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What Is Product Sourcing? The Sourcing Techniques Your Ebiz Needs

May 26, 2008
The concept of "product sourcing" is one every e-tailer needs to understand. If you sell products online, then product sourcing is a critical part of your business. It's also something you're already doing, whether or not you realize it. A simple definition of product sourcing is "finding products to resell through your business." As easy as that sounds, mastering this process can mean the difference between success and failure for your eCommerce business.

If you're just breaking into online sales, you might start out sourcing products at yard sales, flea markets, and second-hand shops. But it's important for you to understand that these "local" product sourcing methods can only take you so far.

Sourcing Techniques Defined

If you plan to build a serious income with your selling, you have to find renewable product sources that can provide you with a constant, stable stream of goods. In other words, you need to source your products from genuine wholesale suppliers. Working with wholesale suppliers also means you're getting wholesale prices and, therefore, the best-possible profit margins. There are five main product sourcing techniques:

1. Drop shipping - your wholesaler stores the products you offer on your website. When you make a sale, the wholesaler ships the product directly to your customer. Your customer pays your retail price, and you pay the drop shipper your wholesale price.

2. Light bulk - you buy products from your wholesale supplier in small, affordable quantities (under $500). You're in charge of all aspects of warehousing the products and shipping them to your customers.

3. Volume wholesale - you buy products from your wholesale supplier in large quantities. Again, you're responsible for handling storage and shipping.

4. Importing - you purchase goods from manufacturers in other countries, where production is cheaper.

5. Liquidation - when manufacturers or suppliers have excess merchandise, they'll often sell it for a small percentage of the wholesale cost. You can purchase this merchandise in lots from reclamation centers or B2B auction websites.

Each of these product sourcing techniques comes with a unique set of advantages and limitations; and each has a different role to play in your total sourcing strategy.

Basic Methods - Pros and Cons

Drop shipping is an excellent method for new sellers to start with. It eliminates any inventory investment, as well as storage or shipping issues, lets you test new items to see how they sell, and enables you to offer products that are hard to carry or ship. The downside of this method is that, because your supplier does the bulk of the work, the profit margins tend to be slim.

Once drop shipping reveals products that sell well, you can start buying them in light bulk quantities, to improve your profit margins and gain more control over your inventory. The biggest drawback to this method is that finding suppliers who will sell in such small lots can be challenging.

Advanced Methods - Pros and Cons

The next three methods aren't usually best for total beginners. But once you gain some online selling experience, they can be extremely profitable practices. When drop shipping and light bulk identify your really hot sellers, you may consider buying them in large volumes to further increase your profit margins. Volume wholesaling provides you with steep discounts on your fast movers; however, it requires a large investment, and increases your risk of getting stuck with goods you can't sell.

Another advanced sourcing technique is importing, which allows you to find exciting, cutting-edge products at rock-bottom prices. Importing can spice up your standard product line; but it also means dealing with Customs regulations and long lead times.

Like importing, liquidation offers below-wholesale prices on products you can use to create loss-leaders or product bundles. Unlike the other product sourcing techniques, however, liquidation is not renewable.

The Whole Picture

The eCommerce retailers who experience the most success know not to limit themselves to using only one sourcing method. By taking advantage of the different methods available, you're able to create a full sourcing strategy that lets you maximize your profits and find the best deals for your online business every single time.
About the Author
Product Sourcing Radio is Created and Hosted by Chris Malta and Robin Cowie of WorldwideBrands.com, Home of The Internet's Largest Source of Genuine, Factory-Direct Wholesalers for online sellers. Click Here for more FREE E-Biz & Product Sourcing info!
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