Note: This was intended to be a 1 article, but the length of it ended up being over 3,000 words so I’ve decided to split it into 2 articles of more digestible lengths.
The common knowledge in the Private Label sphere is that competing on price is something you definitely don’t want to do – after all, one of the main reasons you’re creating your own product and selling under your own brand is to avoid the price race to the bottom that’s ever existent in the Retail/Online Arbitrage sphere.

But that doesn’t contradict the fact that selling on Amazon is, and always will be, a numbers game. The more profit you can get from selling one product, obviously the better.

Here are 7 ways to lower your overall product costs and, ultimately, make more money.

 

1. Get a lower price from your supplier

 

This could very well be the single best strategy of lowering your product cost significantly. Going higher on the MOQs (Minimum Order Quantity) is an obvious one, but there’s also other ways to lower your product costs while still in sourcing stage.

If you’ve been using Alibaba to source your products, chances are that you haven’t even been dealing with actual factories. There’s tens of thousands of agents on Alibaba, all posting pictures of products they’ve grabbed from somewhere else (usually from another seller). These are people who know or can find some factories but aren’t working for those factories. They will assure that whatever it is you want to have made can be made – they can always worry about it afterwards, since there’s always a way for them to cut corners (it’s often the quality that suffers the most).

They’re the ones that will be able to get you various different products in the same category. E.g. if you’re sourcing in kitchen category, they’ll be able to provide you with a vegetable peeler, cutting board, and silicone spatula – all these products require different manufacturing techniques and materials. If this sounds familiar, you’re most probably dealing with an agent. Most factories in China specialize in producing only one type of product – this is how they leverage the economies of scale.

Sometimes your Alibaba agent will admit that that’s who he/she is – a middle man. But many, if not the most, will blatantly lie to you that they’re the factory. The extent to which Chinese middle men pretend they’re factories can be mind-boggling at times. For example, they will send you “real” pictures from the factory you’re getting products from, except they don’t work there.

Dealing with agents rather than factories will surely make you pay more for the same (or worse) quality, but there’s more cons involved. I won’t go into details since the scope of this article is primarily about lowering your product costs, but it’s important to mention them:

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So much for the main cons (we could go on and on about how using an agent has high potential to harm your business in the long-term). But how to get 10-30% lower prices than most people who source on Alibaba, without compromising on quality or having to order bigger MOQs?

Simple. By using an experienced and professional sourcing agent in China that’s actually on your side – meaning he/she works for you to contact suppliers and negotiate terms on your behalf while you retain complete control and overview of the whole process. He or she will be able to go off Alibaba and use Chinese language sourcing directories such as 1668.com or the huge e-commerce website that is Taobao (some factories will sell their products directly to customers there). Your sourcing agent will also most likely be able to leverage their own connections and relationships to get to the right supplier.

Regardless of how your sourcing agent is finding suppliers, he or she will be able to get much lower prices solely based on the fact that they speak Chinese. People who speak Chinese in China are treated completely differently than those who don’t – ask anyone who has ever been there and they’ll likely agree with that. It doesn’t matter if it’s haggling for one piece of accessory at a flea market or if it’s negotiating the price for an order of 5,000 units, the end-effect is similar: Chinese speakers always get the best deal. Non-Chinese speakers rarely, if ever, get the best deal. Unless you’ve been ordering big quantities from your factory for years and have built up a good relationship with your supplier, but that’s entirely different story.

The cost of hiring a part-time Chinese sourcing agent might be a bit too much to justify its merit for a Private Label seller that’s only starting out or hasn’t got a substantial cash flow yet. That’s one of the reasons we’ve started FactoryDesk – by creating a project with us you can simply use one of our in-house local sourcing agents in China, and the costs are already built into the already competitive rate that’s being charged on a per-product basis.

2. Get your samples reviewed in China and/or consolidated into one shipment

This is a fairly simple way that can save you anywhere from $30-$50 on each sample you’d otherwise need shipped to you internationally, one-by-one. If you’re ordering just 5 samples, that’s already around $200. If you’re ordering 15 samples, the cost of all the shipping could go all the way up to $700 or more. Multiply these figures by the number of products you’re launching or considering launching over the course or 6-12 months and those expenses really start to add up.

Unfortunately this is how many sellers order their samples – it’s the best option they have. But a much more cost-effective way is to have your samples consolidated into one shipment by someone in China. Or better yet! Have them review the samples and send you the report so that you can decide which samples you want shipped. Call it “cost of doing business” or all you like, but the true fact is that paying to ship a bunch of low-quality junk via air is wasting your money. To have someone “pre-screen” the samples and only ship you ones you want to even consider is a money saver in itself. And, depending on the complexity of the product, you might not even need any samples shipped if your contact in China provides you with a good report along with detailed photos and/or videos.

There aren’t many services out there which offer either a sample review service or consolidating samples into a one shipment, but I know of few people doing that, and can see this service gaining in popularity. At FactoryDesk, it’s something we do simply as a part of our Product Development process, no extra fees applied.

3. Save on shipping and prepping costs

Besides shipping your units by boat, there’s a couple of ways to cut down on your freighting spend.

Most people will have their supplier use their own freight forwarder to ship the products by air, either to an FBA prepping center in the US, or directly to FBA warehouse(s). Both of these are certainly cheaper ways than working directly with big corporate freighting companies. But there’s a number of disadvantages to both of these, while it’s totally possible to have the best of two worlds in terms of safety, as well as time and cost effectiveness – you could have your goods inspected and prepped in China, and then shipped directly to FBA warehouse(s). Let’s take a look at all of these 3 methods:

 

Method 1: Shipping your products to a US/local prepping center or your house before shipping them to FBA

This is the “classic” and most default way of having your products shipped to FBA. Especially if you’re just starting out, or it’s the first product you’re sourcing from a particular supplier. Private Label sellers will either have the goods delivered to their house, where they’ll personally inspect, prep, and label them, or they’ll have a US-based FBA prepping company handle that for them. A safe way of doing business for sure, but the most expensive and slowest too. It’s not exactly the least risky way either – although personally inspecting goods at your house gives you that feeling of having everything under control, what if you have 10% defective units? How about 30%, or 60%? You can hardly do anything with them. You definitely won’t return them, and good luck getting your supplier to ship you replacements.

You’re pretty much stuck with whatever you , or your prepping company find in the cartons. If the goods are not properly packed, secured, or labeled, this means a whole lot of labor to do (and/or pay for). The other day I was listening to a podcast in which someone said they had to ask their family members to help them re-pack 1000 units which involved a couple of people sitting for 2 days and doing the mundane work. I thought that was an incredibly inefficient way of doing business. It might seem acceptable if you’re just starting out, but if you’re serious about scaling at all, can you imagine doing this every single time something goes wrong with your goods?

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Method 2: Having your Chinese supplier ship directly to FBA.

This is usually the fastest and riskiest method of them all. Just like in first method, the cost-effectiveness depends on what freight forwarder the Chinese supplier is using. You might have heard about people trusting their suppliers, shipping directly to FBA and not having any problems (usually said in a “knock on wood” tone). It works for some people, at least for a while – it might work for 2 months, or might work for 10 months; but the truth is: you’re putting your seller’s account at a huge risk. It might only take one customer complaint for Amazon to block your listing, or even your account. No matter how trustable and reliable your supplier is, there’s always going to be some defective units. If you’re just looking to make a quick buck then sure, you might get away with having your Chinese supplier ship the goods to FBA without any 3rd party inspecting them, but if you’re looking to build a long-term sustainable business, introducing some kind of inspection and quality control into your channel should be a no-brainer.

There’s also a number of other challenges that stem from the language barrier and lack of understanding the needs of an Amazon seller on the suppliers’ part. Keep in mind that the majority of suppliers are not used to shipping to FBA warehouses and don’t have the comprehensive knowledge of logistics that a freight forwarder has. There are also plenty of risks that aren’t necessarily about your product itself being defective, i.e. the supplier not labeling your products correctly, or packing the units in a way that’s not appropriate for FBA.

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Method 3: Having your goods inspected and prepped in China, then shipping them directly to FBA

As far as I know, this is by far the best method of getting your goods out of China and into FBA warehouses. It combines the cost and time effectiveness of the second method and provides an even thicker layer of protection than the first method. If you’re having your goods inspected in China, either through an on-site inspection or a post-production inspection, you can almost always have the defective units replaced by the supplier. This not only lowers the risk of receiving customer complaints, but also reduces the costs in the long run.

If you’re having your goods inspected in China, you might as well have them prepped and labeled there. It’s certainly cheaper than paying a US company and you don’t have to add to your expenses and delay by shipping your cartons back and forth around States (or whichever country you’re selling in).

One of the main reasons people choose to work with us is that we’re able to offer this holistic service of product inspection, re-packing, prepping, labeling, and freight forwarding – all as a one-stop shop solution, at a very competitive rate.

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To Be Continued

This is the end of Part 1 of 7 Ways to Lower Your Amazon Private Label Product Costs. Make sure to stay up to date and not miss the Part 2 of the article by subscribing to our email list.

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