Having product ideas to sell is just the beginning of a long, but exciting, journey to open your company. The next step is to think about how you are going to acquire the products you want to sell. There are many options, each with unique advantages, disadvantages, and challenges.
The four most common ways to obtain products are:
- Do it yourself (DIY)
- Have it manufactured
- Buy wholesale
It is essential to understand each of these methods to make the right decision for your company. There are advantages and disadvantages, so depending on your product, market and niche, one method may be more suitable for you and your company than others.
We will evaluate each method in detail.
Do it yourself (DIY)
Making your own product is a common strategy for many people who have a knack for crafts or have a hobby. Whether jewelry or jewelry, clothing or natural cosmetics, making your products on your own allows you to have precise control over quality and brand, but has time and scalability limitations.
The biggest costs of doing it yourself are the purchase of raw materials, the storage of products and labor.
It is important to note that not all products can be made by hand. The choice of your products is limited to your available skills and resources.
Who should choose DIY?
This option is for those who like to do things on their own instead of buying ready-made. It is for people with creative ideas, who can create products and have the resources to do so. Through in-house manufacturing, it is possible to control the quality of the product and the brand, while keeping initial costs low.
- Low initial costs – when making your own products, you don’t have to create several at once, contrary to what would happen if you had them manufactured. This allows for relatively low production costs, which for many e-commerce companies is the biggest upfront expense.
- Brand control – own manufacturing allows you to create the brand you want, without any limitations.
- Price control – just like brand control, price control allows you to charge as much as you think is appropriate for your products.
- Quality control – when you manufacture your products yourself, you can closely control the quality, making sure that they meet your expectations and those of your customers.
- Agility – your own production provides agility to your company, since you can adjust the quality, prices, change the brand or even the entire product in the blink of an eye.
- High time investment – depending on the product you choose, it can take time to make, leaving less time to focus on the company .
- Scalability – making your own products can become problematic when your business starts to grow. Although you can have it done at any time, it may not be easy or feasible if your customers already expect your products to be handmade.
- Product limitation – As mentioned earlier, your product options are limited to your skills and the resources you have available. This varies from person to person.
The margin potential is usually higher when you manufacture your products yourself, since you have more control over costs and prices. However, take manufacturing time into account, as if your product is complicated and time-consuming to make, it can cause a drop in profits.
Generally, making your own products is a low financial risk option. Since you take care of the manufacturing yourself, there is no minimum order, contrary to what would happen if you had a third party manufacture or if you bought your product wholesale. You may even be able to make handmade products as you receive orders, which allows you to get the company up and running before you even invest a lot of time, energy and money in it.
Have it manufactured
Another viable option to purchase your products is to find a manufacturer. You have the option of finding a manufacturer in Brazil or abroad. As you may already imagine, domestic manufacturers generally charge more than those in China, Taiwan, or India. However, if you choose a foreign manufacturer, consider import fees.
If you are already looking for a manufacturer abroad, you will probably end up on the Alibaba website. Alibaba is one of the largest business-to-business marketplaces that connect, for the most part, Asian manufacturers with North American buyers. There are several other companies alike, but smaller, that focus on the same type of service, such as IndiaMart.
Who should choose to have it manufactured?
Having the products manufactured is ideal for those who have a unique idea or a variation of a product on the market that does not yet exist. It is also excellent for those who have already validated that there is a market for a product and are sure that the product will be successful in sales. This is important, as manufacturing by third parties requires a larger initial investment to manufacture your products and create an inventory.
- Low cost per unit – manufacturers often charge a low value per unit, which makes it possible to have a good profit margin.
- Brand control – having your product manufactured allows you to create your own brand without any limitations. You can also control the prices of your products with ease.
- Quality control – unlike dropshipping or buying wholesale, having your products manufactured allows you to quality control the final product.
- Minimum order – one of the biggest disadvantages of having your products manufactured is the cost of placing the initial orders. Depending on the supplier and the cost of manufacturing your product, you can easily end up investing hundreds or even thousands of reais.
- Possibility of fraud by manufacturers abroad – nothing is worse than having to stop everything because of fraud or a scam applied by an outside manufacturer.
- Time – having it manufactured is probably the most time-consuming option. The production process can be long, with the creation of prototypes, samples, product improvement and production. This becomes even more difficult or time-consuming if you plan to work with a manufacturer abroad, as there are language, culture and distance barriers.
When you have your product manufactured, your margins can vary greatly depending on the product itself, the manufacturer and the number of items. However, generally making your product offers greater potential for profit margins than other methods, such as buying wholesale or dropshipping.
Those who do not risk do not snack. In most cases, manufacturing is the option with the highest risk. You need to buy products without any sales guarantee. Manufacturers usually have a minimum quantity per order , so you end up starting with thousands of products. The minimum order depends on the product and the manufacturer, so first talk to the manufacturer about the minimum order quantity and try to negotiate if necessary.
There is also a risk of fraud or scams if you are buying from an international manufacturer, especially in Asia. Business-to-business sites like Alibaba have fraud prevention measures. However, this remains a problem and it is difficult to resort when you fall for a hit.
Buying wholesale is a relatively simple process. You buy your products, which are usually from other brands, directly from the manufacturers or from an intermediate supplier for a discounted price. You resell these products at a higher price.
There are some reasons why buying wholesale is a lower risk business model compared to having your products manufactured. The first is that when buying wholesale, you deal with brands that are already validated in the market, consequently you do not run the risk of wasting time and money developing a product that nobody wants to buy. In addition, you do not have to buy such a large amount in relation to the manufacture of the products by third parties. The minimum order depends on the manufacturer and the product, but it is generally reasonable and may even be just one product.
Who should choose to buy wholesale?
Buying wholesale is a good option if you want to start your business soon or if you want to sell a variety of products and brands. There are many opportunities, as there are many products available to buy wholesale.
- Selling already established products – by selling well-established products, you decrease the risk of buying inventory that you end up not selling.
- Brand recognition – selling brands already established in the market helps in positioning your brand with a positive image.
- Selling established products – selling established products on the market can be both an advantage and a disadvantage. As the product is already being sold by other tenants, you will have to work hard to stand out and convince customers to buy them at your store.
- Price control – selling other brands means that you have to act according to the rules of those brands. Some brands have strict price controls to prevent their products from being sold at a discount. This limits the possibility of making promotions .
- Inventory management – wholesale buyers usually have a minimum order for each product. The minimum order depends on the product and the manufacturer. You will need to stock and manage the inventory for future orders.
- Dealing with multiple wholesalers – if you have a wide variety of products, doing business with multiple wholesalers at the same time is difficult to manage. The requirements vary depending on the supplier.
The wholesale margins are good in relation to dropshipping, but not as profitable as those of having their products manufactured. Buying wholesale is considered an intermediate option between manufacturing and dropshipping. Although each case is different, it is possible to achieve 50% margins on products purchased at wholesale and sold at retail price.
Buying wholesale is a lower risk business model than manufacturing, but there are risks. You buy products often without seeing them in person beforehand. Possibly the biggest challenge is to be able to differentiate yourself from several other retailers that sell the same products.
The concept of dropshipping , or direct shipping, is to sell products without stocking or producing them. The process works as follows: you receive an order at your online store, forward the order to your supplier or dropshipping partner company, who processes the order and sends it to your customer on behalf of your company. The main thing to take into account to make money from dropshipping is to profit from the price difference between how much you charge and the price set by the dropshipping provider.
The biggest advantage of dropshipping is the possibility of offering a wide variety of products without making a stock or having to manage it. Dropshipping is also a fantastic tool to diversify your product range, as well as testing products, as it is just a matter of adding new products to your store.
You can work directly with manufacturers who offer the dropshipping service by contacting them, or you can work with a dropshipper aggregator, such as WorldWide Brands . Aggregators work with hundreds of manufacturers and make it easy to sell thousands of product types without having to maintain direct contact with each individual manufacturer.
However, remember that although aggregators simplify the possibility of selling a series of products, they charge a portion of their dropshipping profit margins, which are generally already low. In addition, many aggregators charge a kind of annual fee or registration fee, which costs a few hundred dollars. You can’t usually even see the products or the profit margins on the products they offer before you pay that fee.
Oberlo – Free dropshipping app
The Oberlo app makes it easy to import and dropship thousands of products directly from AliExpress.
Who should choose dropshipping?
Dropshipping, by nature, is the cheapest option to start. Consequently, dropshipping is for those who prefer low initial costs and do not care so much about profit margins. Dropshipping is also an excellent option for those who do not want to stock products and manage them.
- Low initial cost – the biggest advantage of dropshipping is the low initial cost. Since you never stock your products, you have no inventory costs, which are usually the heaviest part of the budget of those opening an online store.
- Low risk – because you don’t buy any products before making a sale, you don’t run the risk of stocking products that you can’t sell.
- Simplify sales – the dropshipping supplier takes care of selecting, packaging and shipping the product for you. This provides efficiency and convenience, allowing you to manage your company anywhere in the world.
- High competition – since dropshipping has very low barriers to entry, there are many people doing this. In other words, competition is fierce, making it difficult to stand out from other companies.
- Low margins – one of the biggest disadvantages of dropshipping is the very low profit margin. This makes it very difficult to compete with paid advertising, which means that you need to invest more in content, services, etc. Low margins also mean that you need to sell a high volume to make good profits.
- Stock synchronization (out of stock) – another major disadvantage of dropshipping is the delay. Since you depend on third-party inventory, you sometimes place an order with a supplier but the product is out of stock. The result is that delivery takes longer than you promised the customer, which can give your store a bad reputation.
Your profit will be the difference between what the customer was charged and the price the dropshipper charges you. Dropshipping profit margins are generally low, around 20%.
Dropshipping has low risks, since you don’t have to stock your products or worry about shipping. However, there is a risk of low profit margins and high competition. Low margins mean you have to sell a lot to make a profit, which also decreases the feasibility of running certain marketing campaigns like pay-per-click to get new customers.
What is the best way for you?
Most products fit into one of these four acquisition models. Depending on your product or niche, you may not be able to choose the business model, so it is important to understand the advantages and disadvantages of each model to make the right decision for your company.