This is an excerpt from the book “Ecommerce Uncovered” by Nathan and Tessa Hartnett.
Your First Order
So you’ve found a niche, and are ready to get started with your first range of products. This is where “the rubber meets the road”, and we start moving from theory to practice. You might be getting excited, or you might start to feel the nerves start to kick in as you have to pull your wallet out and start handing over your hard earned money to complete strangers who may or may not be on the other side of the world. What if they rip you off? What if they send you poor quality products? While we can’t guarantee you a perfectly smooth experience, we can certainly help grease the wheels a little.
How Many Products?
As mentioned, it’s really important to spend as little as you can to get your initial range. You might have heard the term “minimum viable product” before, and that’s exactly what we’re looking for here. Just enough products to compete, in as small a quantity per unit as possible. We call this going as wide as you need to and as shallow as you can.
We’ve always found it helpful to have at least a few more product listings on your site than your competitors. If your top competitor on page one for your primary keyword has 30 product listings on their site, then you should have 40. If they have 3, you should have 6. If they have 100, you should have 120 and so on.
Minimum Order Quantities (MOQ)
If you determine that you need 120 different product listings, you should try to get 120 products in only one piece per stock keeping unit (SKU). For example, if you’re selling t-shirts, and you need 120 different designs (or SKUs), try to get just one t-shirt in each different design. This will help you achieve the number of products you need to, while spending as little as possible.
This sounds easy (even if you don’t quite understand it all just yet), but it can be quite difficult in practice. Suppliers hate “one piece per design” orders, and will fight tooth and nail to make you order more. When we first started, we had suppliers tell us that they couldn’t possibly go lower than 50 pieces per design, per size! We thought we were awesome negotiators when we got them down to 30 pieces per design per size. We now get the same products as low as 1 piece per design per size. So how did we do it?
First of all, you have to ask. For many suppliers (particularly those in Asia), negotiating is a game. If they convince you to buy more than you need, it’s not seen as ripping you off, they just played the game better than you did. It’s really important to see it in a similar way – never get upset or angry.
One of the first ways to get started is to ask for a sample range. Suppliers are used to new customers asking for a sample, and they will react to your question in a variety of ways. First, if you can prove some credibility (through already having established businesses or references), they may be happy to send you a free sample, although this is getting much rarer (and doesn’t help if you’re just getting started).
They might ask you to pay a sample fee. This is where they ask you to add an amount (eg $150) to the sample order, which they will credit you when you do your first order. This doesn’t make a lot of sense. How do you know you’re going to make a first order? That’s the point of the sample! Needless to say, we always politely explain this to the supplier, and never pay a sample fee.
Sometimes they might ask you to pay more for each item, as they have to produce the samples in small quantities, which increases their costs. This is a legitimate concern for them (usually they are a small business just like you), and we are happy to pay this (within reason). In fact, if they tell us that they don’t offer samples, we often will offer to pay them extra per item if they’ll lower the quantity and do the sample. This has worked a lot for us, and came from our first trip to China.
When we first visited our suppliers in China, I was trying to negotiate our quantities down with our very polite sales girl (who was the only one that spoke English). She went to great lengths to explain why they just couldn’t lower the quantities down as far as we wanted them to. At the time, we were paying them $10 per item, and selling the same item in Australia for $100. Out of desperation, I asked them if they couldn’t lower the quantities if we paid them 30% more per item ($13 instead of $10). She looked at me like I was crazy, and then said that of course they would. To them, that 30% was such a big price increase, that they never would have offered it. To us, it barely made a dent in our profit margins, yet the amount of capital we would need to expand our range dropped by a huge amount.
Another way to try to reduce the quantity is to ask if they have any overstock items. Often suppliers will produce more than they need to for other customers, and end up with “left overs” that sit on their floor, taking up space. Why not relieve them of it?
You can also ask them if they have other customers’ orders in production, and see if you can add to their run. That way they are still producing the large quantities that they want to, but you can “skim off the top”.
While all of these tools can help, the single most successful method is simply to offer them more money per item. It’s always tempting to pay $5 per widget because it feels like you’re getting a bargain, even if it means you have to spend $20,000 to get the quantity needed to get that low price. The truth is though, there are times where paying $20 per widget makes a lot more sense (if it means you only have to spend $1000 in total) – especially when you still haven’t “proven the niche” yet. There are garages out there that are full of products that people couldn’t sell, because they didn’t take their time and prove the model first. This is not only costly from a monetary perspective, but these people often get “trapped” by this product, and don’t want to start another venture until they sell off the old mistakes that are sitting there gathering dust. This can result in the old, “I tried starting a business once, but it just didn’t work out” speech. Don’t be that person! You are still in the test phase, so don’t mortgage the house just to get it started.
Where to Buy
If you’ve found a local supplier that can give you what you need, all the better. Depending on the product and where you live though, this might be easier said than done. Much has been said about China becoming the factory of the world, but regardless of your opinion on whether or not this is a good or bad thing, it is reality. We now have suppliers all over the world (Australia, China, U.S., Albania, Cambodia), but all of our initial ranges have come from China. It’s just easier to find and source anything you could possibly think of at a good price, so that you can test your niche and test the market. Once you have proven your niche with a few sales, you then have more room to move and find a local supplier should you so desire.
Buying from China might seem daunting to someone just getting started, and it’s not a bad idea to be cautious. There are many suppliers who are more than happy to rip you off in every way imaginable, and we’ve seen it time and time again. What we’re going to show you now is how we protect ourselves 100% from being ripped off.
When it comes to sourcing our initial ranges, Aliexpress.com is our first port-of-call. A part of the Alibaba group, Aliexpress is where many Chinese suppliers go to sell their overruns. It’s a great way to find suppliers who are already open to the idea of lower quantities, and also has a great added bonus.
Whenever you buy something through Alixpress, your payment goes into an escrow account, which means that Aliexpress holds onto the payment until you receive the goods. This means that you can receive and inspect the goods before the supplier receives your money. If you’re happy with what you’ve received, then you can release the payment to the supplier, and if not, you can open a dispute.
As I’m sure you can see, this means that suppliers have a great incentive to make sure that they provide you with the right goods, with a great level of quality. I would love to say that all suppliers will do this, but unfortunately that’s still not the case. At least with the escrow as a fallback, this method gives you the opportunity to either get your money back, or force the supplier to resend goods. We’ll talk a bit more about opening disputes and how to win them a bit later.
One of the drawbacks to Aliexpress is that you won’t always find exactly what you’re looking for, as the range is a lot more limited than its big brother Alibaba.com. We’d always recommend starting here first though, and then moving to Alibaba if you just can’t find what you’re looking for.
Back when we started, this was one of the only options for finding an enormous range of overseas suppliers, and sometimes it’s still the only option (depending on your niche). While you can find pretty much every product in existence there, you will have to work a bit harder to find someone who will give you the quantities you need. It’s simply a matter of searching for your product and then starting to contact suppliers one by one until you find someone you can work with. Be very careful with how you pay them though, as there is no built in protection here, and how you pay them will determine whether or not you get ripped off. We’ll discuss payment options a bit later in this chapter.
Etsy, eBay, Amazon, local markets… there are almost endless places to find your initial range. The main reason we prefer going straight to the manufacturer (or a distributor) is because you can start building a relationship with them that will grow well into the future. Having said that, if you have negotiated your butt off with every supplier you can, and they just will not give you the super low quantities you need just to test the niche, then buying “retail” from a marketplace is perfectly fine. We’ve certainly done this before just to get the niche started.
Once you then know that the niche will work for you, and which products are going to be your best sellers, it’s then easier to go and order (slightly) larger quantities (never stop negotiating though!). You might not even make any money off your initial range, but you’ll know what your manufacturer’s price is, and be able to calculate your gross profit based on those figures as opposed to the retail price you paid for your initial stock.
How you pay is often the determining factor as to what protection you may or may not have. Our favourite method of payment is through Aliexpress, because of the escrow service they provide. Alibaba.com also provides an escrow service, but you’ll have to pay for it. We’ve been able to occasionally convince Alibaba suppliers to list the product that we are buying on Aliexpress so that we can still get the benefits of the escrow service. Sometimes they ask us to pay for the escrow fee (which we’ll do), and sometimes we “get away with it”.
You would think that with the escrow system suppliers would make sure that they give you the right product every time, but unfortunately that’s not the way it works initially. Many suppliers will often test you on the first couple of orders to see whether or not they can get away with giving you 10-20% crap. Try not to take it personally. They might even send you some of the goods that they are having trouble moving instead of what you actually ordered, and then try to convince you that “it’s okay, you’ll be able to sell it”. This is where you need to smile, but carry a big stick. Either they’ll train you, and you’ll train them. However you handle this at the start will determine how your relationship will continue.
It doesn’t matter what reason they give, we only accept 100% of what we ordered, both with the items we receive and their quality. Even if it’s a small quality issue, if you think your customers would be unhappy with paying full price because of the quality issue, then you need to raise the problem. Always contact the supplier and give them a chance to fix the issue before opening a dispute. They could still be a great supplier for your business over the long term, so don’t wreck the relationship just yet, but don’t be afraid to be the squeaky wheel that gets the grease.
Explain to the supplier that they did not send you what you ordered and send them photos of all the problem items. You ordered and paid for these particular items with the clear understanding that they would be of saleable quality. Explain that you cannot sell what they have sent, and they need to refund you for those items, or send replacements, at their own cost. It was their mistake, and you should not have to pay a penny more for them to fix it. At this point they might apologise and start trying to make excuses, or try to negotiate a solution that involves you accepting less than what you ordered, or paying to fix the problem. Just remember, you did your negotiating before the sale, this is not the time to negotiate.
Another tactic they might try is to delay you. They know that after 45 days you can no longer open a dispute. If they can delay the issue for that long, they will. Make sure you set a reminder a few days before your dispute window closes so that you don’t get caught out, and if you get within a few days out from that day, warn them that you will open a dispute within 24 hours if they don’t fix the problem to your satisfaction, and then make sure you do so if required.
Once you’ve opened a dispute, you’ll find that suppliers will now do anything they can to convince you to close it. Once you close it though, you can’t reopen it, so never close a dispute until you have the 100% correct product in your hands, at the right level of quality.
So why go through this process? What’s wrong with only 10% of the goods being unsaleable? What you are doing here is training your supplier, and it will go one of two ways. Picture the following.
It’s the packing and shipping part of your supplier’s warehouse, and they are packing your order. The boss walks over to check on his employees, and says, “Hey, we’ve got a few products that didn’t quite pass quality assurance. Whose order are you packing?” To which the employee responds, “This order is for (insert your name here).”
“Great!” says the boss, “Those guys never complain too hard when we send them 10% crap, so let’s send them these dregs.”
The boss walks over to check on his employees and says, “Hey, we’ve got a few products that didn’t quite pass quality assurance. Whose order are you packing?” To which the employee responds, “This order is for (insert your name here).”
“Hmmmm.” says the boss, “that’s a shame. If we send them the dregs, they will be a pain in the butt until they get their money back. Alright, don’t send the bad product to them – whose next on the shipping list?”
So which scenario do you want to be a part of? Some might be tempted to read this and decide that they just don’t want to deal with a supplier that treats them this way, and that might be fair enough – if you have lots of alternatives. For us, we’ve done this enough times to realise that once the supplier learns what you will and won’t accept, then you can actually have a great relationship for many years to come. Play the game, don’t settle, and keep smiling. We have never lost a dispute on Aliexpress, because we have a process, and expect it to happen when using a new supplier for the first time.
So what do you do if you can’t use Aliexpress?
Our next favourite payment option is PayPal. If you’ve ever been an eBay seller before you’ll know only too well how it feels to be on the seller’s end of a PayPal dispute. PayPal always favour the buyer, not the seller, and the seller is usually guilty until proven innocent. So why not use this to your advantage?
If we can’t use Aliexpress, then we’ll use PayPal for this very reason. The dispute process isn’t as easy to win as with Aliexpress, but we still have won every dispute so far. The key in any dispute is to make sure that you contact the supplier quickly with photo proof, and then open the dispute in a timely manner. Like Aliexpress disputes, sellers hate it when you open a dispute, and will generally do whatever they can to get it closed. Stick to your guns, and don’t settle for less than what you ordered.
Other Payment Options
Other payment options include credit cards (you can open a dispute through your credit card company – but normally this is for unauthorised charges, and technically you did authorise the charge). Telegraphic Transfer (T/T) is good for larger payments, but you have very little in the way of options should they send you bad product. Generally we’d say only use this once you have an established relationship with a good supplier.
Finally there’s western union, which is extremely risky. You would only ever use this option if you had no other choice, and you are happy to kiss the money goodbye should the supplier not come through.