Understanding Suppliers and Logistics
Once you understand the type of product you want to sell, you need to source it. Fortunately, with the internet and access to a global marketplace, finding the right products and suppliers is simply a case of analysis, research, and legwork. Here’s how to find suppliers and source for products at the right price.
General Principles for Choosing the Right Products
Before we get into the step-by-step guide for sourcing products and finding suppliers, it’s important to discuss a few general principles.
Establish There’s a Demand for Your Product
It’s vital to establish if there’s demand for the product you’re trying to source. You don’t want to spend days finding the perfect product only to find out there’s not a market for it. Any time spent on research and establishing demand is time well spent.
Research, Research, and Research Again
It’s important to have a strong, analytical, methodical approach to sourcing products and suppliers. Take detailed notes on suppliers, products, manufacturing costs, distribution, logistics, and more. You need to make an objective comparison between suppliers and products, and the best way to do that is through extensive research.
Avoid Produce and Perishable Goods
Food and produce are very expensive to dropship, since you need specialised logistics. Additionally, food products are subject to strict criteria, so you’re best off avoiding them altogether.
A Step-by-Step Guide on How to Find Suppliers and Source For Products
- Create a shortlist of products you want to sell.
- Search for suppliers online.
- Locate suppliers that will both manufacture and distribute products on your behalf.
- Understand all the costs of manufacturing and distribution.
- Understand any extra costs like tariffs, custom fees, and taxes.
- Understand return policies and complete due diligence.
- Get a sample of the product so you can check quality and other factors.
- Set up a formal dropshipping agreement with the supplier.
You shouldn’t rush finding the right product and supplier. It’s one of the most important decisions your business will make.
Step 1: Create a Shortlist of Products You Want to Sell
The first thing to do is create a shortlist of products. This will be based on the research you’ve already completed, which depends on:
- Your expertise.
- The niche you want to go into.
- The state of the current marketplace.
- Identifying potential customers.
- Understanding likely demand.
- Exploring the competition.
You should then create a shortlist of a few products you could sell. It’s best to have a few different options in mind in case the first product doesn’t work out. Once you know the products you need, you can start searching for suppliers.
Step 2: Search for Suppliers Online
Now you know the products you’re after, it’s time to find the businesses that can supply them. There are a couple of ways to do this:
- Search for “product name” and dropshipping suppliers or manufacturers.
- Look at a supply and manufacturing marketplace.
Although you can certainly search for suppliers yourself, the supply and manufacturing marketplaces like Alibaba, Salehoo, and others have done much of the hard work for you. You can find out how to use each of these marketplaces in the next section of this guide.
Locate a few potential suppliers for your products and create a shortlist, you will then need to research each supplier in more depth.
Step 3: Locate Suppliers That Will Both Manufacture and Distribute Products on Your Behalf
It’s vital to find suppliers who can both make (or resell) and distribute products to end customers on your behalf. If they’re just a distributor you’ll have to buy the product elsewhere, and if they’re just a manufacturer, you’ll have to sort out logistics — meaning it won’t be a dropshipping business.
Establish that the suppliers you’re working with are end-to-end manufacturers and distributors, so they handle every part of getting your product and shipping it to end customers.
Step 4: Understand All the Costs of Manufacturing and Distribution
If you want to run a profitable dropshipping business, you need an excellent understanding of costs and margins. That starts by figuring out what the supplier is going to charge you to supply the product in the first place and the cost of them shipping it to your end customer.
Get a price sheet from your suppliers that itemises exactly what the manufacturing and distribution costs are. Be sure to work out costs in various scenarios as they may vary depending on how much of a product is sold, and where they need to ship to.
Build cost models that help you identify your total costs for sourcing and shipping items to end customers. You can find much more information on exactly how to do this later in the guide.
Step 5: Understand Extra Costs Like Business Costs, Tariffs, Customs Fees, Taxes, and Currency Exchange
You will have to take account of extra costs your business could incur including:
- Your business costs like marketing, administration, customer service, and other business areas.
- Tariffs and custom fees if you’re selling across international borders.
- Taxes that may be levied on goods like value added taxes, sales taxes, or consumption taxes.
- Payment processing costs for accepting credit and debit cards.
- Currency exchange fees if you’re purchasing or selling goods in different currencies. You will want to use a specialist currency provider to keep your exchange fees to a minimum. Check out our currency converter to help you minimise your foreign exchange costs.
Figure out all of these costs and ensure you include them in the overall cost of the product.
Step 6: Understand Return Policies and Complete Due Diligence
Assuming you can find the right all-inclusive prices for your products you should then complete due diligence from your suppliers to establish if they’re a good fit for you. Explore the following areas:
- Technology — how will the supplier receive orders and customer details from you? Is it something that can be automated, or is it a manual process?
- Where they ship to — establish if they ship domestically or internationally. If there are countries where they don’t ship, how are you going to supply customers in those countries?
- Turnaround times — how long will it take between receiving an order and them picking, packing, and dispatching the product?
- Dispatch times — how long will it take between them dispatching the item and the customer receiving it?
- Returns policies — what are the return policies for damaged or unwanted items?
- Payment terms — how often does the supplier need to be paid and do you need to make prepayment or any other special arrangements?
- Reviews — how does the supplier fare in reviews from other people that have used them?
This isn’t an exhaustive list but will give you a good start when it comes to deciding on the right supplier.
Step 7: Get a Sample of the Product So You Can Check Quality and Other Factors
Your due diligence will help you identify the one or two suppliers best suited to your needs. Before you sign an agreement with them, make sure you get samples of the products you want to sell. Establish:
- Is the quality of the product good enough for your customers?
- Does it meet health, safety, and any other legal requirements?
- If the product likely to suffer during shipping, especially internationally?
- Are you happy selling the product to customers?
Step 8: Set up a Formal Dropshipping Agreement With the Supplier
Once everything is in place, it’s time to go ahead and set up a formal agreement with your supplier. In most cases they will already have contracts and agreements for you to sign. Make sure you go through these carefully and consult with a lawyer if needed so you know exactly what you’re getting.
This is the ideal process for finding a supplier, but where should you search for them in the first place? We’ll cover that in the next section.