Every small business owner needs to have a good handle on product sourcing to succeed when starting their business. One thing online storefronts and brick-and-mortar businesses have in common: there’s no store without products. That’s true whether you’re a home decor website, a fashion business or an artisanal coffee roaster.
That's why we've put together these vital tips for defining the right product sourcing strategy for your eCommerce business. Learn the ins and outs of finding the right suppliers and maintaining a well-oiled product sourcing machine.
Product sourcing isn’t just about selecting cool products, either. You must be able to accurately assess the efficiency, flexibility and cost of your sourcing model in order to safeguard your business.
Need a better system for your ecommerce management? See how Wix eCommerce can help you streamline your business, from managing suppliers to monitoring performance.
What is product sourcing?
Product sourcing is the process of acquiring stock that you plan to sell online or in your brick and mortar store, if you have one. It involves working with suppliers who can provide you with the proper levels of inventory to satisfy customer demand.
It’s a critical part of any eCommerce business plan. And while new business owners may be focused on getting their first units built, established ones may be reevaluating their product sourcing methods to help expand their catalog and shave costs.
Why product sourcing is so important
The wrong product sourcing strategy can take a toll on your profits and productivity, and affect the overall success of your business. More specifically, product sourcing is important because:
You need to have the right inventory at the right time
Most eCommerce shoppers expect to receive their products within days. If your suppliers are out of inventory and orders start backing up, customers are likely to ditch your store and shop elsewhere.
We saw this happen often as pandemic-era shortages crippled the global supply chain. Out-of-stock messages rose by 250% in October 2021 compared to a pre-pandemic period (January 2020), according to Adobe. Electronics, jewelry, apparel, pet products, and home and garden were among the most affected categories.
As the supply chain crunch continues, having a strong product sourcing strategy with multiple suppliers will help you weather port closures, shipping delays, and other disruptions so that you can keep your customers satisfied and reduce the risk of them going to a competitor’s site.
Product quality is crucial
Few things will erode your store’s reputation faster than inferior products that let customers down. Not only will poor product quality lead to a spike in returns, but you run the risk of receiving negative customer reviews and damaging your reputation online.
Today’s eCommerce shoppers are also ever-sensitive to both poor-quality products and perceived (and actual) counterfeits.
Flexibility is required for your business to scale
The right product sourcing strategy should help you achieve your growth goals. Spending too much upfront cost on supplies, or taking too long to produce handmade products are two challenges that tend to fetter growth. Each of these should therefore be taken into account when identifying the right suppliers and processes for product sourcing.
Read Also: 10 ways to grow your eCommerce business
How to source products for your business
There’s no one-size-fits-all approach for product sourcing. Rather, you should choose the most appropriate strategy for your store based on your overall goals, your products, your target audience and your budget.
To get you started, here are the four most common ways to source products:
01. Dropshipping
If you’re interested in starting a business but don’t actually want to design, manufacture—or even ship—the products yourself, consider starting a dropshipping business.
With both dropshipping and reverse dropshipping, you never actually need to touch the products. Instead, rely on suppliers then take care of everything from manufacturing to order fulfillment.
Here’s how it works: connect with dropshipping suppliers through a platform like Modalyst or Spocket and select which of their products you want to sell on your website. You can choose to dropship all the items in your catalog, or only dropship a portion of your catalog. When a customer makes a purchase on your store, the order will get sent to your supplier, who’s then responsible for delivering the product straight to your buyer’s doorstep.
Create a dropshipping website to get started.
Merchants like Cruising Aviation have relied on dropshipping to get up and running quickly. Founded by a student pilot, Cruising Aviation offers more than 300 aviation-themed products, ranging from wall art to clothing that’s all delivered within two to four days.
Pros of dropshipping and product sourcing
Low upfront costs. Because you don’t create, design, store or send products, you can start dropshipping with modest financial investment.
No excess inventory. If no one buys your products, you’re not stuck with shelves of paid-for products—in fact, you don’t have to worry about the bulk of inventory management tasks. This gives you more time to focus on marketing your products and elevating your store.
Quick to scale. You can easily add a wide and diverse range of products to your store. For example, if you sell dog sweaters, you can expand into leashes, water bowls, and toys from a variety of different vendors.
Cons of dropshipping and product sourcing
Limited quality control. Since you aren’t making your own products, the quality of the products and the service level of fulfillment will be based on your vendor’s abilities.
Lack of competitive differentiation. When you work with dropshippers, it’s possible that shoppers will be able to find the same product that you sell on another site (and potentially for a lower price).
Lower profit margins. While dropshipping doesn’t bring high upfront costs, it can mean smaller profits depending on how much you’re paying your vendors and how competitive your products are.
02. Wholesaler
When you choose a wholesaler for product sourcing, you get the opportunity to buy products in bulk. Partnering with a wholesaler is a good choice if you don’t want to create products from scratch and want to fill up your catalog quickly.
Alibaba and AliExpress are two of the most popular wholesale marketplaces. Some well-known marketplaces, like Etsy, also offer a place for buying wholesale.
Wholesales suppliers typically keep an eye on trending products in order to provide the best, most relevant selection of products for their retailers. But once obtaining inventory from your suppliers, you’re responsible for warehousing those products and fulfilling orders.
Pros of wholesale product sourcing
Low cost per unit. Because you order in larger quantities, you’ll pay a wholesaler a relatively low per-unit cost for each item. That may lend to larger profit margins.
Fast to start up. Wholesalers typically work with many retailers. That means they know which products will sell, giving you a better chance of driving sales starting on day one.
Access to a wide variety of products. The right wholesalers can help you assemble an impressive array of products and accessories to sell on your online store.
Cons of wholesale product sourcing
Inventory and fulfillment is on you. A wholesaler will ship their product to you, not your customer. That means you’ll need a warehouse or another facility to store inventory, and you’ll have to either fulfill orders yourself or hire a vendor to do the work for you.
Lack of product differentiation. Other retailers may use the same wholesaler as you and offer the same products.
Larger upfront costs. You’ll need to anticipate paying for all items upfront prior to selling them online, which can put your business in a pinch if you don’t have enough capital or don’t wind up selling as many units as you anticipated. Wholesale discounts will also depend on how much inventory you’re able to buy in bulk, so you may not snag as good of a deal as a larger retailer who has more cash on hand.
03. Manufacturer
Let’s say you have a great product design. You’re just looking for someone to bring it to life. How do you source products then? The answer may lie in manufacturing.
This product sourcing strategy allows you to design private-label products and potentially select the raw materials yourself, while your vendor will do the actual product creation. The manufacturer will then ship their products to you so that you can store and sell them.
Wix merchant Forge to Table manufactures its own hand-crafted knives. When they experienced a shortage of their signature product during pandemic-related lockdowns in early 2020, they found another local manufacturer to produce and sell a different item—branded aprons—to help weather the storm. Then, once their knife manufacturer got back up and running, Forge to Table reaped the benefits, achieving a YoY sales increase of 345% in Q4.
Pros of manufacturing
Create unique products. Working with a manufacturer allows your store to offer one-of-a-kind, branded items.
High level of quality control. Even though you don’t make the products yourself, you can examine the products before you sell them. You also get to control branding and price.
More flexible than other methods. Working with a manufacturer can offer more flexibility in how you build your products, optimize them over time, and how much of them to produce in a given timeframe.
Cons of manufacturing
High upfront costs. A manufacturer will typically enforce an MOQ, which could require a significant upfront investment.
Longer product development cycle. It could take many months for a manufacturer to create a prototype, refine it, get it to your specifications, and then produce enough finished product to get you started.
Finding a quality manufacturer isn’t easy. Identifying the perfect manufacturer can be a long process. There are various factors to keep in mind—including price, reliability, and time to product items—when searching for a partner. (View this guide on how to find a manufacturer to get started.)
Manufacturer success tips
Choose a manufacturer that meets your current and future needs. Ask yourself, will the manufacturer be able to keep up with growth or fluctuations in demand month over month?
Ask thorough questions. Ask prospective manufacturers about their processes and timelines so that you don’t face any surprising delays. Also, check reviews, consult third-party sources like the Better Business Bureau, or chat with other users (if that’s an option) about what it’s like working with the manufacturer.
Factor manufacturing costs into your product cost. Make sure you account for the extra expenses that will arise from working with a manufacturer when creating your pricing strategy.
04. Handmade
A homemade or do-it-yourself (DIY) approach to product sourcing tends to work best for jewelers, carpenters and other artisans. It’s also embraced by some cosmetic merchants. With a handmade approach, you can retain complete control over the design and manufacturing of your products.
Little Giraffe Bath & Body Co. prides itself on offering natural, handmade products. Little Giraffe uses high-quality ingredients, including pure essential oils, to ensure that its one-of-a-kind products are kind to the planet.
Pros of handmade products
Full creative and quality control. Because you make the products, you can ensure each item you create meets your quality standards.
Competitive advantage. Your products will be truly unique to your brand; customers won’t be able find them on any other online store.
Freedom to work with whomever you want. You choose the raw materials. You choose the hands that make the products. You choose how to handle all aspects of the supply chain for your products.
Cons of handmade products
Raw material scarcity. Current supply chain challenges may make it more difficult for DIYers to source the raw materials they need to create their products.
Difficult to scale. Every time you need to meet increased demand for your product, you may need to increase your staff.
Major investments in upfront costs and time. In addition to choosing and buying all the raw materials, you’ll need to hire the people to do the work or make the products yourself. You’ll still need to cover the other costs (and responsibilities) of business, too, like costs related to inventory, packaging, shipping, and marketing.
Handmade success tips
Choose the right raw material suppliers. Whether you need diamonds for jewelry or wood for homemade furniture, you’ll need to develop strong relationships with your vendors.
Consider the potential impact of supply chain delays. Plant shutdowns and other pandemic-era concerns can slow the delivery of your raw materials. Develop backup plans in case one of your main vendors experiences disruptions.
Plan for more storage space. In addition to potentially maintaining your own inventory of finished products, a DIY approach means you’ll need space to store your raw materials and products in development. Plan for this ahead of time, and understand how your workspace (plus processes) needs to evolve as your business grows.
Product sourcing FAQ
Can I choose more than one product sourcing method?
Yes. It’s common for merchants to use multiple methods of product sourcing. Let’s say you sell camping and caravanning gear. You could work with a manufacturer to create custom-designed tents at scale but then tap a dropshipper or wholesaler to provide sleeping bags and other accessories.Generally, the more options you create for your business, the better in terms of reducing over-reliance on one supplier or method to maintain and scale production. However, this could potentially add complexity to your business. You’ll have to be able to manage all of your various sourcing methods.