The mantra of every successful business owner is the same: Buy low and sell high. The cheaper you can source your product, the greater the potential for markup and profit. Factory-direct buying from manufacturers cuts out the middleman. With the aid of the internet, you can source manufacturers from around the globe with just the click of a mouse.
Domestic Versus Overseas Manufacturers
The first decision is whether you want to manufacture domestically and support your own economy or source from overseas in the hopes of lower prices. With domestic sourcing, you should get faster shipping times, better intellectual property rights protection, higher manufacturing quality and better labor standards. The flip-side is a higher cost-per-unit. Overseas manufacturing will lower your product cost, but manufacturing standards may be lower and you'll have language barriers to navigate. Ultimately, your customers' expectations will play a large role in determining where you buy.
Finding a Manufacturer
When it comes to finding manufacturers, free online supplier directories are a good place to start. Some of the more popular domestic directories include ThomasNet, MFG and Makers Row. For overseas manufacturers, try Alibaba, Bambify or IndiaMart. Some of the best leads can come from referrals. Ask your family, friends and industry contacts if they can point you in the right direction.
Once you have found a suitable manufacturer, the next step is to get a quote. The price per unit depends on several factors, so be sure to ask:
- What is the minimum order quantity? Some manufacturers will set minimums that are way above your manageable level, so make sure you're comfortable with this.
- What is the cost per unit at the minimum order?
- What is the cost per unit at three times your minimum order?
- What are your payment terms for new customers? The longer the payment period, the better, from your perspective. You'll be able to sell product and pay the manufacturer with your customers' money, not your own.
Manufacturers are bombarded with quotation requests every day, so keep your email short and clear. Request a product sample to vet for quality. A low price is of no benefit if the quality is so poor that people won't buy.
The cost-per-unit tends to get lower with the more you order, so be sure to ask for pricing for several quantities. This will give you a sense of the discount you might receive at higher quantity levels. Another way to secure discounts is to offer a significant deposit on your orders. If the manufacturer knows it will receive 50 percent from you up front, then it may be more willing to strike a deal on prices. Don't accept the manufacturer's first price offer, and always speak to more than one manufacturer so you can compare rates.
Don't Forget About Licensing
Your state may require you to get a wholesale license when ordering directly from the manufacturer. This has different names in different states, such as a resale permit license or seller's permit – but essentially it allows you to buy goods in bulk from manufacturers without paying tax.
Jayne Thompson earned an LL.B. in Law and Business Administration from the University of Birmingham and an LL.M. in International Law from the University of East London. She practiced in various “Big Law” firms before launching a career as a business writer. Her articles have appeared on numerous business sites including Typefinder, Women in Business, Startwire and Indeed.com.