Davis Brown
I’ve been running an online shop for a long time. Instead of using drop-shipping, where we send items directly from the manufacturer, we choose a different method. We buy products in large quantities and keep them in our own warehouse. This way, we can send them out quickly to our customers. I thought about trying drop-shipping, but in 2019, there was a problem. It happened when COVID-19 started, and a special fast shipping service called ePacket was stopped. This service used passenger planes to quickly send packages between the US and China.
Now, about our jewelry business in the United States. At first, we bought batches of 400 pieces every week from a website called Aliexpress. We checked each piece carefully at our own warehouse before sending them to our customers. Even though each piece cost us about $8.70, we sold them for $26.99, which gave us a good profit. When the busy shopping season (Q4) was coming up, we wanted to grow our business even more.
So, we decided to work directly with a supplier. We ordered a big batch of 12,000 pieces. People really wanted our jewelry, like how people line up for hot dogs at a popular stand. We asked different suppliers on Alibaba for price quotes. This helped us learn a lot and made our business even better.
About our business:
1. Get same product for less than the displayed price:
When it comes to purchasing products in bulk, there’s a significant advantage in terms of cost savings. For instance, let’s consider an item we were acquiring for $8.70. When we ordered a larger quantity, say in the thousands, the price per item dropped substantially.
In some cases, we found suppliers offering it for as low as $4.50 a piece.
This bulk discount is a common practice in business. Moreover, the price can vary based on factors like the supplier, market demand, and the specific product features. Occasionally, we noticed the price could even go up to $10.00 per item.
Therefore, it’s essential to carefully evaluate quotations and negotiate with suppliers to secure the most favorable pricing.
Now, here’s where it gets intriguing. When we decided to make a substantial investment and ordered a whopping 12,000 units, the cost per item plummeted dramatically. In fact, it was available for as little as $2.7 each.
This highlights a fundamental principle in economics – economies of scale.
Essentially, the more units you order, the lower the cost per unit becomes. It’s akin to getting a significant discount for buying in bulk, which can greatly enhance profit margins in the long run.
So, while $7.80 may seem reasonable for a single item, when compared to $2.00 under bulk ordering, the difference in cost-effectiveness becomes quite striking.
Key takeaways:
- Purchasing products in larger quantities leads to substantial cost savings.
- Prices may vary based on supplier, market demand, and product specifications.
- So, you need to do some research and analysis before you choose one.
- Ordering a significant quantity, like 10,000 units, leads to a notable drop in per-item
cost. - Bulk ordering provides a substantial discount, greatly improving profit margins over
time.
2. You will have to do your quality check:
Unlike Amazon, Alibaba doesn’t conduct quality checks on products for you. This means it’s up to you to ensure the items meet your standards before sending them
to your customers.
We took a significant step by placing an order for 12,000 units. Unfortunately, we encountered a challenge. Out of these, about 350 items turned out to be defective. These defects ranged from being broken to having subpar quality.
The next step was deciding what to do with these defective items. Typically, the supplier might request that you send them back for a replacement. However, considering the time and effort involved, it might not always be the most practical solution.
To preempt such situations, it’s advisable to plan ahead. When placing large orders, consider ordering about 10% more than you actually need. This acts as a safety net, allowing you to replace any defective items without causing delays or inconvenience for your customers.
Open and clear communication with your supplier is key. Make sure to discuss potential defects and returns policies upfront. This ensures both parties are on the same page in case such situations arise.
Establishing your own quality control process is vital. This can include inspecting a sample from each batch before accepting the entire shipment. It’s an extra step, but it guarantees that you’re delivering top-notch products to your customers.
Key takeaways:
- Alibaba doesn’t conduct quality checks on products for sellers.
- If defective items are less than 5% of total orders, and if they are priced less than
$10 while outsourcing, returning to the supplier may not always be practical due to
time and effort involved. - To account for potential defects, it’s recommended to order about 10% more than
needed as a buffer. - Clear communication about potential defects and returns policies with the supplier
is crucial. - Establishing an internal quality control process, such as inspecting samples from
each batch, ensures higher product standards.
3. Plan your shipments when total product weight crosses 1kgs:
We came across a fantastic kitchen product that we believed had great potential in the American market. It was made of durable stainless steel, but it posed a logistical challenge.
The product was quite hefty, weighing about 1.5 kilograms. Additionally, it was relatively large in size. These factors can significantly affect shipping costs and methods.
We initially considered using air cargo for faster delivery. However, this option turned out to be quite expensive, charging a hefty $2300. Given the urgency (Q4 season was approaching), this cost wasn’t feasible.
The more budget-friendly alternative was container shipping. Although it took longer (around a month in transit), it significantly reduced expenses. This option became the more practical choice given the circumstances.
This experience taught us a crucial lesson: when dealing with large and heavy items, especially in time-sensitive situations, it’s imperative to plan ahead. Anticipate the need for longer lead times and carefully select the appropriate shipping method.
Balancing cost and time constraints is crucial. Always weigh the urgency of delivery against the associated expenses. This ensures that you make the most cost-effective decision for your business.
Key takeaways:
- Pre-plan for large and heavy items, especially in time-sensitive situations, and
select shipping methods accordingly. - Chose container shipping as a more budget-friendly alternative, despite a longer
transit time of approximately one month. - Balance delivery urgency with associated expenses, ensuring a cost-effective
decision for the business.
4. You negotiation skills make you a big businessman:
Negotiation is a fundamental aspect of any business. It’s not limited to large-scale deals or contracts; even negotiating the price of individual items can lead to substantial savings over time.
When dealing with suppliers, it’s crucial to have confidence in your negotiation abilities. Don’t hesitate to engage in discussions to reach mutually beneficial agreements.
A concrete example of successful negotiation is reducing the cost per product from $6 to $4.80. While a difference of $1.20 per item may not seem substantial at first glance, it accumulates to significant savings – around $3500 per order.
These negotiated savings, when consistently applied across multiple orders, can
greatly impact the overall profitability of the business. It demonstrates that negotiation isn’t just a small aspect of operations, but a fundamental practice that directly affects the bottom line.
Key takeaways:
- Establish clear objectives before entering negotiations.
- Do thorough research on market prices and competitors’ offers.
- Maintain open communication with suppliers and be transparent about your needs
and expectations. - Seek win-win solutions that benefit both parties.
5. Never ditch your currently supplier too early:
When you come across a better price from a different supplier, exercise caution
before immediately moving your orders. While it might seem tempting to switch for
cost savings, it’s important to proceed with care.
We once encountered a supplier offering the exact same product at nearly 22% less. Excited about the potential savings, we ordered 500 units from them.
Unfortunately, a majority of the units received from this new supplier turned out to be defective. This experience underscores the critical importance of quality checks, especially when dealing with new or alternative suppliers.
It’s wise to maintain relationships with multiple suppliers, particularly until you’ve thoroughly assessed the quality and reliability of each. This ensures a safety net in case one supplier encounters issues.
Before fully committing to a new supplier, conduct thorough due diligence. Request samples, review their track record, and consider smaller initial orders for testing purposes.
While cost savings are important, they should be balanced with supplier reliability and product quality. It’s not just about getting the cheapest option, but also ensuring a consistent and reliable supply chain.
Open and transparent communication with suppliers is crucial. Clearly convey your quality standards and expectations to avoid any misunderstandings.
Key takeaways:
- Exercise caution when considering switching suppliers solely based on better
pricing. Immediate transitions may have unforeseen consequences. - Emphasizes the critical role of quality checks, especially when dealing with new or alternative suppliers, as a substantial portion of the units received may be found to be defective.
- It’s advisable to maintain relationships with multiple suppliers, particularly until
you’ve thoroughly assessed their quality and reliability. - Before committing fully to a new supplier, conduct comprehensive due diligence, including requesting samples, reviewing their track record, and considering smaller initial orders for testing.
- Open, transparent communication with suppliers is essential.
6. Have multiple modes of communication:
When communicating with suppliers through Alibaba chat, it’s crucial to also obtain alternative contact information like their email address, WhatsApp, or WeChat. This is important because there may be instances when they go offline on Alibaba without giving prior notice.
Having additional contact options ensures that you can reach out to your supplier promptly if any urgent matters arise.
Therefore, before finalizing deals with a supplier, double-check and confirm their contact information to avoid any potential hiccups in communication down the line.
7. Avail Free FedEx/UPS shipping:
Once you’ve established a positive rapport with your supplier, don’t be afraid to ask about premium shipping options. These may come with added benefits like faster delivery times and enhanced tracking.
In our case, the supplier initially used ePacket for shipping, which typically took 15- 20 days for delivery. This is a standard shipping method known for its reasonable cost but may have longer delivery times.
Through discussions with the supplier, we were able to arrange for premium FedEx shipping for larger orders. This service ensured that orders reached their destination in a much quicker timeframe – typically within 4-5 days, especially to destinations like Oregon
8. Use Alibaba payment system if sourcing products from Alibaba:
It’s recommended to be cautious with payment methods when dealing with suppliers. Using platforms like PayPal, WeChat, or other alternatives may introduce unnecessary hassle.
While these platforms do offer escrow services, which act as a safeguard for transactions, it’s still advised to exercise caution due to potential complications that may arise.
Instead of using third-party payment services, it’s suggested to opt for Alibaba’s own payment gateway. This is because it’s designed to seamlessly integrate with the Alibaba platform and offers a more streamlined payment process.
Using Alibaba’s gateway eliminates the need for extra steps or third-party involvement, creating a more straightforward and efficient payment process.
9. Be cautious if you are dealing through a product sourcing agent
Product sourcing agents can be incredibly valuable in easy outsourcing of quality products. They act as intermediaries between you and manufacturers, facilitating
direct communication and negotiation.
One of the standout benefits of sourcing agents is their ability to negotiate. They can often secure better prices and terms than you might be able to achieve on your own. This can lead to cost savings for your business.
While many sourcing agents are highly competent, it’s essential to exercise caution when selecting one. Look for a reputable and experienced agent who has a track record of successful partnerships.
Final Words:
When it comes to sourcing products from Alibaba, buying in bulk can save a lot of money. For instance, getting 12,000 units instead of just a few can significantly lower the cost per item.
But, it’s crucial to double-check the quality, especially with new suppliers. Once, we got a great deal from a new supplier, but sadly, many of the items turned out
