April 29, 2015 Business Planning en_US After deciding which products to sell in your online shop, how will they get produced? We answer this and more in our 2nd post on starting an ecommerce business. https://quickbooks.intuit.com/cas/dam/IMAGE/A5HvDHSXC/2ed9ae39030dc9859481afaf9771357a.png https://quickbooks.intuit.com/r/business-planning/launching-an-ecommerce-business-3-ways-to-source-products-when-selling-online Launching an Ecommerce Business: 3 Ways to Source Your Products
Business Planning

Launching an Ecommerce Business: 3 Ways to Source Your Products

By QuickBooks April 29, 2015

QuickBooks has partnered with Bigcommerce—a leader in ecommerce creation, optimization and automation—to offer essential tips and best practices to help entrepreneurs launch and manage an ecommerce business. From ideation, to sourcing, to competitive analysis, this series of guest posts will highlight everything you need to get started.

Last week, we discussed how to find a product niche. In this second installment, we’ll be covering various ways to source your product.

Determining how you will source your product or service is the first step for tasks like conducting research, determining scalability and the must-do’s like crunching the numbers. How you source your products will serve as the foundation for your ecommerce business and guide the operations of your online store.

For a quick rundown of your sourcing options, watch the video below. For a deeper dive and analyses of your different options, the common perks and pitfalls for each, as well as the steps to start selling online, read on.

First things first: You have three primary options. None of the three necessarily better than the others, but there are a variety of things to consider before determining which best fits your product or service—and you as a small business owner.

Option 1: DIY Products or Services

Crafting your own wares to sell to others is perhaps one of the oldest professions. Thanks to the internet, you now have the ability to reach a wider audience than ever before. But, if you are going to customize or craft your own product or fulfill your own service, there are certainly some factors to consider.

Perks and Pitfalls

When you source your own products or services, you have full control over your brand and will likely need to come into the market with a unique offering to compete. Startup costs are typically low for this type of online operation, although the invest of your time and energy may end up being pretty high, which is a sacrifice in and of itself. You’ll want to make sure you’re always thinking ahead about how you will scale and possibly grow your product line over time in order to stay competitive and offer your customer base something new.

Tasks to Get Started

  • Figure out where you will source materials: This could be your local flea market, craft stores, estate sales, an established retailer or even friends and family. You will want to identify your materials, where you get them, and how much they will cost.
  • Determine if you will ship your own products or hire someone to handle it: The logistics of managing your own shipping may have you running to the post office or UPS store frequently. Would hiring a shipping service to handle this be worth the time and energy saved?
  • Learn what it will take to ship: Give thought to packaging (i.e. labels, stickers, boxes, etc.) since this will have downstream effects on total costs and could create shipping challenges later on.
  • Calculate time spent actually crafting: Consider whether or not you have items readily available or if you need to calculate the time it takes to gather materials as well as craft the product. Consider the benefits of making items bespoke or if it is better to have inventory. Also, be sure to document labor costs, this includes both money on labor and time spent in the process.
  • Determine where you will store your inventory: Maybe you’re lucky enough to have an empty room in your home. That may be a convenient and inexpensive solution, but it likely won’t scale. Look into alternatives, such as renting a storage unit or opening a storefront.
  • Give thought to communicating timelines with customers: When developing your website messaging, you’ll want to communicate information on how you craft your product and give expectations for delivery. You can do this in places like product descriptions and your shipping and return policies, but you will also want to reiterate this information in your transactional emails. Be transparent and upfront so your shoppers feel confident when purchasing from you. Check out other ecommerce stores for tips and tricks on the best ways to set proper brand expectations.

Option 2: Working With a Manufacturer or Wholesaler

When working with a manufacturer or wholesaler, think of it like hiring a partner to develop your product or perhaps fulfill your service. This company will be providing the product rather than you having to make it yourself. This is a great option for when you’re ready to scale your DIY product by hiring someone else to make it for you.

Perks and Pitfalls

These options open up the opportunity to pursue a unique idea, although they typically require a greater financial investment upfront. You still maintain control over your brand and the quality but can get assistance with production. Perhaps you have a great idea but don’t have the skillset to execute it, or maybe you simply want to purchase products and resell them.

Items to Consider

  • Finding options: This could be as easy as starting a business relationship with a talented friend who makes a product you’d both like to sell, partnering with an existing company and taking their business online, or tapping a manufacturer to produce your product. If you want to work with a friend or existing business, you’re going to need to kick-start those conversations. If you’re looking for a formal manufacturer, begin your research by completing a simple Google search. The process of finding the right partner and getting the ball rolling can take time, so don’t get discouraged.
  • Check references: As with anything in business, make sure you’re dealing with someone who is legit. There will always be a risk that someone is going to try to take you for a ride. So be smart and check for references, reach out to other businesses who have used the manufacturer or wholesaler before, and maybe do a little digging at the Better Business Bureau. A big red flag will be whether or not the company asks for information about you, including proof that your business is legitimate. Be prepared to provide any necessary licenses or tax information.
  • Evaluating your options: Be sure to ask questions and evaluate each of your options so you can make the best decision:

    • What will the total cost be? Take into consideration production, shipping and potential hidden fees. You’ll really want to keep in mind that prices are usually established by the manufacturers, but you’ll need to know what final price is expected by the market.
    • How long will it take for them to make/ship the product?
    • What does shipping and inventory management look like? Will you need to ship and store, or does this rollup as part of their service? Are there any additional costs? What are the timelines and conditions? Do you have control over branding your packaging?
    • What do the contracts and terms look like? Is there any wiggle room for things your business or customers specifically need? Is there an evaluation period or terms for termination?
    • What does support and communication look like? How frequently will you be kept abreast of information like inventory, product changes or even discounts?
    • What are the minimum order quantities? Will you have to commit to a certain number of units or spend a minimum amount?
  • Getting a sample: Before you sign on with anyone, make sure any and all products meet your expectations by viewing a sample either in person or having one sent to you. Some manufacturers or wholesalers will charge a fee. I always attempt to negotiate here. If I like it and keep it, I’ll pay for it; otherwise, no thanks. This decision, however, is entirely up to you.
  • Picking one: Weigh your options and get going! You want to ensure you’re making a smart decision, but that doesn’t mean you should sit in research-mode forever. Worst-case scenario, you pivot and go another direction.

Option 3: Hiring a Dropshipper

If you don’t feel like you’re able to create a product yourself (DIY), don’t want to hire someone to make it for you (manufacturer) or don’t want to purchase products upfront (wholesaler), there is always the option of dropshipping. This options means you will purchase from a vendor and list their products on your online store. They charge you for the products only when they’re sold and (typically) ship on your behalf. Not only is this an option for starting an online business; this is a viable option to try out if you want to expand your product catalog.

Perks and Pitfalls

Dropshipping can be a great option for folks who are looking for a low-risk option to getting started. You don’t need to deal with inventory, packaging or even shipping. The catch is that you’ll typically find a great deal of competition, as many of the products you’ll find available with a dropshipper are readily available all over the internet. However, they will have a wide selection of products from which you can choose. Finally, you’ll find that your profit margin will be low, which means you’ll need to sell a whole lot before making a substantial profit.

Items to Consider

Honestly, the steps to finding a dropshipper or aggregate dropshipper (i.e. a dropshipper that works with a variety of dropshippers for you) are nearly the same as those you’d follow for the manufacturing option.

  • Find some options.
  • Check their references.
  • Evaluate all of your options (and ask questions).
  • Ask for some samples.
  • Pick one and go!

Last but not least, please note that, as with anything, there is always room for fringe cases. Don’t get discouraged or toss out an idea because it doesn’t fit into the aforementioned criteria or because you can’t currently provide an answer to a question. These posts are intended to serve as a guide to help you begin conducting research and bubble up your most profitable and realistic business ideas so you can reach the next level. Be sure to stay tuned for next week’s article, where we’ll help you find and analyze your competition.

Bigcommerce and QuickBooks have partnered to become your source for everything ecommerce. Featuring easy integration with QuickBooks, a simple but robust site builder and in-depth analytics, Bigcommerce’s ecommerce solutions have everything you need to sell products and manage your finances.

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