BlogEcommerce Basics
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Written by: 
Nikolaus Hilgenfeldt
Ecommerce Basics

Full Guide to Product Sourcing for an E-Commerce Business

It goes without saying that the core basis of your e-commerce business is the products that you sell. 

While marketing tactics and sales channels can be influential to the success of your online store, sourcing products is a very crucial aspect of running your e-commerce business, if you are not making the goods yourself. Oftentimes, this may even be one of the first steps you take when starting your online business

The good news for online sellers is that sourcing products today is much easier than it was in the past. Continue reading through this guide as we discuss what product sourcing looks like for an e-commerce business, the different options available, and the considerations to make to find the right sourcing route for your business. 

What is Product Sourcing?

Product sourcing is the way that any business gets the inventory that they will sell to customers. This can be done through a number of ways, which we will discuss in more detail below. 

However, there are a few steps to complete in the sourcing process, like initial product idea brainstorming, vendor analysis, price comparison, and negotiation. 

In general, the five main ways to source products will be making them on your own, buying from a wholesaler, using a dropshipper, purchasing off marketplaces, or attending trade shows. Continue reading below as we discuss each of these options in more detail. 

5 Main Methods of Product Sourcing

As we briefly mentioned above, there are a few main methods that merchants use to source the products that they sell to customers. None of the options is necessarily the best, though they each have advantages and disadvantages that online sellers will need to consider before moving forward. 

1. Make Your Own Products

The first and most straightforward option is to make or DIY your own products rather than purchase inventory. This can be a good fit for someone who already has a craft or skill that they’d like to leverage by opening up their own shop. However, this can be limiting and difficult to scale as you grow your business. 

Take a look at the following steps to get started making your own products for your e-commerce store. 

Source Raw Materials

Depending on the types of products you’re making, whether you’re making homemade jewelry, crocheting sweaters, or sewing custom dog collars, you’ll need to figure out where you’ll source your raw materials. Consider any local flea markets, craft stores, or online sources to get the materials you need. With this, consider how much you’ll need to order to give yourself a good base of inventory, and how much it will cost. 

Calculate Production Time

Keep in mind how long it takes you to produce a batch of your products to restock your online store. This will be important as you’re managing inventory to ensure you have a healthy stock at all times. However, this may be different if you choose to produce goods as an order comes in rather than keeping stock on hand. 

Decide Where You’ll Store Inventory 

Especially when making your own goods to sell, you’re probably storing inventory at your home somewhere. This may be adequate to start, but this will put a limitation on how you’re able to scale your business. Plus, the feasibility of this will also depend on the size of goods that you’re making. So, you may need to look into other options for warehousing and fulfillment of your orders. 

Pros of Making Your Own Products: 

  • One of a kind and hard to replicate by competitors
  • Full control over product quality
  • Can quickly pivot to new products
  • Full control over inventory levels
  • Growing market for handmade/artisan products

Cons of Making Your Own Products: 

  • Cost of Goods Sold (COGS) could be higher
  • Need to source raw materials constantly
  • Production space required
  • Scaling and business growth slowed

2. Purchase from Wholesalers

Another way to purchase inventory is to buy goods from a wholesaler. This is a good way to get up and running quickly as an online seller, without having to make the products for yourself. This means that you are not involved in the production process, and will buy the goods in bulk to resell at a mark-up. 

The wholesaler may have been involved in the production of the goods, though they may have also sourced the products from somewhere else to resell to you. 

Working with wholesalers allows you to scale easily and diversify your inventory by carrying a number of different products or brands that are popular with your customers. Plus, you’ll be able to compare suppliers, negotiate bulk purchase discounts, and vet your suppliers well before choosing one to work with. 

When taking this route, you will still likely need warehousing space to store your inventory, or utilize a warehousing partner who can take care of the order fulfillment and inventory management for you. Either way, this will be a detail you’ll need to hammer out when pursuing this route. Take a look at some of the steps to get started with purchasing goods from wholesalers. 

Find a Supplier

You’ll begin this process by searching for suppliers. This may be a local business or artisan who produces their own goods, small businesses or brands domestically or internationally, existing companies interested in going B2C, or established wholesale companies who sell goods to resellers.

At this time, vet the suppliers by checking for references to ensure their legitimacy. You only want to work with suppliers that are legitimate, which means you’ll likely have to supply some form of official documentation to prove your legitimacy as well.  

Order Samples

After you’ve identified a few potential suppliers to purchase inventory from, contact them to request samples of the products you intend to sell. Do a thorough quality check to make sure it meets all your expectations, and that you’d be comfortable charging customers for the goods.

Review Your Options

After you’ve reviewed the samples, you’ll want to compare the suppliers based on total costs and fees, how long it will take them to fulfill your product orders, contracts and terms, communication channels, and minimum order quantities for each. Using this information, you should be able to narrow down on a preferred supplier who can give you quality products at reasonable terms to help you grow your business. 

Pros of Purchasing from Wholesalers:

  • Easy to scale and introduce new products
  • Access to niche products
  • Risk diversification 

Cons of Purchasing from Wholesalers: 

  • Large upfront investment to purchase inventory before you make any sales
  • Inventory risks of stockouts of popular items
  • Paperwork, contracts, and negotiations
  • Minimum order quantities

3. Dropshipping

Dropshipping is commonly used by e-commerce stores, giving you the most hands-off approach to selling goods online. With this method of product sourcing, another vendor will completely fulfill your customer orders. So not only is this a way to source products, but it’s also a fulfillment model as well. 

To do this, you will list the dropshipping partner’s goods on your e-commerce site, then when an order goes through, they will take care of the rest of the fulfillment process. This can be a great way for online sellers to get started in the space or to introduce new products to an existing store, though it does leave merchants with little control over the whole process and customer experience.

Let’s take a look at how you can get started dropshipping. 

Search and Evaluate Dropshipping Companies

You’ll need to do some research to find dropshipping companies that offer the goods you’d like to sell. If possible, you’ll want to vet these suppliers just like you would a wholesaler, especially since they’ll be responsible for the entire order fulfillment process. Thus, a large part of the customer experience and even your store’s reputation will be built around their performance.

Similar to doing research on wholesalers, you’ll want to compare dropshipping companies on the pricing of goods, any potential customization or branding options, and relevant timelines for the ordering and returns processes. 

Pros of Dropshipping: 

  • Large variety of products to choose from
  • Low barrier way to enter the e-commerce market
  • No inventory risks or management

Cons of Dropshipping: 

  • Lower margins
  • High competition
  • Little control over quality of the products

4. Buy from Marketplaces

You can also purchase inventory from marketplaces, either in-person at garage sales, farmer’s markets, or estate sales, or online at the major sites like eBay, Aliexpress, and Etsy. These are great places to browse for products to sell, though they are particularly great if you’re looking for vintage items, collectibles, artisanal products, and handmade goods. 

There are also a number of niche-specific online marketplaces you can discover to source your products. So if you’re looking for unique and one of a kind products to offer in your store, marketplaces can be a great resource for you. 

Pros of Buying from Online Marketplaces: 

  • No minimum order quantities
  • Easy to source diverse inventory
  • No official contracts or paperwork

Cons of Buying from Online Marketplaces: 

  • No bulk purchase discounts
  • Limited availability
  • Unpredictable/not reliable
  • Takes effort to find new stock

5. Trade Shows

Lastly, some online sellers will choose to visit trade shows to purchase inventory. These were the main way for merchants to find suppliers for their stores historically. So even though these have gone a bit by the wayside since the world has become increasingly digital, they still can be a great way to source products and discover quality suppliers.

Do some research to find trade shows that will include your niche or the products you intend to sell, and make relationships and connections with potential suppliers. Plus, most of the time they’ll bring samples of their products to the trade show, so you’ll be able to test their products and compare side by side, all in one place. Keep the following in mind if you’re thinking about attending a trade show to purchase inventory.

Make a Game Plan

Going into the trade show, come up with a list of questions to ask suppliers to ensure you don’t get pressured into a deal on the spot without the proper considerations. Have a good idea of the products you’d like to buy, how big of an order you’re willing to make, whether the product is unique and easy to ship, and whether there’s enough demand, among others. 

Create a Pitch for Vendors

It’s true that many of the suppliers at these trade shows may be looking to work with bigger names, so you’ll need to pitch your business so it seems appealing and worthwhile to them. Have a quick anecdote prepared about your experience in the industry, how big your business is, the total addressable market, how you plan on growing your business, and past product sourcing methods. 

Always show that you’re prepared to purchase so they take you seriously, and give specifics about how much inventory you’re seeking, then prompt them to speak about their business. 

Pros of Trade Shows: 

  • Access to many suppliers at once
  • Test out the product in person
  • Discover the latest products
  • Easier deal negotiations

Cons of Trade Shows: 

  • Travel and attendance costs
  • Can be intimidating
  • Suppliers may want to work with bigger stores

Finance Your Product Sourcing with Asset-Based Funding from Myos

As you can see, every method for product sourcing has advantages and disadvantages, though they can each be great for different e-commerce stores. Depending on the unique needs of your store, the types of products you plan to sell, and your budget, you may show a preference for one method over the other. Do plenty of research into potential suppliers, and don’t rush into any contracts or agreements that will be tricky to undo. 

Unfortunately, when it comes to sourcing products, many e-commerce stores in the earlier stages are limited by the amount of working capital they have access to. So if you want to grow your business by investing in your products, many new sellers have turned to asset-based financing to help them purchase inventory. 

This financing option has largely grown in popularity with online sellers recently, preferred for its flexible repayment terms and qualification criteria. Rather than based lending decisions off your past business history and performance, asset-based lenders will assess the products you’re selling and evaluate the future selling potential of the goods. 

With Myos, online sellers enjoy quick lending decisions, lean document requirements and little business history criteria in order to secure the funding they need, when they need it. Plus, you don’t have to make a personal guarantee like with other financing methods, so asset-based lending gives you all the upside to grow your business, without the downside risks of traditional financing methods. 

Unlock your e-commerce business growth today with Myos asset-based financing

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