If you’re an Amazon seller, one of the most critical parts of your business is product sourcing. The products you choose, where you get them, and how you manage your supply chain can make or break your success.
In this guide, we’ll walk you through the essential steps and strategies for effective product sourcing, to sourcing products for your Amazon store, helping you find the right items to sell, build solid supplier relationships, and maximize your profits.
What is Product Sourcing?
In simple terms, product sourcing is the process of finding products to sell, either by purchasing them from a manufacturer or supplier or producing them yourself. As an Amazon seller, your goal is to source products at the lowest possible cost without compromising on quality, ensuring a healthy profit margin when selling to customers.
There are several methods to source products for Amazon, each with its own pros and cons. Let’s dive into the most popular options.
1. Retail Arbitrage
Retail arbitrage is the practice of buying discounted products from brick-and-mortar retailers (think Walmart, Target, etc.) and reselling them on Amazon for a higher price. It’s a popular way to start selling on Amazon because it doesn’t require a big upfront investment. You can start small, testing out products and markets before going all in.
Pros:
- Low startup costs: You don’t need much capital to get started.
- No need for supplier relationships: You can find products on your own time.
- Quick start: You can start selling as soon as you have products.
Cons:
- Limited scalability: Retail arbitrage can be difficult to scale up due to limited stock and product availability.
- Competition: You may be competing with other Amazon sellers who source the same products.
- Inconsistent inventory: Retail stock varies, so you may not be able to consistently replenish high-selling items.
2. Online Arbitrage
Similar to retail arbitrage, online arbitrage involves purchasing discounted items from online retailers and reselling them on Amazon. You can leverage deals, sales, and coupon codes to find profitable items from online stores like eBay, Walmart.com, or other e-commerce platforms.
Pros:
- Convenient: You can source products from the comfort of your home.
- Access to more products: You can search for deals worldwide, not just locally.
- Software tools available: Many tools help identify profitable online deals.
Cons:
- Shipping costs: You’ll need to account for shipping from the retailer to you, which can eat into profits.
- Competition: Like retail arbitrage, there’s stiff competition.
- Inconsistent inventory: Finding deals online can take time and may not be a sustainable long-term strategy.
3. Wholesale Sourcing
Wholesale sourcing involves purchasing products in bulk from a manufacturer or distributor at a discounted price, which you then sell on Amazon for a profit. Wholesalers generally sell their products in large quantities, which is ideal for scaling your business.
Pros:
- Consistent inventory: You can typically order large quantities of products whenever you need to restock.
- Lower cost per unit: Buying in bulk reduces the price you pay per item.
- Established products: You can sell well-known brands and popular products that already have demand.
Cons:
- Higher upfront costs: You need significant capital to buy large quantities upfront.
- Supplier relationships: Building and maintaining good relationships with wholesalers takes time and effort.
- Competition: Popular wholesale products can be competitive, with multiple sellers offering the same item.
4. Private Labeling
Private labelling involves sourcing a generic product from a manufacturer and then branding it as your own. It’s one of the most profitable methods for Amazon sellers, as you control the brand and have more influence over pricing and product design.
Pros:
- Brand control: You own the brand, meaning you have more control over product quality, packaging, and pricing.
- Higher profit margins: Since you’re selling a unique branded product, you can command higher prices.
- Reduced competition: Private label products reduce competition since no one else can sell the same branded product.
Cons:
- High startup costs: You need to invest in product design, packaging, and marketing to launch your private label brand.
- Longer time to market: Developing your own product takes time for design, production, and quality checks.
- Risk: There’s a risk that the product won’t sell as expected, leaving you with unsold inventory.
5. Dropshipping
Dropshipping is a popular e-commerce model where you don’t hold any inventory. Instead, when a customer buys from your Amazon store, the supplier ships the product directly to the customer. This method allows you to sell products without investing in inventory upfront.
Pros:
- Low startup costs: No need to buy inventory upfront, so your initial investment is minimal.
- No need for storage: Since the supplier ships the products, you don’t need to worry about warehousing or fulfillment.
- Wide range of products: You can offer a wide variety of products since you don’t need to stock them.
Cons:
- Lower profit margins: Dropshipping typically comes with slimmer margins, as the supplier takes a cut.
- Less control: You rely on the supplier for quality control, shipping times, and customer service.
- Customer service challenges: If there are problems with the product or shipping, you may have limited ability to address the issue.
No matter which method you choose, there are a few key things to keep in mind when sourcing products for Amazon:
- Demand
The product you choose should have a high demand on Amazon. This means that there are a lot of people who are looking to buy it. Whether you intend to operate a dropshipping enterprise via platforms like Alibaba or AliExpress or to procure your inventory directly from wholesalers, it is crucial to make a well-considered selection of your stock. Some products may have high demand during specific times of the year, which can affect profitability.
- Profitability
Calculate the potential profit margin by subtracting all costs, including product cost, Amazon fees, shipping, and advertising expenses, from the selling price. The product should also be profitable. This means that you can sell it for a price that is higher than your cost. Aim for products with healthy profit margins that can cover all costs and leave room for profit.
- Competition
The product should not have too much competition on Amazon. This will make it more difficult to sell your products and make a profit. Assess the competitive landscape for your chosen product. High competition can lead to price wars and thinner profit margins.
- Product Costs
Sourcing Cost: Consider the cost of acquiring or manufacturing the product. Shipping Costs: Factor in shipping fees, both domestically and internationally, if applicable. Efficient shipping methods and partnerships can reduce costs. Amazon Fees: Amazon charges various fees, including referral fees and fulfilment fees. Understand these costs and how they impact your profitability.
- Target Audience and Marketing
Identify your audience: Know your target audience and their preferences. Products that resonate with a specific demographic may have higher demand and command premium prices.
- Suppliers and Supply Chain
Reliable Suppliers: Partner with reputable suppliers who can consistently provide quality products. Reliability is crucial to meeting customer expectations, avoiding stockouts, and mitigating supply chain disruptions.
- Lead Times
Understand the lead times for manufacturing and shipping. Longer lead times can affect your ability to meet demand on time.
What is Amazon Product Sourcing all about?
Amazon product sourcing refers to the process of identifying potential suppliers, evaluating their products, negotiating terms, and ultimately selecting items that align with your business goals.
How to Find Winning Products to Sell on Amazon
Now that you understand the different sourcing methods, let’s go over the step-by-step process for successful product sourcing on Amazon
Step 1: Market Research and Niche Selection
Before you embark on your Amazon product sourcing journey, it’s crucial to conduct thorough market research and select a profitable niche. Here’s how to do it:
- Analyze Market Trends and Demand
Start by using Amazon’s data. Utilize Amazon Best Sellers to identify trending products and categories. Tools like Jungle Scout and Helium 10 can help you dive deeper into market trends and estimate potential sales. - Consider Profitability
While it’s tempting to go after the highest-demand products, don’t forget to analyze profitability. Calculate your potential profit margin by factoring in product costs, Amazon fees, shipping, and other expenses. Aim for products with healthy profit margins. - Competitive Analysis
Examine your potential competitors. If the market is oversaturated with established sellers, it might be wise to choose a different niche or look for unique product variations that can give you a competitive edge.
Step 2. Evaluate Product Viability
Not all popular products are a good fit for your business. Before you invest in inventory, evaluate the product’s viability. Consider factors like:
- Profit margins: Can you source the product at a low enough price to make a profit after Amazon’s fees and shipping costs?
- Size and weight: Larger, heavier products cost more to ship, which can eat into your profits.
- Durability: Fragile products are more likely to get damaged during shipping, leading to returns and refunds.
- Seasonality: Are you considering a product that only sells well during certain times of the year? Aim for products that sell year-round for consistent revenue.
Step 3: Find Reliable Suppliers
Now that you have a niche in mind, it’s time to find reputable suppliers. Here’s how to do it:
Alibaba and Other B2B Platforms.
A platform like Alibaba is a great place to find suppliers, especially if you’re sourcing products from overseas. Look for suppliers with a history of positive reviews and high response rates.
Attend Trade Shows
Attending trade shows and industry-specific events can help you establish direct relationships with suppliers. This also allows you to assess the quality of the products firsthand.
Local Sourcing
Consider sourcing products locally or within your country. Local suppliers often offer faster shipping times and easier communication, which can be a competitive advantage.
Step 4: Negotiating Favorable Terms
Negotiating with suppliers is a crucial skill in Amazon product sourcing. Follow these tips for successful negotiations:
How do I negotiate with suppliers?
- Understand supplier costs:
Have a clear understanding of all costs, including product costs, shipping fees, and any additional charges. Knowing your costs enables you to negotiate effectively. - Build a Strong Relationship:
Establishing a positive and professional relationship with your supplier can lead to better terms over time. Frequent communication and mutual trust are key. - Negotiate Bulk Discounts:
When placing larger orders, negotiate for quantity discounts. Suppliers are often willing to reduce per-unit costs for larger quantities. - Leverage Competition:
If you have multiple potential suppliers, let them know you’re considering other options. This can encourage them to offer more favourable terms. - Long-Term Agreements:
If you plan to establish a long-term relationship with a supplier, consider negotiating long-term agreements with fixed pricing and terms.
Step 5: Ensure Quality Control
The quality of your products can make or break your Amazon business, as poor-quality items lead to negative reviews, returns, and lost customers. Here’s how to ensure you’re getting high-quality products:
a. Order Samples
Never skip this step! Before committing to a large order, always request product samples to evaluate the quality firsthand. Compare samples from multiple suppliers to determine which offers the best balance of quality, cost, and reliability.
b. Use a Third-Party Inspection Service
If you’re sourcing products from overseas, it’s a good idea to use third-party inspection services (like Zignify Global Product Sourcing to perform quality checks at the supplier’s factory. This ensures that the products meet your standards before they’re shipped.
c. Conduct Regular Quality Control Checks
Once your products are in production, establish a routine for ongoing quality checks. This could involve requesting batch samples or working with the supplier to ensure consistency in materials, manufacturing, and packaging.
Step 6: Inventory Management
Efficient inventory management is essential to avoid stockouts or overstocking. Here’s how to do it:
- Demand Forecasting
Use historical sales data and market trends to forecast demand. This can help you reorder stock on time. - Fulfillment by Amazon (FBA)
Consider using Amazon’s FBA program to handle inventory storage and shipping. FBA can save you time and provide faster shipping options to customers. - Inventory Tracking Software
Invest in inventory tracking software like Sostocked to monitor stock levels and receive alerts for low inventory. - Seasonal Planning
Plan for seasonal variations in demand. Stock up well in advance for peak seasons, and manage your inventory accordingly during off-peak periods. - Continuous Review
Regularly review and adjust your inventory management strategies based on changing market conditions, demand patterns, and supplier performance.
Step 7. Manage Your Supply Chain
Effective supply chain management is crucial for the success of Amazon. You’ll need to manage inventory levels, monitor shipping times, and ensure that your products meet Amazon’s fulfillment requirements (especially if using Fulfillment by Amazon or FBA).
- Pro Tip: Consider using an Amazon account manager or third-party logistics provider (3PL) to help manage your supply chain, especially as your business scales.
Staying Compliant with Amazon’s Rules
Amazon has strict rules about product listing, pricing, and seller conduct. Failing to follow these rules can result in penalties, or worse, account suspension. Make sure you:
- Follow Amazon’s listing guidelines: Provide accurate and detailed product descriptions.
- Monitor pricing policies: Don’t engage in price gouging or undercutting.
- Handle customer service professionally: Respond to customer inquiries promptly and resolve any issues quickly to maintain good seller feedback.
Final Thoughts: Product Sourcing for Amazon Sellers
Sourcing products for Amazon can be challenging, but with the right strategy and approach, it’s also incredibly rewarding. Whether you’re buying from wholesalers, developing a private label, or dabbling in retail arbitrage, the key to success is finding the right product at the right price and ensuring your supply chain runs smoothly.
Remember, product sourcing isn’t a one-size-fits-all solution. It requires ongoing research, testing, and relationship-building with suppliers. But once you master it, product sourcing will be the backbone of your Amazon business, driving profits and growth.
So, take the time to explore your options, research thoroughly, and approach sourcing strategically. Get started today by reaching out to our dedicated team of experts. Click here to contact us now and take the first step towards Amazon’s success.
Your Amazon business will thank you for it!