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Sourcing profitable products is job one for most online sellers, and there are many ways to fill up those virtual shelves. You can make items yourself, buy goods from wholesalers, or work with manufacturers to direct source products. For most ecommerce businesses, the last option is by far the most profitable sourcing strategy.
When you work directly with product manufacturers, you cut out the wholesale middleman—and their markups—leaving you with more profit in your pocket. Direct source products also provide endless ways to create unique goods that set your brand apart from the competition.
However, direct sourcing is a more involved and time-consuming process than simply buying goods through wholesalers. You have to find reliable manufacturers, forecast production schedules, arrange inbound shipping, and negotiate favorable purchasing terms for direct sourcing to benefit your business.
Interested in learning more? Our guide explores everything you need to know about finding and working with manufacturers to direct source products to sell online.
Working directly with manufacturers might seem daunting at first. Visions of overseas trips, product design costs, and huge prepaid initial orders generally come to mind. However, the global manufacturing marketplace is surprisingly small business-friendly these days.
With proper planning and a solid understanding of the pros and cons, any small business can direct source products from day one.
Clearly, there are some drawbacks to purchasing direct source products, but done right, the profit and branding potential far outweigh the risks. Next, we detail how you can direct source products to sell online in your own ecommerce store.
The process of researching, negotiating, and purchasing direct source products to sell online can be broken down into eight steps. As you move down the direct sourcing path, you’re sure to fine-tune each step into a system that works for you. Until then, this overview will get you started on the right foot.
Whether you’re starting from scratch or already know what you want to sell, it’s smart to head to Amazon for your initial product research. Browsing Amazon’s vast catalog gives you insight into what products are selling well within your target category, as well as a snapshot of current pricing. Plus, it can help you spot and brainstorm profitable sales opportunities for other direct source products.
On Amazon, browse the Trending Products and Best Seller List pages within categories that complement your brand or business concept. These pages list top-selling products in both broad and niche categories—like horse halters and accessories in the example below.
Amazon Best Seller and Trending Products Lists help you see what shoppers are buying on the world’s largest online marketplace. Image source: Amazon.
Here, you can see what’s popular with shoppers now, plus gather two key points of product research—product pricing and popular features. You’ll use this information to define specifications for your own direct source products.
Use Amazon’s pricing, or pricing found on other websites, to gauge an average price range for the products you hope to sell. Next, estimate a target cost for your direct source products.
If you plan to sell items on Amazon, your product cost should be around 30% of its retail price in order to be profitable after paying Amazon’s seller fees. If selling on your own website, you can usually get away with a cost that’s 40% to 55% of your retail price.
A major goal of any direct sourcing strategy is offering products that beat the competition. For that, you have to know what the competition is offering, and find or develop a product that beats it. Again, you can use Amazon and other category-specific websites to spot features common in top-selling items.
Using our example above, you see that most top-selling halters feature an adjustable noseband and quick-release cheek clip. If we want to sell halters, we should include these features—and improve on them if possible.
It’s also important to note that a top-selling item in this category is a tie ring, not a halter. Further research might uncover this as a profitable product to focus on in addition to, or in place of, halters.
After you settle on an item to sell and know its average selling price, target cost, and must-have features, you’re ready to search for potential direct source suppliers. There are many manufacturing options for direct source products, and you can start your search several ways.
Online marketplaces are the go-to tool for many ecommerce sellers looking to direct source products to sell online. One option is Alibaba, which is particularly popular with startups and small businesses. Other options to explore include Globalsources, IndiaMART, ChinaBrands, ThomasNet, and FGmarkets.
Most of these marketplaces have vendor assurance and verification standards that protect buyers from scammers.
The popular direct-source marketplace Alibaba lets you quickly search for products from top-rated manufacturers. Image source: Alibaba.
Most direct source product manufacturer marketplaces offer a wealth of information on supplier pages to help speed up your search. Pricing for various order quantities and important information like supplier ratings, response time, and buyer protection like Alibaba’s Trade Assurance program are prominently displayed.
Large supplier marketplaces have buyer protection programs like Alibaba’s Trade Assurance that protects you from fraudulent sellers. Image source: Alibaba.
Standard item specifications, packaging, shipping, and customization options can also be found on the product pages of these large direct source marketplace websites.
Online supplier marketplaces let you match your product specification to supplier offerings so you can quickly list potential manufacturers for your target product. Image source: Alibaba.
Many independent U.S. factories act as their own wholesalers and offer direct-source benefits like quantity discounts, product customization, and made-to-order goods. Find independent U.S. manufacturers online by searching for a product or category term paired with “manufacturer U.S.”
You can also find independent factories through trade shows and buyers’ markets, or use ThomasNet and FGmarkets, which list many U.S. manufacturers.
Consultants like ChinaImportal can help you navigate the often murky waters of contract manufacturing for made-to-order goods. This can add costs; however, knowledgeable pros will guide you from design and tooling through production and delivery, and help you avoid mistakes along the way.
Most private label suppliers are manufacturers and offer an array of custom options. Private label vendors produce stock goods that can be customized with your own label or packaging, and most also offer semi-customized goods and fully made-to-order services.
Once you’ve identified manufacturers who produce items that are similar to what you wish to sell and close to your target cost, it’s time to contact them to discuss your unique needs. On Alibaba and similar marketplaces, you’ll communicate via chat or email. If you find manufacturers at trade shows, buyers’ markets, or through other means, you’ll converse via email and phone.
Communicating with potential suppliers via Alibaba and similar online supplier marketplaces is easy through built-in messaging. Image source: Alibaba.
This stage of the conversation focuses on what you want your product to be. A supplier might already make the exact item that you’re looking for, but you’d like a specific color or special packaging. Or, you might want to add feature improvements, like a padded noseband on a halter, or a matching lead rope to sell as a set.
You’ll also want to ask if goods meet product and packaging compliance standards for the countries in which you intend to sell.
If you’re looking for a completely new, made-to-order good, you can ask manufacturers of similar goods about custom design and manufacturing services. Remember, you don’t always have to reinvent the wheel when it comes to new product development. Sometimes starting with something similar, and adding specific alterations and improvements is the most economical solution.
Offer as much detail as possible with any semi-custom or made-to-order request. Fully describe item specifications, materials, finishes, dimensions, and so on. Include formal plans or mockup images, technical drawings, or at least some good sketches or samples of similar goods with changes noted. Also include product and packaging compliance requirements for the country or countries in which you intend to sell.
Soon, you’ll have a shortlist of potential manufacturers who can do the work. Pricing is the next step.
Once you’ve chosen an item and settled on any custom needs, it’s time to talk numbers and terms with your shortlist of potential manufacturers. This is typically handled under a “Request for Quote,” or RFQ in purchasing lingo. It’s imperative that you approach this step as a seasoned pro, even if it’s your first rodeo. You want to sound knowledgeable so potential partners take you seriously and offer a favorable deal.
Here are the elements of the deal that you need to cover in your RFQ. Of course, numbers, quantities, and other factors will vary depending on the type of product you’re planning to purchase and the type of manufacturer you’ll be using.
When you receive this information from each manufacturer on your shortlist, compare the deals and select one or two that stand out. Pricing, MOQ, and lead times tend to be the most important elements for small businesses, but there are other negotiation points you can work to sweeten a so-so deal.
Here are a few pointers to keep in mind as you negotiate the best possible deal:
Once you have final pricing from your negotiations with one or more of your potential manufacturers, you can run a quick profitability study. This can be a simple spreadsheet that details your per-unit cost, shipping averaged per-unit, target selling price, and profits per supplier.
Use the target retail pricing from your product research to compare profitability between suppliers.
If your direct source product purchasing plan seems profitable, it’s time to decide how you’ll cover the cost of your order and meet the manufacturer’s payment terms. Some small businesses pay out-of-pocket or use a line of credit or other inventory financing options for large direct sourcing purchases.
Startups and side-gig sellers often rely on personal funds or credit cards. A 0% credit card is a good option for financing your direct source products purchase with minimal interest, then pay it off using sales income over time.
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Once you’ve settled on one or two potential suppliers, you can place your sample orders. Typically, you’ll want to order two to three samples to compare consistency in workmanship, but that standard can vary based on your needs.
You can order and pay for samples for standard goods from manufacturer product pages on marketplace sites like Alibaba and Globalsources. Again, requesting that these costs are discounted from your full order is common and most suppliers will honor this request.
Ordering samples with custom features or for completely made-to-order products require more upfront specifications and generally cost more than stock samples. You’ll need to work any design, setup, and prototype cost details out in your negotiations.
After you’re satisfied with the sample quality and have an acceptable deal, you’re ready to place your order. If working through an online supplier marketplace, it’s best to place your order and pay via their online system to ensure it’s covered under buyer protections. If working directly with a factory, you’ll need to place your order via their preferred method.
Direct source products ordered via online marketplaces generally must be paid for at the time of order. However, most major supplier marketplaces hold these funds and allow you to release them upon receipt of acceptable goods.
If working with an independent supplier, you might pay a deposit, then the remainder upon receipt. These details should be clearly defined in your negotiations so there’s no confusion or delay over these details when your order is complete and ready to ship.
Once your order is placed, mark your calendar with expected production, shipping, and delivery dates and periodically check on its progress.
If all goes to plan, you’ll soon receive your direct source products. Upon arrival, confirm that the count matches your ordered quantity, and quality-check that the items match your specifications and any packaging and labeling requirements.
Once everything checks out, you can release your final payment per your payment terms. Now you’re ready to start selling your direct source products online!
Direct source products can be extremely profitable for online sellers. This sourcing strategy lets you produce made-to-order items to your exact design and specifications, but that’s not all. You can order stock goods at far lower prices than wholesalers charge, or add custom features to stock goods to make your products stand out from the competition.
Whether you’re in the early stages or looking to expand, learning how to direct source products should top your to-do list. The process is more involved than wholesale sourcing, but if you research products and suppliers, conduct detailed RFQs and profitability studies, and plan your purchase and payments, your transaction should go smoothly.
With global marketplaces placing the details at your fingertips, exploring various direct sourcing options is easier than ever. So why not dive in? Who knows what profitable surprises you might find when researching direct source products to sell online.
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