Coming up with a product idea is just the beginning of a long but exciting road to building your business. The next step is to figure out how you’re going to acquire the products you want to sell. There are several options when it comes to acquiring your new products, and each option has its advantages, disadvantages, as well as unique challenges.
The four most common methods of acquiring your products and inventory are:
It’s important to understand each of these methods in order to make the right choice for your business. There are pros and cons to each of the methods, and depending on you product, market, and niche, one may be more suitable for you and your business than the others.
Let's look at each method in more detail below.
Making your product is a common approach for many hobbyists. Whether it be jewellery, fashion or natural beauty products, making products yourself allows for the precise control over quality and the brand but comes at the cost of limitations, time and scalability.
The primary costs associated with making your own products include the purchasing of raw materials, the storage of inventory and labor.
The most important thing to note here though is that not all products can be made by hand. Your product choices are limited to your skills and available resources.
Who's It For?
This option is for the do-it-yourselfer, someone that has their own unique ideas, can physically produce the goods themselves and has the resources available to do so. Making your own products is also for people that want to maintain full control over the product quality and their brand along with the desire to keep startup inventory costs low.
- Low Startup Costs - When you make your own products, you generally don’t have to produce a large upfront number of units like you would have to purchase if you were manufacturing. This allows you to enjoy relatively low production costs, which for many ecommerce businesses, make up the bulk of their startup costs.
- Brand Control - Making your own product means you can create any brand you wish with no limitations.
- Price Control - Going hand in hand with brand control is the ability to price your products as you see fit.
- Quality Control - When making your own products, you can closely control the quality of your products ensuring they live up to your expectations as well as your customers.
- Agility - Making your own products can give you the greatest level of agility for your business, allowing you to adjust quality, features and even the entire product on the fly.
- High Time Input (Time Consuming) - Depending on your exact product choice, making your own products can be a time consuming process, leaving you less time to focus on actually building your business.
- Scalability - Making your products can become an issue when your business takes off. Although you have the option to look to a manufacturer for help as you scale up, this might not be easy or possible if your customers have come to expect your products to be handmade.
- Limited Product Choices - As mentioned prior, your choices of potential products are limited to your skills and the resources you have available to you. This will vary from person to person.
Margin potential is usually higher when making your product because you have more control over your costs as well as pricing. However, you should factor in your time to produce the goods, as this can cause a dramatic dip in your profit if your products are complex and time consuming to produce.
Typically, making products yourself is a low-risk option financially. Because you're making the products yourself, there are no minimum orders like you would find if you were manufacturing your product or purchasing inventory wholesale. You may even be able to produce the products as you receive orders, allowing you to easily get the business up and running and prove your concept before investing too much time, energy and money into it.
Nayme makes necklaces that represent the meaning behind peoples names. The founders of Nayme started their business from their home and make all their own jewellery. Making their own pieces has given them the flexibility to create high quality pieces of jewellery and build their own unique brand without having to order massive quantities upfront. This strategy has kept their startup costs low and their business agile.
Co-founder of Nayme, Louise Henry said - “We design the pieces ourselves by sketch, then work with a local CAD designer to make our pieces. This was best for us starting out because we could control the quality and produce small amounts of inventory at a time."
Another viable option for acquiring your product and inventory is to find a manufacturer to produce the product for you. When sourcing a manufacturer, you have the option of sourcing one domestically or from overseas. As you might expect, a domestic manufacturer in general, will cost more than a manufacturer from overseas countries like China, Taiwan or India.
If you're looking to source a manufacturer from overseas, you'll likely end up at some point on Alibaba. Alibaba is one of the largest business-to-business market places that connects (mostly) asian manufacturers to North American buyers. There are several other similar companies that operate in this space that are smaller and cater to different markets for manufacturers, like IndiaMart.
Who's it For?
Manufacturing your product is a good idea for those people that have a unique idea or a variation of a current product that doesn’t exist currently. It's also for people that have validated the market for their product are fairly confident that their product will sell. This is important as manufacturing will require the greatest financial investment upfront into your products and inventory.
- Lowest Cost Per Unit - It’s not uncommon for manufacturing to garner the lowest cost per unit, giving you the greatest margins on your product.
- Brand Control - Having your product manufactured means you can build your own brand around your product and aren't constrained by others. Price Control - Along with the ability to build your own brand comes the ability to set your own prices for your product.
- Quality Control - Unlike dropshipping or purchasing wholesale, when you manufacture your own product you're in control of the quality of your final product.
- Minimum Order Quantities - One of the biggest disadvantages of manufacturing your own product are the startup costs required for initial orders. Depending on the costs of your product and the manufacturer, your inventory investment can reach thousands or tens of thousands of dollars, easily.
- Potential for Fraud from Overseas Manufacturers - Nothing will bring your business to a halt like being scammed by an overseas manufacturer.
- Time To Get Up and Running - Manufacturing a product will likely take you the longest to get up and running. Manufacturing can be a long process of prototyping, sampling, refining and production. The difficulty of this process can be amplified, even extended if you plan on using a overseas manufacturer where language, distance and cultural barriers can arise.
When you manufacturer your product, your margins can vary greatly based on the particular product, the manufacturer and order quantity. Usually however, manufacturing your own product gives you the greatest margin potential over other methods like purchasing wholesale and dropshipping.
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