Whether you’re starting a retail business or just looking to add some new items to your shelves, product sourcing lays the foundation for your supply chain.
We’ll walk you through a step-by-step breakdown of how to source products by choosing the best items and receiving them most effectively—plus, how to find suppliers, maintain relationships with them, and identify growth opportunities.
Step 1: Determine the Products You Want to Sell
The first step to sourcing products is determining what products you want to sell. There are a few things to consider when sourcing products, including your brand as well as your competition and target market.
Research Your Target Market
Market research is the practice of gathering information about your target market—the group of people you are aiming to sell your products or services to—and their habits, needs, and preferences. This helps give you a better understanding of your target consumers and what products they want or already have. It also helps you spot potential market opportunities that you can profitably fill.
You can perform market research by observing customer buying behaviors in your store or at stores with similar products and customers. You can also do interviews, hand out surveys, or do focus groups. This is when select people who represent your target market come together, and a moderator leads a conversation where they offer insights about their experience, specific products, or brand messaging. Focus groups are an especially helpful strategy if you are creating a new product. You can use just one strategy or employ a variety of methods.
Look at Search Trends
Another way to research for products that you can sell is to look at trends. People search for things that they’re interested in every day; you can get rich insights into what your target market is looking for (and purchasing) by looking to search trends. Google Trends is a great tool to see what people are searching for and at what volume on the world’s most popular search engine.
Since social media platforms have become the go-to destination for people to share their thoughts, they’re also a rich source for direct consumer insights. Use social media analytics tools that can help give a quantitative measurement of product trends if you need numbers to back up your research.
Perform Demand Forecasts
Demand forecasting is the practice of researching and making predictions about your target market’s future buying habits and demands. If you currently have a store, the best way to keep track and pull different reports on your business’s performance is to use a point-of-sale (POS) system like Lightspeed. Lightspeed keeps track of all your sales and individual product performances, and will automatically create graphs and reports so you can make the most informed decisions about your business. You can learn more about the software in our Lightspeed POS review.
If you don’t have any records to look back on, look to your competitors and additional outside resources for insights. Look at Google Trends or in Amazon’s bestseller pages to see what products perform well within specific product and industry categories—like outdoor gear, tech, apparel, toiletries, and more.
Step 2: Define Your Sourcing Criteria & Limitations
After you have determined which products to sell, it’s time to begin looking at the logistical side of product sourcing.
There are many types of retail suppliers for sourcing products. For example, dropshippers are a popular and low-cost choice when it comes to product sourcing for ecommerce.
List your nonnegotiables or criteria on how you want to get your products. We recommend you base your criteria on shipping speed, customization abilities, storage consideration, order quantity restrictions, and middleman costs.
The table below focuses on the three most common and popular sources. Use it to compare how they do based on your supplier criteria before sourcing items.
Manufacturer | Wholesaler | Dropshipper | |
|---|---|---|---|
Shipping Speed | 1–6 months | 2 weeks–2 months | 2 weeks–2 months |
Customization | ✓ | ✕ | ✕ |
Storage Provision | ✕ | ✕ | ✓ |
Order Quantity Restrictions | ✓ | ✓ | ✓ |
Middleman Costs | ✕ | ✓ | Sometimes (depends on company) |
Popular Sources |
Set a timeline on how quickly you want your products to get delivered—this is a crucial consideration for both your initial purchase and any future repurchases.
If you’re ordering merchandise frequently and placing reorders often, you’ll likely need to work with suppliers that can offer you a fast turnaround time. On the other hand, if you don’t place frequent orders and operate with less merchandise, shipping speed will likely be less of a concern.
The shipping speeds you need might also be on a product-by-product basis, depending on individual sell-through rates and purchase frequency. For example, at my boutique, we had a list of bestsellers that we were constantly reordering. Because of how quickly our bestsellers sold and the consistency of demand, we worked with suppliers who offered fast shipping windows—like wholesalers and certain trade show representatives.
On the other hand, we also stocked bulk-order items that were much slower sellers (like denim), so we didn’t have to reorder often at all. Because our denim did not sell through quickly and we rarely reordered it, we didn’t have to rely on super speedy shipping times and could work with a supplier with longer shipping windows.
Working with suppliers with longer shipping windows is possible for any product as long as you leave yourself enough time. You can use a POS system to set low stock alerts at set stock levels, depending on the time you need to get a restock.
Another thing to consider when choosing suppliers is whether they’re international or domestic. International suppliers have longer shipping windows, and their transportation fees will be higher—often requiring larger bulk orders.
Depending on what products you decide to source for your business, you might need to work with a supplier to create something completely new or customize an existing product. In this case, you should be asking each potential supplier whether they can meet this kind of need.
Your best bet will be to reach out to manufacturers and independent suppliers as they are most likely to offer these services.
Related:
- Learn more about how to find and sell private label products.
- Read our guide on how to manufacture a product.
Storage is another factor to consider when choosing a supplier. Storage will play a role in how much merchandise you can hold, the size of the orders you can place, and the types of inventory you can hold. Before placing orders, you should have a plan for how you are going to store products.
Brick-and-mortar retailers—especially single-location stores—will likely house and store products on-site, while multi-location retailers may have a centralized warehouse.
Growing ecommerce businesses will likely have a warehouse or storage as well (unless they use outsourced fulfillment methods). A dropshipper is the only supplier option that will hold your stock for you, shipping the items you sell online directly from its factory or warehouse as customers place orders.
If your storage space is limited, you should avoid suppliers that have high minimum order quantities (MOQs), like importers and wholesalers. Conversely, if you have the space and want large order quantities, you should look for suppliers that can send large order volumes.
Another thing to consider is the order quantity restrictions set by the supplier. This is usually referred to as the minimum order quantity (MOQ)—the fewest number of units a supplier is willing to sell to a buyer at once.
Manufacturers usually sell in bulk to wholesalers, who in turn sell in bulk to retailers using an MOQ. When ordering your products, you need to balance the economic order quantity (EOQ)—the ideal quantity of inventory your business should have—and the supplier’s MOQ.
When you find that balance, economies of scale (bulk savings) take into effect. In short, you get the best price per unit.
To calculate the EOQ for inventory, take into consideration the following factors: setup costs, demand rate, and holding (inventory storage) costs.
- Setup costs are all the associated costs of actually ordering the inventory, such as the costs of packaging, delivery, shipping, and handling.
- Demand rate is the amount of inventory your company sells each year.
- Holding costs are the price you pay for storing goods (inventory space or warehouse lease, on top of manpower expenses).
Compare your EOQ, your supplier’s MOQ, and your break-even point (the point at which total cost and total revenue are equal, meaning there is no loss or gain for your small business). From there, go with a supplier that has an MOQ that is not above your EOQ.
Middlemen are usually known as distributors and act as an intermediary between a product supplier and a retail buyer. They may or may not be present in the product sourcing process. They typically do not produce items but have extensive market knowledge, so they charge a fee or commission for their services.
In retail, middleman are usually classified into two types—merchants and agents. Merchants buy and re-sell their goods, and agents specialize in negotiations of selling or buying goods.
Middlemen usually have close relationships with manufacturers because they valuable market feedback on top of providing the ancillary services of warehousing, distribution, advertising, insurance, finance, and more. In short, they let manufacturers focus on production and make their goods easily available to consumers.
When sourcing products, you can cut to the chase and go straight to manufacturers. However, there are things that can prove worth the additional fee charged by middlemen, like logistics handling and industry regulation knowledge (such as import taxes, fees, etc.)
For more resources and info, read our related guides below:
- How to Find Wholesale Suppliers for Your Retail Business
- 9 Best Wholesale Suppliers to Source Products
- What Is Dropshipping & How Does it Work?
- Alibaba vs AliExpress: Which Is Best for Importing & Dropshipping?
- How to Import From China in 6 Steps
Step 3: Vet & Select Suppliers
Once you’ve identified your sourcing criteria and limitations, you can identify relevant suppliers and begin to vet their products and form relationships.
When doing supplier research, it’s wise to have a shortlist of multiple suppliers for each of your products, including a primary source as well as backups. This helps ensure you always have an alternate source if needed. It will also allow you to shop around and work with the supplier that gives you the best deal.
Request Samples
To help you decide on a product supplier, order product samples to inspect the merchandise. Most suppliers will have a built-in option for you to order samples, but you can also request one via a quick message if needed. If a vendor does not allow sample orders consider it a red flag and move onto other potential partners.
Samples typically have a much higher unit price than when you buy the same product in bulk. You’ll probably also have to pay shipping and handling costs, but don’t let this be a deterrent—it’s much better to spend a little extra upfront than it is to order in large quantities and receive an unsatisfactory product.
When requesting a sample order, be sure to include all the relevant information so they can process your order quickly and easily. You should include:
- The product you want to sample
- The number of samples you want
- Your shipping address
- Any customization requests and instructions
- A request for a price quote for the potential final order
Aside from testing product quality, this initial test order can help you gauge how easy or hard it is to work with a potential supplier. During this process, you should be weighing logistics, quality, value, and supplier dynamics to select the best option.
Perform Quality Testing
Quality testing includes any experiments done to determine the performance potential and general quality of a product. It is a great way to ensure better customer satisfaction and catch faulty products before you put them on the shelves.
You should be performing quality tests on all of your samples, using them as customers would for at least several days to spot use problems. Spotting problems beforehand will allow you to either return to your supplier with feedback so they can tweak the product or work with a different resource.
Before setting out with sample and quality testing, you should define nonnegotiable quality standards—this will depend on the products in question, your brand, and your general price point.
Some standards you should consider are the following:
- Quality matching: Does the product match what you ordered online? Is it damaged? Discrepancies between listings and the product you receive are a bad sign for the reliability of your supplier.
- Logistics: Did you receive your product in the guaranteed shipping window? Was it produced in the guaranteed timeline? Were there any transport damages? How did the item get to you? Was your order filled accurately? How long did it take to fill your order?
- Communication: Were you able to reach out to suppliers and get answers to your questions? Did they keep you informed of product progress? Was the supplier respectful and timely? Was there a language barrier? You should avoid suppliers that are difficult to reach, disrespectful, or not transparent.
- Legal requirements (if applicable): Does this product meet its legal requirements?
- Product consistency: Take a closer look at your products and note if there are any inconsistencies with the production quality. Usually, this is a telltale sign that if a supplier cannot produce quality output consistently in one batch of orders, chances are they probably won’t in the long run.
Negotiate Volume Discounts
As you compare suppliers, another key factor to consider is the price. Simple math tells you that if you can get your products for cheaper (without sacrificing quality), you will have better margins and higher revenue.
So, get quotes from multiple suppliers—even ones you don’t plan to work with—and use those to find the best deals and negotiate better terms. If you can show a supplier you have a better offer, they’ll often be incentivized to negotiate and sweeten the deal.
Work With Multiple Product Suppliers
When sourcing products, you wouldn’t want to be at the mercy of a single supplier. It is always recommended to work with multiple suppliers. Among other things, there are very few instances where a single supplier has all the products you want to carry in your store.
This situation is not necessarily a bad thing. It can give the following advantages to your business:
- Better (and lower) prices: When suppliers know they are not your only option, they will work to retain your business. This can include giving you better offers, such as free shipping, a good discount, or even lower pricing.
- An assurance of steady supply for your products: A holdup with a supplier has a ripple effect in your supply chain. By having multiple options, you can turn to another supplier in case your main supplier has issues meeting your delivery deadlines or requirements.
- Better product quality control: When you have more than one source for products, you can compare product quality easily and even have better standards if you notice a supplier is doing a product better than the other.
When working with multiple suppliers, ensure to nurture relationships with all of them. We discuss this further in the next step:
Step 4: Nurture Relationships With Your Suppliers
Once you’ve narrowed down the best suppliers for your business, you’re ready to start ordering products and pursuing vendor relationships.
As a retailer, your relationship with your suppliers will likely not end after your initial purchase. Product sourcing takes time, energy, and resources—so it’s beneficial to keep working with your existing partners rather than looking elsewhere every time you need to reorder. Plus, as your vendor relationships grow, you’ll be in a better position to negotiate discounts, customizations, and credit lines.
Here are some tips for developing strong vendor relationships:
Organize Vendor Data
You should keep and organize all of your vendor information either via vendor management software (VMS), in your POS system, or in another consolidated location like Excel. This will create seamless communication and organization that allows you to easily navigate your supplier information.
In your vendor data log, include information like representative contact information, a list of their product, storage, and office facilities, contracts and policies, and receipts. You should log all of your purchase orders, invoices, and order receipts for tax and inventory management purposes.
Keep a list of the products you order from each supplier, as well as how many times you have ordered and any logistical information (order minimums, production time, shipping times, etc.)
Pay Invoices on Time
An invoice lists all purchased products/services as well as the payment details and due date. All suppliers will send invoices with your order, and you should always pay them on time to establish trust (and even possibly get a discount).
When first starting, it’s common for suppliers to charge upfront for initial orders. However, once you have an established relationship, the typical standard retail payment term is “net 30”—meaning the customer has a 30-day length of time to pay the total amount of their invoice. Some suppliers and wholesale marketplaces (like Faire) operate on net 60 payment terms.
Check your supplier’s terms to see whether the 30 or 60 days start from the day you place the order, the day it ships, or the day you receive the order.
Leave Reviews
An easy way to help your suppliers and foster a strong relationship is to leave product reviews.
Suppliers know reviews are important for consumer buying decisions. In fact, a study from BrightLocal found that 46% of consumers trust customer reviews as much as a personal recommendation. So, vendors greatly value your positive reviews.
How to Know When You’ve Outgrown a Supplier
As your business grows, you may outgrow your suppliers. Your business’ needs will likely change in its formative years—which may result in the need for faster shipping times, larger order capabilities, or better product options. When this happens, it’s important to evaluate your fit for your acting suppliers.
- If you need larger product orders as customer demand increases, you can turn to manufacturers, wholesalers, and importers—who may be able to better meet that need than independent suppliers (who typically work on a smaller scale).
- If you have a desire to manufacture or customize new products because you have forged strong brand loyalty or identified a promising original product, the next step may be to make the shift from ready-to-order goods to custom-manufactured products—or even private label items.
Benefits of Effective Product Sourcing Strategies
Once you employ our tips on effective product sourcing above, such as requesting samples, performing quality testings, leaving reviews, and working with multiple suppliers, you will reap the following benefits:
- Increased overhead savings
- Increased efficiency on operations and innovation on products
- More flexibility on your supply chain
- Eliminating dependence on one product source
- Improved product compliance
- Increased capacity to meet demand if needed
- Better chances for scalability once your business is ready
- Strong supplier relationships
Frequently Asked Questions (FAQs)
Click through the questions below to get answers to some of your most frequently asked product sourcing questions.
Product sourcing is the process of finding products you want to sell in your store, buying them from a supplier, and selling them. A typical source of products is a wholesaler, but manufacturers, artisans, dropshippers, importers, and trade show representatives are good sources, too.
There are three common types of products sourcing—working with a manufacturer, ordering from a wholesaler, or utlizing dropshipping services.
Product sourcing involved determining which products to sell, establishing standards on how you want to get the products, vetting and selecting different suppliers, and nurturing relationships with them.
Bottom Line
Product sourcing is a complex process that involves lots of trial and error. With the guidance above, you’re ready to start finding the best suppliers for your business and sourcing your items effectively.
