expensive than a regular loan and requires a high credit score.
Factoring: You raise funds by selling your invoices to a factoring company, which then collects payments from your customers. This is an easy way to get money quickly. Most firms charge an overall factoring fee but some may also charge for money transfers and operational costs.
Sourcing Allies loans: We offer short-term loans (30 to 60 day terms) to customers on a customised, case-by case basis.
Once your cash flow needs are settled and you’ve started selling regularly on Amazon, you might want to level up and build your own brand with a brand name, logo and specially designed packaging. A successful brand is all about providing an enhanced shopping experience and achieving better sales as a result. There are two ways to having a branded presence on Amazon:
Any seller registered with Brand Registry can open an Amazon Store. This is a self-service product that allows brand owners to design, curate and create multi-page stores for their brands and products on Amazon free of charge. There are many benefits to being a Store owner:
Introducing your brand to shoppers through customised images, videos, texts
Building brand awareness with your own web address (amazon.com/YOUR BRAND) and customised store
Offering customers an enhanced shopping experience on mobile and desktop