Acquiring your product:
Now we are getting to the more exciting part of starting a business… the next phase of our journey is to find the best way to acquire the product/s. Products can be acquired through different channels, such as manufacturers, craftspeople, wholesalers, self-make, liquidators, etc.
In this blog I will discuss a few methods of acquiring your product, along with the pros and cons of each. First establish the criteria a method needs to comply with before continuing with the research. In other words, what is required and how much will it cost to get the product to a consumer.
These criteria are related to your product’s specific needs, and include reliability of the supplier, quality of manufacturing and guarantee of production, along with supply terms.
Keep the following in mind when researching possible ways of acquiring your product:
-Find more than one way of obtaining your product (locally and internationally).
-When finding international manufacturers, make sure you know the import laws, licenses needed and taxes to be paid.
-Take note of the minimum order amount before transacting.
Below are the more popular methods to acquire a product.
Self manufacturing:
If your product is unique and there are no manufacturers that currently supply your product and you enjoy making things, this could be a viable option for you. This option, however, can consume more of your time than you initially anticipated and keep you tied down. This prevents you from running the aspects of the business that will help it grow.
Pros:
- Low risk– No full commitment is needed when manufacturing your own product.
- Potential low start-up cost – Depending on the product, this method can have a relatively low startup cost, because you decide on the quantity produced. It allows you to test the market.
- Brand Control – You control the sales and distribution of your own product.
- Price Control– You are not necessarily dependent on exchange rates, manufacturers with a price increase or other factors that will increase your prices unexpectedly.
- Quality Control– You control the resources and material used. You can test the product yourself for quality and improvements.
- Flexibility– The amount of products produced is dependent on your capability and time. You comply with your own terms and not that of other brands.
Cons:
- Time Input– Depending on your product, this can be a time consuming process and can leave you with less time to run the business itself.
- Growth limitations- Making products yourself builds a handmade concept of your brand, limiting your manufacturing options when there is more demand for your product. Finding a manufacturer/crafts person that can create your specific handmade product will be difficult.
- Limited Products– Your product development is limited to your time, skills and resources available.
Manufacturer:
This option is usually for entrepreneurs that have a unique idea or a variation of an existing product that has not been manufactured yet. This could be the best way to start up where a manufacturer (factory) already manufactures the product you want to resell and is willing to supply you with the product.
For this method you need a lot of confidence in the demand for your product, because of the upfront payment to have your product designed, the making of prototypes and the production of a minimum amount of products.
Pros:
- Lower Cost– In the long run this could be a more cost effective option. Initially you will have to spend a substantial amount of money, but once your product is designed and tested, it will bring the manufacturing cost down.
- Low responsibility- You won’t have the responsibility of looking after manufacturing staff, their safety, broken machinery, etc.
- Brand Control– Controlling your product’s production through the manufacturer gives you the ability to control your brand’s name and product distribution. You do not have to give heed to another brand’s terms.
- Selling Price – Because you own your own brand, you have control over the price you sell the product for.
- Quality Control– You control the production, material and resources used.
Cons:
- Start-up cost – the initial financial amount required for designing, prototyping and the required minimum order of the product can be a big financial burden, especially if you are not sure about your market demand.
- Minimum Orders– with manufacturers you have a set minimum order every time you place an order. This makes your initial supply for demand only difficult.
- Potential Fraud – when dealing with manufacturers, you have to protect yourself, especially with manufacturers from overseas. Examples of things that could go wrong: materials used, low quality product, misunderstanding each other, taking your money and not manufacturing the products for you, etc.
- Start time delay- Once you find a manufacturer, there is still a long process to follow before your product can be manufactured. This process could take even longer with manufacturers from other countries because of the communication delay and language barrier. Keep in mind that when you do need to have a non-existing product made, it has to go through the prototyping, sampling and refining process first before quantities can be manufactured, initially making this a long process.
To find the best possible solution for manufacturing your product, make a list of the requirements to produce your product, including the necessary materials, cost, minimum order, etc. Validate your criteria with local manufacturers (within your country) and manufacturers outside of your country. It is advised to research more than one manufacturer, as you will need a backup in situations like strikes, when ordering larger quantities or when your manufacturer closes down.
Finding manufacturers can be done easily with a Google search, word of mouth or websites like alibaba.com. Make sure you use the right keywords when searching, for example the type of manufacturer, location, etc. Finding manufacturers will take some time, as you need to do a thorough search to validate potential companies against your required criteria to establish their feasibility.
When finding companies that potentially fit your product’s manufacturing criteria, contact them with your list of questions to further validate whether they are able to supply you, based on your needs. These questions should range from minim order quantity, materials used, quality, price, shipping, manufacturing and shipping process, etc. Enquire about their policy on selling to a retailer instead of to a registered wholesaler. If they require that you become a wholesaler, what is the process to become one?
Becoming a wholesaler usually involves filling out forms, providing banking history and, in certain cases, a letter or reference of your credit record. Becoming a wholesaler gives you the advantage of getting the product at a discounted rate.
Manufacturers include farmers, craftspeople and manufacturers’ agents. Deciding on whether to use a local manufacturer or a manufacturer outside your country really depends on your product criteria, the cost and the quality. This decision is also based on your target audience.
The different manufacturing options:
- Buying directly from a factory – this option cuts out all the middlemen/ agents. Each factory’s policy varies. Not all of them will supply to small businesses. The best way to confirm if they would supply your product, is to contact them directly, if you can.
- Manufacturer’s agents – Normally manufacturer’s agents help factories in rural areas that don’t have the in-house resources to find larger wholesalers or new geographical markets nationally and internationally to distribute to. Their main purpose is to prospect new business and sign accounts with retailers/wholesalers. Initially you will be paying slightly more on the total price of your order, but, as your order quantities increase, your price per unit will decrease. Manufacturer’s agents can be found on manufacturers’ agents directories such as: manaonline.
- Craftspeople – With the amount of talented people crafting things, it is more than likely that you would be able to find someone to make your product for you. They can either supply their product to you or make your product for you. The majority of craftspeople already sell their own products, but, as most of them will admit, they are not always the best sales people and are normally open to discuss an arrangement for you to sell their product for them, only taking a percentage of the profit. Depending on the product, crafted goods can be pricy because of the time it takes to make the product or because of the materials used. This is a method of acquiring your product with a low financial risk.
- Online Auction Sites (such as eBay) – These sites are used to buy products for personal use, but they have a separate wholesale product section where you can buy products in larger quantities at a discounted price. New wholesale products on eBay are found at the following link: Wholesale eBay. These products are usually liquidated merchandise, pallet lots, remainders or returns. Usually you would have to be a registered wholesaler to be able to purchase a product in the wholesaler section.
Use the following suggested requirements before considering a manufacturer as a prospect:
- Pricing – When buying from a manufacturer, it needs to be at a price level that enables you to resell your product at a competitive price and still make sufficient profit (make sure you calculate all costs involved).
- Quality products – Quality remains one of the most important requirements when having your product manufactured. Keep in mind that when you find a low-priced manufacturer, but they provide you with a low quality product, it is not worth trying to sell the product. Make sure that the price fits the quality. You want to start off with a good name, keeping clients happy with a competitive price and quality product. This does not necessarily have to be the best quality, but it should satisfy your clients.
- Reliability and turn around time – You need to make sure that a manufacturer is reliable w.r.t. supplying on time and consistent in the quality of the product (as agreed upon). Keep in mind that clients get impatient and unhappy if you let them wait longer than what they expected to wait.
- Terms – When dealing with manufacturers, it is better to use one that offers a form of repayment terms on purchases. Payment terms give you the advantage of paying for the products after you have received money from sales. Normally this type of credit is only granted after establishing a good payment record by paying the first few orders in full.
Wholesalers
Buying from a wholesaler is easier than the other methods of acquiring your product. This is normally the first option when you only have to acquire a large quantity of an existing product. Wholesalers generally stock a variety of products in large quantities, giving you the option to buy a variety of products at the same place.
When searching for wholesalers, you have to take note that in today’s time there are a lot of new online businesses that claim that they are wholesalers, but they are only discounted retailers. Wholesalers don’t sell to the general public and therefore they normally ask for a tax ID number before conducting business with a company. This is one way you can be certain that they are legitimate wholesalers.
Buying from a wholesaler is a straight forward process. The process normally consists of finding a potential wholesaler, contacting them, opening an account and then placing an order. I would suggest opening an account at more than one reliable wholesaler as a backup when needed. This puts you in a position to compare prices or make use of special offers.
Pros:
- Established Products–Selling a product that is already on the market makes the reselling process easier, because it is already a recognised brand or product.
- Low start up cost – Wholesalers require that you purchase a minimal amount of products, but buying an already existing product excludes extra manufacturing costs.
- Immediate start – Because you can buy an already existing product that is in stock, you can start reselling almost immediately.
Cons:
- Established Products– You need to do thorough market research to establish whether there is enough demand for an already established product.
- Brand Control– To sell another brand, you have to comply with their terms and their price margins, limiting the agility of the product and its price.
- Minimum order- When purchasing at a wholesaler there will always be set minimum amount that you have to order. This amount depends on the product itself.
Dropshipping
Dropshipping is a form of business where you do not own the products you sell, but instead you sell another business’s products on their behalf, in your company’s name. This type of business normally runs online where consumers can place an order on a website, the order is sent through to the dropship partner and they send the product to the consumer on behalf of your company.
Pros:
- Low Startup Costs– Dropshipping is the lowest start up cost option when selling products, because there are no upfront costs such as manufacturing or buying products, storing products, etc.
- Manage the online store from anywhere– Providing you have internet, you can manage your dropship business from anywhere. Your dropship partner usually handles the orders for you and ships the product on behalf of your company to the consumer.
- Established business – there are manufacturers/businesses that already have a dropship process in place.
- Business management only – You only have to manage the payments and capture a consumer’s correct details, leaving you with more time to advertise, update the website and expand your business.
Cons:
- High Competition– With an already existing product on the market, you might find that there are already many competitors.
- Leeway– When dropshipping another brand’s products, you will find that you will have to put more effort into your advertising content. You will need to work harder to get your company name out there.
- Profit – To make a decent profit in a dropship business, you will have to resell more products than with the other methods, because your profit-margin is small. The mark up on dropship products is usually about 15-20% on the dropship partner’s price.
Liquidators
Liquidators are cheaper than wholesalers, but the products they supply are limited and cannot be used as a constant supplier of the same product. You cannot build a good business relationship with liquidators as you would with a wholesaler. Liquidators usually get their stock from retailers with out-of-season goods, returns, slow-moving inventory, insurance companies disposing of damaged goods/recovered goods, bankrupt retailers, -wholesalers, -distributors and –manufacturers. This option can be used to save money on start up costs.
The following conclusions can be made in choosing a product acquisition method:
For non-existing products: Self manufacture or use a manufacturer.
Low start up money available: Dropship.
To sell other brands: Use wholesalers or a dropship model.
To produce a handmade product: Self manufacture or use a craft person.
For more leeway: Use a manufacturer.
Lowest risk: Dropship.
Highest risk: Manufacturer.
Medium risk: Self manufacture, craftsmen or wholesalers.
With one more blog left in our Innovation Guide blog series, you are now ready to start planning your business in more depth, looking at the start up costs needed along with a marketing strategy and where you want your business to be one day. Watch out for our next blog in this series for useful start-up tips.
