The Ultimate Guide to Product Sourcing

So you are starting a retail business or maybe just looking to add some new products to your shelves. Either way, you are ready to source products and need a little guidance for getting started.

We will walk you through a step-by-step breakdown of how to choose the best products and receive them most effectively, as well as how to choose a supplier, maintain a relationship with them, and identify growth opportunities.

Determine the Products You Want to Sell

The first thing you will need to do when sourcing products is determine what those products will be. This decision ultimately comes down to your brand image and market indicators (which we will explore in detail below).

As a retailer, a large part of your brand impression will come down to what you sell. Any discrepancies between your brand and products will leave customers confused and unsure of what to expect from your store. But a consistent brand image can increase your sales by 33%.

For example, I ran a women’s clothing boutique, so if we suddenly started ordering and carrying pet supplies, this would be confusing and very off-brand for my store. Before you can set out choosing products for your shelves, you need to have a clear picture of your brand, which you can use to guide product sourcing and create a cohesive storefront.

Once your brand image is pinned down, you should then look to the market and your competition to get insight into consumer demand and what items will perform well in your store.

Research Your Target Market

Market research is anything you do to gather information about your target market’s habits, needs, and preferences. Market research will help you better understand your consumers and what products they want or already have. In turn, you will be able to spot holes in the market you can fill with products.

Target Market: The group of people to whom you want to market and sell your products or services.

Marketing research strategies can be both qualitative and quantitative and include strategies like:

Interviews: Have one-on-one conversations with customers to ask about their buying habits and needs.
Surveys: Send out questionnaires to your target market electronically to better understand their preferences and needs.
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.

Screenshot of people speaking each other

Focus groups allow you to get candid feedback about your products from a select group of candidates.
(Source: IntoTheMinds)

Observation: Observe customer buying behaviors in your store or at stores with similar products and customers.
Social Media Analytics: With social media platforms becoming more and more where people share their thoughts, they have become a rich source for direct consumer insights.
Test marketing or crowdsourcing: Test marketing and crowdsourcing both involve a group of people testing and providing feedback for your products before they are sold to the general public. This strategy will help you gain insights into consumer reactions to your products and should help you make tweaks and adjustments before rollout.
Search Trends: People search for things they are interested in every day, and you can get rich insights into what your target market is researching 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.

Use Demand Forecasting

Demand forecasting is when you research and make predictions about your target market’s future buying habits and demands. There are several types of forecasting you can use to predict your demand. By using these strategies together, you can get insights across multiple timelines and demand patterns, allowing you to gather a full picture of your upcoming demands:

Qualitative forecasting: Rather than using numerical or quantitative sources to make demand predictions, qualitative forecasting uses descriptive data such as expert opinions, focus groups, competitive analysis, employee input, customer testimonials, and market research to make demand predictions.
Trend analysis: This is when you use past sales and product data to spot trends in demand.
Life-cycle model: This strategy looks at the life cycle of a product or how frequently it is repurchased to anticipate demand.
Short-term forecasting: A demand forecasting strategy that looks at short periods, say six to12 months, to spot seasonal demand trends or short-term fluctuations.
Long-term forecasting: This is when you look at trends over one to four years to predict demand, which allows you to see the big picture and make long-term strategic sourcing and purchasing decisions.

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 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.

While you can use your own sales and consumer data to perform the various demand forecasting strategies above, if you do not have any records to look back on, you can also look to your competitors and other outside resources for insights. These include:

Google Trends: Google Trends allows you to see what people are searching for and how certain search terms perform over time. Search volume for product terms is a good indicator of its popularity, and you can also see if a product’s demand spikes based on the search volume as well.

For example, a recent food trend born from the social platform TikTok is Kewpie mayo. If you look up Kewpie in Google Trends to see how the search term has performed across the last year, you will see it skyrocketed in popularity in September 2021.

Screenshot of Kewpie mayo search volume leaped

Kewpie mayo’s search volume leaped when the product went viral.
(Source Google Trends)

If you were doing demand forecasting and Kewpie mayo fit your brand, this search trend would be a great indication that you should source and order Kewpie mayo for your store.

Amazon Bestsellers: Use Amazon’s bestseller pages to see what products perform well within specific product and industry categories, like outdoor gear, tech, apparel, toiletries, and more.
Study your competitors: While you can’t directly access the sales data of your competition, you can observe their storefront and websites to get insights into the products selection. By keeping an eye on your competition, you can observe the products they sell consistently versus seasonally, what their product spread looks like at different times of the year, what items are and aren’t successful, and how their products work with their brand.

Choose the Best Way to Get Your Products

Once you have done market research and demand forecasting to understand your target market and trends within your industry, it is time to begin looking at the logistical side of product sourcing. The first thing you will need to consider is how you are going to get your products. There are many types of retail suppliers you can choose from, and they do not all operate the same way. Having a clear idea of how you want to get your products is key to selecting a supplier that will work with your business.

Below is a table that looks at the different types of suppliers and how they perform within each supplier criteria. You should determine your supplier criteria before beginning sourcing.

	Shipping Speed	Customization	Provides Storage	Order Quantity Restrictions	Middleman Costs
Manufacturer	1–6 months	✔	✕	✔	✕
Wholesaler	3 weeks–2 months	✕	✕	✔	✔
Independent	1–6 months	✔	✕	✔	✕
Trade Show Re	3 weeks–6 months	Sometimes (depends on company	✕	Sometimes (depends on company	Sometimes (depends on company
Importer	1–6 months	✕	✕	✔	✔
Dropshipper	3 weeks–2 months	✕	✔	✔	Sometimes (depends on company

KEY CONCEPT: For more on retailer suppliers and resources for finding all the different types, check out our article on the types of retail suppliers.

The first thing to consider is how quickly you need your products. This should be a consideration for both your initial purchase and any repurchases. If you are ordering merchandise frequently and placing reorders often, you will likely need to work with suppliers that can offer you a fast turnaround time. If you do not 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 we were constantly reordering. Because of how quickly our bestsellers sold and the consistency of demand, we worked with suppliers with fast shipping windows, like wholesalers and certain trade show representatives.

On the other hand, we also had denim, which was a much slower seller we purchased in bulk, 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 you should consider when choosing suppliers is whether they are international or domestic. International suppliers have longer shipping windows, and their transportation fees will be higher, often requiring 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. That means that as you are considering suppliers, you should be asking 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.

Learn more about how to find and sell private label products.

Storage is another factor you should consider when choosing a supplier. Brick-and-mortar retailers, especially single location stores, will likely house and store products at the store. Multilocation retailers might have a centralized warehouse. Growing ecommerce businesses will likely have a warehouse or storage as well, if the fulfillment process isn’t outsourced.

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 you are going to store your merchandise yourself, you will need to think about organizing and keeping track of it. That’s where inventory management comes in. Read our guide to inventory management for best practices.

Storage will also 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; you should avoid suppliers that have high minimum order quantities (MOQs), like importers and wholesalers, if needed. Conversely, if you have the space and want large order quantities, you should look for suppliers that can send large order volumes.

The amount of space you have for product storage will determine what size orders you can place and the type of suppliers you can work with.
(Source: MC Electronics)

Choose Between Specific Suppliers

Once you have your supplier criteria set and find some suppliers you could work with, it is time to start narrowing down suppliers and forming relationships.

As you are doing your supplier research, you should seek out multiple suppliers for each of your products as much as possible—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.

Here we will take a look at the steps you should be taking to choose between suppliers so you get the best deal and find the best partners:

Request Samples

Before you commit to a larger, more expensive order, you should request product samples from your suppliers to inspect the product. Most suppliers will have an option built in for you to order samples, but you can also request one via a quick message if needed.

When reaching out to a supplier for a sample, 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
You shipping address
Any customization requests and instructions
Request a price quote for the potential final order

One thing to note is that samples will typically have a much higher unit price than when you buy the same product in bulk. You will also probably have to pay shipping and handling costs. Do not let this be a deterrent—it is much better to spend extra upfront than it is to order in large quantities and receive an unsatisfactory product.

As we mentioned, you should be using this stage to shop around and determine the best supplier. That means ordering samples of the same products from multiple suppliers so you can compare for quality and preference. During this process, you should be weighing logistics, quality, and supplier relationships to select the best option.

Do Quality Testing

Quality testing includes any of the experiments you do to determine the performance of a product. Quality testing is supposed to mimic how a customer would interact with your product to see how well the item holds up against regular use. 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.

Not all suppliers allow for customizations or product feedback. Consult individual suppliers to determine customization abilities.

Here is a brief list of quality testing methods:

Method	Description
ESS	Environmental Stress Screening (ESS) puts the product in environments it would reasonably be in to see how well it holds up under regular-use conditions.
Accelerated Life Cycle Testing	This is when you place normal use stress on a product to see how it will perform as it moves through its life cycle. This testing also helps you determine the expected life cycle of a product so you can write fair warranties and use terms.
Mechanical Endurance Testing	This puts your product under mechanical stresses, like heat, vibration, or pressure, to determine the limits of its reasonable use.
HALT*	A Highly Accelerated Life Test (HALT) works to discover weaknesses that come from the design of a product
HASS*	Highly Accelerated Stress Screening (HASS) aims to uncover faults caused during production and manufacturing processes. You should perform HASS testing after HALT testing.
Vibration and Shock Testing*	This will test your product’s performance against prolonged vibrations and sudden shocks.

*These quality tests require equipment and testing facilities, so smaller operations should typically ask the supplier or manufacturer to perform them for you. Reach out to your supplier to learn about their quality testing abilities.

The quality standards you set will depend on the products in question, your brand, and your general price point. Before setting out with sample and quality testing, you should define non-negotiable standards or things that count a product/supplier out of the running for your business.

Some of the top red flags to avoid are:

Failed testing: You should define beforehand what you expect your product to be able to withstand in quality testing. Failure here should be an automatic disqualification.
Quality matching: Does the product match what you ordered online? Is it damaged? Discrepancies between listings and the product you receive is a bad sign for the reliability of your supplier
Logistical success: 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, not transparent, or disrespectful.
Legal requirements (if applicable): Does this product meet its legal requirements?

Negotiate Volume Discounts

Another thing you should consider as you choose between suppliers is the price. Simple math tells you if you can get your products for cheaper (without sacrificing quality), you will have better margins and higher revenue. Get quotes from multiple suppliers, even ones you aren’t going 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, it will be more incentivized to negotiate and sweeten the deal.

Negotiating volume discounts will help you get the best deal.

Nurture Relationships With Your Suppliers

With product testing complete, you have narrowed down the best suppliers for your business and are ready to start ordering products. As a retailer, your relationship with your suppliers will likely not end after your initial purchase. After spending so much time and energy narrowing down the top suppliers, you will likely want to keep working with them rather than looking elsewhere every time you need to reorder.

To maintain access to your suppliers and continue to place orders, you have to nurture an ongoing, respectful relationship.

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 ensure you have seamless communication, know where all your paperwork is located, and can easily navigate your supplier information.

In your vendor data log, you should include information like:

Addresses: Include all production, storage, and office facilities.
Representative contact information: You will likely work with one representative and should keep their contact information readily available.
Product information: 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.).
Policies: Different suppliers will have different policies and procedures. You should keep notes on any supplier particularities so you don’t run into confusion or communication errors.
Contracts: Keep any contracts or other legal agreements on file with your vendor’s information.
Receipts: You should log all of your purchase orders, invoices, and order receipts for tax and inventory management purposes.

An invoice lists all the purchased products and services as well as the payment due 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 payment terms for retail is Net 30 days. However, 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 starts from the day you place the order, the day it ships, or the day you receive the order.

The best way to form a relationship with your suppliers is to be loyal and order from the same companies consistently. While it can be tempting to constantly shop around for new deals, being loyal to your suppliers will not only save you time and energy but could also save you money in the long-run as suppliers will often reward loyalty with better volume discounts and production priority.

An easy way you can help your supplies and foster a strong relationship is to leave product reviews. Suppliers know reviews are important for consumer buying decisions. In fact, a 2020 study from BrightLocal found that 79% of consumers trust customer reviews as much as a personal recommendation.

How to Know When You’ve Outgrown a Supplier

As your business grows, you might outgrow your suppliers. As your business needs and brand change—which may result in the need for faster shipping times, larger order capabilities, or better product options—so too will your suppliers.

As we covered earlier, when choosing your suppliers, you should consider what order sizes they can provide. So, if you need larger product orders as customer demand increases, you’ll know that manufacturers, wholesalers, and importers may be able to meet that need better than independent suppliers, which typically work on a smaller scale.

Another scenario that could cause you to switch suppliers is the desire to manufacture or customize new products. Businesses that form strong brand loyalty or have identified an original product that will appeal to their customer base might be ready to shift from ready-to-order to manufacturing their own products or selling private label items.

Bottom Line

Product sourcing is an intimidating process that involves lots of trial and error. This guide explores everything from choosing your products to nurturing supplier relationships and letting your suppliers evolve with your business. With the guidance above, you are ready to start finding the best suppliers for your business and sourcing your products effectively.