Starting an e-commerce store can be a lot of fun and very rewarding. With so many choices, finding the right product for you to sell can very difficult. This five part series will lay out a series of options and questions to help you identify what to sell, where to source the product, and how to validate the idea. Many things determine the success or failure of a business, picking the right strategy and products to fit your skill set is extremely important.
Methods to Source Product for Your E-commerce Store
Getting your product in the correct quantity, quality and in a timely manner, will greatly affect the success of your business as well as the initial investment and cash flow of your future business. In addition, you should consider how much time you have to make, monitor, quality check and fulfill orders to your customers. In general you can either;
- Make the product yourself, either at home or your business location,
- Outsource the manufacturing of your product to another business,
- Source the product from a wholesaler or manufacturer, or
- Source the product from a dropship wholesaler.
Each method has benefits and drawbacks including, but not limited to:
If you are just getting started with online business, this is a great way to get started if you are able to make a craft or a product that is unique to you. The top three reasons I would recommend this option is:
- You can use esty.com or other sites to sell the product. You do not need to know anything about setting up your own website.
- Typically it is a small investment. You can make one or two samples and then make the rest once you have sold the samples.
- The product is unique. Since you are the only one selling this product, your product can be differentiated from the competition.
In addition, you are in complete control of the quality of the products (good or bad, depending on your skills) and you have complete control over the brand and will be able to make a personal connection with customers.
As mentioned above, making your own product typically does not take a huge investment to get started. You will need to buy enough supplies to make some samples and then purchase more as you start to sell your item. If the supplies are difficult to find, you may want to keep some extra on hand so you can always fulfill the orders.
When you are making the product yourself, you do not need to pay for any labor costs, which means you will be able to keeps a higher portion of the sales for yourself. You will need to weigh this when considering the amount of time it will take to produce the products.
Making your own product definitely will take up more of your time, compared to any other method of sourcing your product to sell. When you are just starting, this shouldn’t be a problem. However, if you start to grow, it will be difficult to scale your business to meet customer demand while controlling your costs and product quality.
When you are making the product, it is more challenging to offer a wide assortment of products, as you need to make each option. It is unlikely that you will be able to come up with 100 different products that you can sell and make yourself. As a result, it will increase the importance on picking the right products to sell at the beginning.
Outsource the Manufacturing of your Product to another Business
Some products that you create, cannot be easily crafted at home, or when the volume that you need to craft becomes too great, you will need to consider outsourcing the manufacturing of your product.
Having a product manufactured is a great way to have a unique product, allows you to quickly scale and meet customer demand, and can significantly lower your costs due to the volume. However, it also comes with some of the greatest risks, including:
- Typically there are no return rights
- Significant upfront investment costs for designing prototypes and you will need to purchase minimum quantities.
Before you decide to go forward with manufacturing a product, I would highly recommend that you validate the product and concept in the market and create a business plan to understand the full picture of the costs and how long it will take to recoup the original investment.
Picking the right manufacturer will be one of the most important decisions you will need to make for your company. A good manufacturer will let you order minimum quantities that are reasonable for your company and will have the right level of service to help grow your business while balancing expenses. The right manufacturer may be located in your city, within your country or somewhere across the world.
Manufacturing your own product typically has the greatest initial investment, with the potential to have the highest product margins when done right. It will require that you purchase enough product to cover the minimum purchase quantities in addition to your investment in designing the product and creating prototypes. This may also include the creation of special tools or molds that can have a significant cost. Make sure to discuss the TOTAL cost with the manufacturer and get it in writing before signing anything.
The initial time investment will be quite significant while designing the product and finding the right manufacturing partner. Ultimately, with a great partner you will be able to focus your time on generating and fulfilling new orders.
You also want to keep in mind that manufacturing the product will take a significant lead time to design the product and to get scheduled into the manufacturer’s production calendar. Keep this in mind when you are targeting a seasonal or trendy product.
Source the Product from a Wholesale Manufacturer
Purchasing wholesale is a great option if you want to sell a variety of products or brands. It is relatively easy to get started selling another company’s products. Once you have decided what to sell (see product ideas in a previous article) you will need to contact the manufacturer or look at their website. Once you have established an account, you can place your first order and start selling on your own website, or websites like eBay, Amazon or other marketplaces.
Purchasing wholesale will give you the widest selection of products to choose from, including name brand items. Brands that are recognizable to customers can help boost your brand position and will help the customer feel more comfortable, as they are familiar with the quality of the product.
The required investment will vary greatly based on the manufacturer you purchase from. Typically the more you purchase, the lower the price you can negotiate. This will help you control the investment that you risk in starting your new online business. So you will need to balance the quantity you order the first time versus the potential profit. Personally, I like to make a smaller initial purchase to test the product, the market and the pricing. I will ensure that when I scale the business and I am able to purchase in larger quantities, I will get the margin I need to be profitable, however, if I lose a dollar or two on the initial purchase due to the smaller order size, I’m ok with that. I would rather lose $1 a unit on 25 units, then purchase 500 of something I cannot sell at all.
Profit margins are usually pretty good, especially if you are selling a niche product. You will need to keep in mind that manufacturers may have listed retail prices that you need to abide to and competitors that may be willing to take razor thin margins. Proper pricing will make a significant impact to your online success.
Purchasing wholesale is fairly easy once you have set up your account with the wholesaler. Typically, you can place your order the same day. Most of your time will be used looking for real wholesalers and not a middle man claiming to be a wholesaler.
Source the Product from a Dropship Wholesaler
If you are new to online commerce, you are likely new to the idea of Dropshipping. Dropshipping is a business model where the retailer (you) does not take possession of the inventory. The retailer markets and promotes the products through their own website or marketing channel, takes the order and then sends the order to the dropshipper to be shipped directly to the customer. This allows the retailer to offer a wide assortment of products without needing to purchase or manage the inventory
The best part about dropshipping product to your customers is you never purchase the inventory until you have already sold the product to your customer. Some dropshippers will even let you return your customer returns directly to their warehouse. Not only do you not need to purchase and store the inventory with the risk that it will not sell, you do not need to spend the time and effort to fulfill and ship the orders to your customers.
Since you are able to run the business from your computer and you do not need boxes, inventory, shipping supplies or a physical address, you can run your business from anywhere. Even the beach!!!
Does this sound too good to be true? If it was that easy, everyone would be doing it and in some cases they are. Because it is so easy to get started dropshipping, there is a ton of competition, resulting in razor thin margins for most categories.
You can start a dropshipping business without purchasing any inventory and use a free trial to start you online store with Shopify.com. Even if you do not sell anything, you won’t lose any money on inventory costs. However, since the investment is so low, there is high levels of competitions resulting in lower margins.
When pricing your products, ensure that you leave enough margin to factor in processing returns and the ability to scale the business as it grows
This is why dropshipping is my favorite method of ecommerce. With only a couple hundred dollars and a couple all night work sessions, you can set-up an ecommerce store with thousands of products and be able to sell and ship the products to your customers. This can be done anywhere you have an internet connection.