Show of hands from anyone who got a bit over-excited when it came to making their first wholesale order…
If this sounds like you, you’re part of a large group of people who did the same, some of whom will have paid for it by making one of many common mistakes that we see with wholesale sourcing.
If you’re new to this business and your finger is currently hovering over the “submit” button for an order, pause a minute to consider some of these mistakes first:
#1. The BIG first order
This is it, you think you’ve hit on an amazing product and you’re excited to get an order in and get going on Amazon. Whether you’re brand new or you’re introducing a new product line, people get caught up in this all the time.
A common mistake we see is quite simply ordering too much stock.
Yep, we know, you need to have enough to test out and ensure the product is going to be a winner, and you also are faced with minimum orders from wholesalers, but still, resist the temptation to over-order.
Sometimes those minimum amounts can be negotiated, even if you need to pay slightly more per unit to purchase the lower number. The point is, don’t sink all of your investment capital into a large amount of product you don’t yet know will be a good seller.
Another strategy we’ve seen others try is to buy products off others, particularly where it’s a generic product they can resell. This gives them the chance to see how quickly it will sell and give them an idea if an order is worth it. If you can offer an improved product at a similar or lower price, that’s even better!
#2. Not understanding the full costs
This is particularly common among people who are just getting started with FBA (it tends to be a mistake you only make once!). You’ve got to understand what all of the associated costs are with your product, beyond simply the face value of the invoice for purchasing it.
For example, yes, you do need to pay for the shipping costs from the wholesaler. A number of people have fallen into the trap of thinking that shipping will somehow be included, like it is with many of their online shopping orders. In fact, shipping can often work out to be more costly than the actual product order. Remember, if you’re shipping the product to yourself first, you’ve then got to ship it to the FBA warehouse.
If you’re importing, you may have customs duties and fees to pay as well. These vary depending on the type of goods – there are huge lists of duties you’ll find from the customs service and they are prone to change. You’ll also find that whoever is handling your goods from the port of entry will throw in all sorts of charges – you might see things like “dock fee” or “loading fee” besides the actual cost of ground transportation.
Once you’ve got through shipping, duties and transportation costs, you’ve then got the fees that Amazon charges you. There are fees for storage, fees from sales, and fulfillment fees. If you’ve made the first mistake of ordering too many products, you might even face long-term storage fees which are charged February 15th and August 15th.
You won’t always know to the exact cent what your costs per product end up being, but you should work to understand these as fully as possible first. If your margins are very slim, it may make a product not worth importing.
#3. Not understanding who you’re buying from
This is a mistake we commonly see where people are importing wholesale goods. You need to understand who exactly it is that you’re buying from.
When you go to a wholesale website such as AliBaba, you’ll find thousands of options for suppliers, however not all of them will actually be the manufacturer of the product. You need to understand whether you’re looking at a distributor or the actual manufacturer.
The difference can be very important. Buying directly from the manufacturer means that you can access the deepest possible discounts that they are able to offer, whereas a distributor is a middle-man – they need to make their cut in profits so you won’t get as good a deal on the products.
Of course, the consequences of getting your products at a higher price from a distributor are that you need to sell them at a higher price to make your margin. If competitors then source the same product cheaper from a manufacturer, they can afford to offer it at lower prices, then you’re forced to do the same and potentially take a loss.
#4. Failing to negotiate
This ties in with our first mistake too – almost everything is negotiable, including those minimum order quantities. Manufacturers will often advertise very large minimum order quantities because obviously, it suits them better to sell larger numbers and is more economical to produce larger quantities at a time. If that minimum quantity is too large for you, negotiate!
The same goes for these other things which you can negotiate with your supplier:
- Price of the goods – Once you’re ordering larger amounts, this is particularly negotiable.
- Payment terms – Cash flow is your friend in any business, so if you can negotiate better payment terms, you give yourself some breathing room to take care of other expenses.
- Features and packaging – You can often negotiate with manufacturers so that they will produce unique features for you and take care of packaging or branding requirements.
#5. Thinking you’re the customer
Just because you think something is cool doesn’t mean it’s bound to sell. Unfortunately, the mistake of thinking that you’re the ideal customer often gets tied in with our first mistake, ordering too much!
Data is your friend whenever you’re making wholesale buying decisions. Spend some time on research first and getting as much information as possible to support your decision.
What do tools like CamelCamelCamel or Keepa tell you about the price and ranking history of the product? Sometimes it’s the things which you don’t see as being cool at all which are actually best-sellers, so you may need to step outside of your own comfort zone a bit to find a lucrative product.
#6. Buying a wholesale list
This “mistake” is potentially open to debate because undoubtedly there are people out there who have had some success with buying a wholesale list. What exactly are we talking about? If you go to sites such as Fiverr you’ll find people selling these lists which consist of things like manufacturer name, ASIN, product, FBA fees and contact details for the manufacturer. They usually follow some kind of criteria for the products they believe will be lucrative to purchase wholesale.
The idea is that if you can buy a list, you might save yourself several hours of research time, which indeed would be great, if only the list were reliable. From what we’ve come across, many simply are not reliable and people may be paying $100 or more for them. Information is often out-of-date or simply not true.
The lesson we would take is that there is usually no shortcut for good, accurate research of your own. Don’t take someone else’s word that a product is the next big thing and that a particular supplier is the one to make it happen for you.
#7. Ordering seasonal goods
Now, it’s important to point out here that this isn’t always a mistake. FBA sellers make good money by having timely goods in place for seasonal trends. The mistake happens when you get your timing all out of whack, then end up with a pile of sun hats sitting over winter (sometimes this is also tied in with “ordering too many!”)
If you’re going to get into seasonal goods, be aware of lead times for ordering and have them in place with plenty of time to make the most of the season. You don’t want to end up heavily discounting, or storing things for the next season.
Selling goods that have been purchased wholesale is a great way to build a sustainable business on FBA, one where you’re not constantly having to source new products (unlike retail arbitrage).
It can be a bit of a jungle getting to the point where you have a good product, a good supplier and a profitable business though.
Before you get trigger-happy with submitting an order, check out the mistakes that others have made before you. A little research can save a lot of heartache!