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…sourcing. Yes, that’s right. Sourcing, it’s a huge thing for a lot of people when they’re first getting started or even if they’re growing their business and not really knowing how to find good sourcing or good sources for your product. What I wanted to do is have an expert come on and his name is Sam Boyd.
He actually runs Guided Imports but he’s agreed to come on and share what he calls the Sourcing Funnel to Find and Validate Product Suppliers. He also has a checklist that he’s going to be going through. We’re going to be digging into that as we do this interview. The interview is really just a conversation of him and I going through this and I really drill down into some areas that I’m not familiar with and I wanted to learn through this process. I learned a ton and I think you’re going to get a ton from this.
There’s also going to be, like I said, a checklist that you can actually download. You’re probably going to want to head over to the show notes to this episode that will be theamazingseller.com/332. There’s going to be a lot of notes there and links and all of that stuff, so definitely go to the show notes, theamazingseller.com/332 and everything will be linked up there for you.
I know that a lot of people struggle with sourcing or at least feeling comfortable with the sourcing process and there’s always things to learn. Like I said, I learned just by going through this conversation with Sam and really opened my eyes and really allowed me to see that I have to broaden my scope a little bit or actually reach out a little bit wider and then bring them through the sourcing funnel, as he calls it and then we can actually validate them before we even reach out to them which I thought was a pretty interesting twist on the way that most people are doing it including myself.
I’m really excited to share this with you. I’m going to stop talking now because we did go a little bit longer than usual, so a lot of information here. Again you can listen to this over and over again, completely free, of course it’s the podcast and the show notes there and the transcripts will be at episode 332. So guys enjoy this interview that I did with Sam Boyd.
[00:02:14] Scott: Well hey Sam, what’s up man? How are you doing? Thank you so much for spending time with The Amazing Seller Podcast, what’s up?
[00:02:22] Sam: How is it going Scott? It’s good to be here.
[00:02:24] Scott: I’m doing awesome. I know that you are in the States right now, you’re not originally… Well, you are originally but this isn’t your home right?
[00:02:31] Sam: It hasn’t been my home for, it’s been about close to five years I’ve been living in China. Just came home to see some family and get some meetings done. It’s like my once a year type thing. It’s interesting to do that.
[00:02:45] Scott: You’re in Pennsylvania right now.
[00:02:46] Sam: Absolutely.
[00:02:47] Scott: What’s the weather like there right now in Pennsylvania?
[00:02:49] Sam: I think we’ve been lucky. Normally when I come back around this time there’s snow.
[00:02:53] Scott: There’s no snow?
[00:02:55] Sam: No, I was golfing two days ago.
[00:02:57] Scott: Me too but I’m supposed to be in South Carolina, you’re not supposed to be in Pennsylvania yet. I’m excited to have you on. I think this is going to be a great conversation to have because you’ve been in this space for quite a while, you’ve learned through the process of mistakes other people have made or even including yourself. I want to bring people really up to speed as far as if they’re just getting started sourcing or if they’re sourcing right now but they want to scale that and take it to the next level.
I want to really dig into that stuff but before we do, can you just tell us a little bit about Sam Boyd and where you come from and how you got to this point?
[00:03:41] Sam: Yeah definitely. I’m super excited to be here. I’m happy to tell your guests about me and how I got started. I’m originally from America. I’ve been dealing with China since 2008. When I was studying in university I studied Chinese and ended up heading over to China to continue studying, being more focused in language and I ended up just staying in China. I love it so much and started working with a product development company that turned into me realizing that there’s so much opportunity just being China. Thought it’d be silly for me not to start my own business.
One day I gave in my two weeks’ notice and after that I started working for myself out of my kitchen table telling people, “Hey I’m an American, I’m in China, if you guys need anything let me know.” That grew into what we are today, so we’re a sourcing company and our focus is helping ecommerce companies products manufactured in China.
Most of our clients they don’t really have the resources to go to China, they don’t have the resources to set up their own purchasing offices in Hong Kong or China. They use us as that proxy to do so and we work on behalf of these guys.
[00:04:56] Scott: That’s pretty awesome. I got to unpack a little bit of that though. Let’s go back to, you’re working at a company, you had this idea that you could help other people start to source or to maybe even just make the connections in China. What was that move? Like you gave two weeks? Were you already doing that on the side to where you were helping people find sourcing or supplies and stuff like that?
[00:05:22] Sam: Not really. I think that was one of the biggest risks and the biggest short sighted risk I’ve ever made. I had a boss… I was in the same industry. I was doing product development for promotional products. Through this company I was learning how does China work? How do we do international trade? How do we get products manufactured? It was then when I sort of just opened my eyes and realized there’s so much opportunity in China and the barrier for entry is so low.
The reason I say that is because there’s so much that’s accessible to me that’s not accessible to essentially everyone else in my network, everyone else in my circle. The thought was if I leave this company maybe it’ll be difficult for me for the first couple of months or for the first quarter or half a year but eventually I’ll be able to find some type of niche that I can really drive into. It was that me not having an income and being forced to do something entirely on my own on the other side of the world that I hustled and hustled till I found this niche.
I found it by just marketing, by reaching out to as many people as I could and what eventually happened is I realized that the majority of people I was working with were Amazon sellers, they’re selling on eBay.
[00:06:47] Scott: Okay. So you were even helping people, you probably still are too. There’s probably still eBay sellers that are sourcing, that you’re helping at this point, is that true?
[00:06:56] Sam: Absolutely. eBay it’s not as profitable as a lot of people saw years ago but I would say anyone who’s doing say more than 10 or 15 million a year they’re probably still on eBay just because it’s another cash flow and their purchase volume is so much that it makes sense for them to continue to compete with those Chinese sellers who are mainly overtaking eBay.
[00:07:25] Scott: I hear a lot of people saying like eBay is dead and stuff. I still see a lot of opportunity right there. It’s like any platform. It’s a search engine for buyers. Anytime you can find a whole bunch of buyers and then present products to them that they’re buying it’s pretty easy as far as let’s just get it sourced. If we can figure out how to get it sourced profitably then we can sell product.
Let me ask you something though really quick before we do dive into some pointers and some tips for people because that’s really what I want to do here is really dig into how can we source and feel more confident when doing it? It is, like you said before we even got on here, it’s like the Wild West still. It can be dangerous if you’re not careful. What do you see like one big mistake or two? What do you see people making right now that you’d be like if I could just let them know one thing to be aware of to protect themselves? What would one big thing be? I hate to put you on the spot.
[00:08:28] Sam: I love that question. I absolutely love that question. It’s not to rely on any single strategy. If we look at a blog post, if we look at people just giving different tips the idea is that this industry is huge. This is such a big industry that if we tell someone, “Okay, only source from Alibaba Gold Suppliers,” or take it a step further and say, “Only source from suppliers that accept Alibaba’s Trade Assurance.”
If we use that as the one strategy then you’re leaving yourself open for a whole lot of hurt because just because the supplier allows trade assurance doesn’t not mean you’re going to have problems. That tip is, if you have that one strategy, make that strategy be one that gives yourself a workflow, gives yourself a criteria of things that you should always be looking out for and continuously be narrowing suppliers down or ruling suppliers out because they cannot follow a various set of criteria that you’ve put in place.
[00:09:31] Scott: This is perfect because I going to want to dig into that checklist by the way because that is one of the things that I’ve always said. Just for someone getting started, even myself I’m like number one I want to make sure they’re gold supplier because I want to make sure that they’ve at least… If they’ve had any strikes against them I probably should know it.
I know it’s not 100% but it’s better than not having that and I want to make sure that now I’ve trade assurance and I’ve always liked it where I don’t wire money for the first couple of rounds so I can make sure that everything is just transferred and processed right. Our mutual friend Eric Barrett who actually had an issue where he had a great product coming through, no problems and then he just said, “I’m going just going to let this one fly through,” and he did and he had all kinds of problems and then his account got suspended, crazy stuff.
I’m really excited to actually dig into this because I want more knowledge on this as well because me personally I look at it like it is about the relationship that you can build with those suppliers and then once you lead into those suppliers, this is me and correct me if I’m wrong but it’s like you and I. It’s like if we get a good relationship we start to trust them more but obviously takes time. It takes orders, it takes adjusting. It takes all of that stuff.
For me personally that’s what we do and I try to do it slow and then I try to say, what else do they have available that they’re controlling and maybe I can expand my product line by looking at what they already offer versus going over to someone brand new, coming from brand new area? Let’s dig into the checklist. I think we should just go there
[00:11:01] Sam: Okay, totally. What I like to keep at the top of this checklist is this validation stage, this product validation. I think a lot of people who are familiar with our work they’ve heard me preach this before. Validating a product is if you think about the entire supply chain management and sourcing in general it takes a lot of time. Theoretically the average person is going to spend 40 to 60 hours if they’re doing things properly.
The validation stage is the idea that before you dive in and spend an entire work week of just trying to find a single product you take maybe five to 10 hours and you identify, does this product make sense to manufacture? If you can do something like this in a couple of hours you’re going to save yourself a whole lot of time in the event that the product turns out to not be profitable. We get a lot of clients who will reach out to us and they’ll tell us about their product idea. They’ll say, “This is a widget that you can get from China it’s probably 50 cents to get made, so let’s get 500 of them.”
They go off of this assumption that most likely they’ve created and it may be an educated guess but at the same time it’s a guess. If you’re going to dive or if you’re going to put all of your time into just a single guess you’re going to waste a lot of time potentially. This validation is the idea where you reach out to a handful suppliers. We have a guide about it that explains it in detail but the cliff notes of it are find suppliers that range from very small to very big, reach out to them with the same list of criteria and ask them for a soft quotations.
This is the time for you to be stupid. This is the time for you to not feel as though you need to act like the big dog or you can use their questions to better classify the product. When you speak with these suppliers, you get their quotations, you understand what are they asking? If they’re all asking you or if some of them are asking you specific questions about the product that you are unaware of this is the time for you to write them down and then when you go back to the planning board you figure out the answers to those.
[00:13:21] Scott: Got you. That makes sense.
[00:13:22] Sam: By doing this you’re allowing yourself to create variables or estimates on how much does this cost to be manufactured across various order quantities. You’re allowing yourself to understand what is the estimated manufacturing time? You’ll get the carton information so you can begin reaching out to freight forwarders to get shipping estimates. You’re doing this with the suppliers that are big and small and you combine all of their variables together and you build estimates off of that.
This way at the end of your, let’s say, 10 hours of work you have an estimated idea of what does it cost to have this product manufactured and does it make sense to manufacture?
[00:14:08] Scott: I think one of the big things that people get hung up on or they also get misled is they’ll come back with a price. This happens quite often. It actually just happened to someone that I’m working with personally. She basically got a quote back and she was all excited about it. I asked her, I said, is this shipping to your door? Is this door to door service? She says, “Yeah, I think so,” and I said, “We can’t think we have to know.” I said, “You have to go back and you have to ask them is that shipping to this zip code in the U.S.
I want to give them in a specific zip code so they can tell me exactly what it’s going to be. We’re going to maybe go DHL Air or we’ll ask them what their preferred method of shipping is. Sure enough they came back and said, “No that is not and you’re going to have to take care of that.” Now we have to figure that into the equation and that could screw everything up because it could be 50 cents, it could be a dollar a piece, it could be $2 a piece depending on how heavy it is, how big it is.
It turned out that it was going to add probably I think about 75 cents to the unit cost which…
[00:15:12] Sam: That’s a lot. That adds up.
[00:15:13] Scott: It is a lot and it adds up. My whole thing is though when you’re first sourcing even if I went air and it’s a little bit high as long as I know in the future I could bring that cost down then I’m okay if I go with a small order but you got to know that. You got to say it’s air shipping 75 if I go by sea it’s going to go to 10 cents that’s a huge saving maybe that makes sense but to do a test order of 500 maybe that’s what I’d do.
I think a lot of people don’t realize that, they get excited about the price but then they don’t realize they didn’t give them that, and actually that’s one of my main questions I ask them and a lot of times they might not understand what I’m asking them. That’s another little red flag for me is like they’re not understanding the language well of me going back and forth with them and they’re not understanding what I want. I don’t want any surprises. I just wanted to speak to that because I think that’s huge.
[00:16:01] Sam: It’s crucial totally.
[00:16:02] Scott: It really truly is. What’s next? What do we have next?
[00:16:09] Sam: I would say the next thing is to use what we like to call the funnel sourcing strategy. We’re stealing the marketing term… This is probably going to scare some people off and realize that sourcing from China is a pain in the neck but in reality it is and in order for things to be successful you need to take the time to properly do things. The sourcing funnel strategy is once you’ve validated your product the next step is you want to create a list of all of the potential factories.
Any factory that you can find on any database that remotely shows that they can produce this product they’re going to be a factory or a supplier that you would like to look at and you build this list. You build the list of 50 to 100 of these factories. What you’re doing here is… The idea is that you rapidly narrow down these factories until it gets harder and harder to rule out these guys out. Until you’re left with a small group of suppliers who it takes you a lot of vetting to determine are these guys qualified?
This is how you find truly qualified factories. We look at a lot of people’s sourcing strategies where they’ll take the first page off of Alibaba or they might venture into global sources and they’ll pick out a couple of suppliers and they’ll only talk to these guys. When you look at Alibaba their ranking system, the on pay or the SEO on Alibaba is very rudimentary.
It’s incredibly easy if you know what you’re doing to get to that first page. Just because the factory is on the first page it doesn’t always mean that they’re the best which is why you need to really widen your search.
[00:18:10] Scott: Let me ask you something. That makes a lot of sense but is there any other sources that you know of that we haven’t been aware of that we can go to to find other sourcing companies, agencies other than just going to those global sources or going to Alibaba, Ali Express or any of these? Is there any other ones that we could go to to kind of pool more than just that reach?
[00:18:39] Sam: If you’re just the everyday sourcer or Joe Schmo who’s sources products, the mentality of there’re so many more factories that have not yet been discovered, it’s not a bad idea to think that way but I think a much more effective approach is to be more focused on being able to use the factories that you have in your reach and be able to narrow them down.
I understand what you’re saying is, how do we get that list of 50 or 100? Are there other sources to do so? Alibaba is not the only player in the game, Global Sources is up there; made in China. There’s plenty of other databases that show or that hold suppliers’ information that you can reach out to. Instead of saying or there these secret groups where they have other suppliers, instead of putting the focus into who’s out there that nobody else except me has identified the focus can go into working with those suppliers and making sure that they specifically know exactly what it is that you want.
If they can assist you, you work with them. If they cannot assist you, you don’t work with them but that sentence that I just said, if they can work with you or if they can’t, that’s the hard work and that’s the area where it takes a lot of communication.
[00:20:09] Scott: Again, it’s like one of those things if it was easy then everyone would be able to do it so you have to kind of go out there and do your own digging and then once you pool together… I have to be honest, once you find a handful and then you’re going to be in that market serving products you got your in. You probably want a handful so you’re not just relying on one but again that hard work in the end should pay off because that’s going to be your resource and your connection.
I actually interviewed a guy that actually he’s just sold his company but he was selling boat accessories like big stuff, like weight, like anchors and stuff. He went over to China when he was just out of college similar to you and went over there and he just started looking at certain products as he was in that field. He was working in the boating industry when he was going through college.
He started meeting suppliers and stuff and then he started a little business on the side. He built that into a pretty big business but he said from there he would just deal with those people they would have stuff in their catalogs and he would just pick three things and he would launch every other month. They might not have been selling it yet on Amazon because it was big and bulky and that’s how he built his business into a million dollar plus business.
Again he had his own resources that weren’t necessarily on Alibaba or AliExpress but he found them by going there but there’s still ways that you can do that that probably lead you to a supplier that not necessarily everyone is using or that maybe you can find some unique products that they have or they lead you to another company. One question though, how do we identify if they’re a trade company or if they are a real legit like the factory?
I know then we’re talking… We got a third party in there and now we’re going to pay more because we’re going with a trading company versus a direct to the source.
[00:22:01] Sam: If it makes sense to use a factory you want to use a factory. If your order quantities are smaller, you’re doing test validation orders, in my opinion, it’s not a huge deal unless you need someone who has the manufacturing skills to customize your product. It’s not a big deal if you use a trading company. Now some of the easy ways there’re talked about a lot with finding a trading company is you can look up their records online.
You can look up their business registration online. It’s in Chinese but as long as you have Google Translate it shouldn’t be that difficult to weed through it. If you just get their Chinese name you can search for it. Bing Maps is a good one. Get their address, does it look like their location has a factory?
If it looks like it’s some guy’s bedroom then… The other thing is to ask them, to feel them out. Ask for photos. There’s no problem if say… Ask for a photo of them standing next to the assembly line. If they can do that in a snap then it’s a pretty easy way. There’s lots of ways to go into it but it’s one of those focuses that I’m not against using trading companies. I know a lot of people are but what happens is if you’re continuously narrowing them down you’ll end up realizing that a trading company may not be a qualified supplier just based on your requirements.
You’ll learn that as you gradually bring your funnel down to it’s tip and are only working with a small group of factories or a small group of suppliers.
[00:23:41] Scott: I think that’s really smart. Again it’s, I think you’re widening and then you’re narrowing down by going through those different questions to ask. What else? Is there anything else that we should ask to validate or is there any more to the validation process to narrow it down?
[00:23:59] Sam: Going off of the validation process and also the funneling process, one of the main things that you should focus on last, the absolute last thing that you want to focus on is price. What happens is if you’re going to create this elaborate excel document and you have the factory’s name on one column and then each stage of the funneling process you’re adding another criteria and removing suppliers. If you put price as the first one, what happens here is that you end up only looking at the cheap suppliers.
In China you 100% get what you pay for, I can’t say that enough. If instead you find out of those 100 you find 20 factories that are good factories you’re thinking I’m interested in using these guys. They all sound like they’ve got what it takes to work with my order and then you put their cost per unit into consideration. That’s where you can start narrowing them down with the price.
[00:23:59] Scott: That makes a lot of sense. Eventually we could work with price, we can work on whether it’s order size or whether it’s certain packaging, we can play with that. There’s more important things at first, we want a quality product, we want a quality manufacturer or company that’s going to be working with our product.
Just to get clear on that, if we’re starting right from scratch and we’re going to start at the top of the funnel and lead ourselves through, what are some of those beginning questions that we should be asking? Is there something like, maybe there’s the top three questions you should ask and then that’ll start narrowing it down to the next level?
[00:25:45] Sam: Yeah. Some of the easy ways to narrow suppliers down are to not even ask them questions. If you’re looking at 100 factories the first 50 of them you’re probably not even going to reach out to them. It’s spend some time on their page, look at who they are. Look at what it is that they sell.
Are they selling everything from phone cases to microwaves? That might indicate that they’re not entirely sure what their focus is or that they could be trading company. You want to be able to narrow your search down with suppliers that are clear in what their expertise is. From there you can even take it a step forward and start reading some of their descriptions.
Are they listing their products with various prices? Maybe they have a single product, we’re go with the phone case example, and they’re telling people that for one listing they’re selling it for literally a penny a piece or they’re claiming to sell it for a penny a piece. We all know that false advertisement doesn’t exist in China.
They’re selling it for everything from a penny a piece up to $2 a piece, just fishing trying to get as many people to look at their listing. That to me shows that they lack confidence in being able to sell their product. Are they showing off photos of them in the factory maybe with happy clients that they’re standing next to those goofy photos of the foreigners sort of shaking hands with the factory…? Do they participate in trade shows?
This isn’t something that we want to rule out if they don’t but it might be something that we would want to star if they participate in trade shows. The reason being is if the factory is confident enough to bring their entire staff or the bulk of their selling staff and present their products at a tradeshow that takes certain types of registration that can only be verified if you’re an actual factory.
[00:27:54] Sam: That takes capital. It’s these things that will allow us to realize, are these guys say who they are? Are these guys qualified suppliers or potential qualified suppliers? Once we have ruled these out you’re going to see that if you’re looking at 100 factories it’s going to be super easy to rule out the ones that just look like duds. That’s when you can start reaching out to them and having those conversations with them.
If you want to talk about your products, great, talk about your products, explain the specifications, how are they handling it? Are they open to communication or are they very short with you? These are factories that ideally you’re going to be working with for the years to come. You do not want to work with someone who doesn’t work at the same communication pace that you do. I don’t mean you’re looking for factories that are perfect in English.
I’m talking about you’re looking for factories that are capable of understanding your requirements and identifying that they can produce your requirements and that these are things that are important to you.
[00:29:04] Scott: That all makes 100% sense. The way I’m looking at this is, we’re really doing a lot of the work before we even reach out. We’re doing a lot of the work before we even waste our time reaching out to these so we can… Again we have a larger group, a pool of people or businesses and then we do all of our own research that’s where the time comes in and we vet them out with our own criteria.
We make some asterisks, these guys have been at trade shows, that’s cool, that’s a little bonus and then we can get them down to the point where now we might have our top 25 or 50. Those would be the ones that we can then reach out to and start to ask those questions. I’m interested in this garlic press, I’d like to know more about it and what you’re minimum quantity is and all of that stuff. Is that pretty much how I’m seeing it?
[00:29:56] Sam: Spot on.
[00:29:56] Scott: Once we get to that part, what’s the first communication look like? I know a lot of people want to seem as though they’re a big business because they feel as though they won’t sell to a small business. Is there any truth to that?
[00:30:10] Sam: I think there was truth to that years ago. If we look at the way China has grown, if we take that someone’s business and that the business model that has developed through hundreds or millions of people that have been selling on Amazon and we take the business model that we all know and take that to China 10 years ago and you tell a factory, “Hey I’d like to have you guys manufacture 500 units of this garlic press,” they’re not going to take you seriously because 500 units means nothing to them.
They don’t have the understanding of ecommerce. Nowadays people get that potential buyers are going to reach out to them; when I say people it’s factories. Factories get that buyers are going to reach out to them because they’re selling on ecommerce or they’re selling in their mom and pop shop. They’re selling in retail that only requires a smaller order quantity.
We’ve talked to a lot of factories and asked them straight up, ‘Does that matter to you?” Time and time again the answer has always been, “We don’t care how big you are. What we want is we want to know what you require and if us working together is something that can be managed.”
If you come into a factory and you’re sole proprietor of your company and you label your email signature as purchasing director or assistant purchasing director and you give the impression that you’re huge the factory is going to see that and they’re not going to be turned away by it but you are creating an image that there’s a very good chance you’re not going to be able to fulfill. It’s a lot easier to be very direct with factories and let them know, “I purchase small quantities, I purchase validation quantities of whatever it is that your order quantity intends to be.
[00:32:15] Sam: From there we use these as a way to project if this is going to be a viable product. We have the chance here based on our research and based on our years in the industry or even our years of research to understand that this product could easily be sold in our market for 5,000 units a month,” if that’s true. If they can.
If you’re looking on Jungle Scout and it’s showing that you probably only have the velocity potential of selling 2,000 units a month and there’s 12 other sellers that are also taking up a piece of that there’s 12,000 units. You don’t want to lie to these factories because they are of the impression that you will eventually scale up if things are good.
If you come to them and you say, “I’m a huge buyer, we require a small validation order quantity of 500 units. Afterwards we’re going to place consecutive orders of 10,000 units on a monthly basis,” they’ll remember that. When you cannot meet those promises they’re going to lose interest in you. They took their leap of faith because they have the understanding that you are going to fulfill on what it is that you claim.
[00:33:38] Scott: I guess it’s basic 101 being upfront and honest. You can’t really go wrong there. It’s like you said, I like the validation, the wording there where you’re saying we’re doing a validation run whether you’ve been selling on this market or not. We’re doing this on a variety of products and we’d like to test these three and from there on out we see a potential of if it’s 2,000 units, it’s 2,000 units a month or whatever it is. At least you can give them a little bit of insight as far as where you project it could go.
Doesn’t mean it will go but it’s like this is where I see it could go? Again, not making that up, actually seeing your numbers and what you expect that it could possibly do and if it does it does and if it doesn’t it doesn’t.
[00:34:27] Sam: It’s sell the factory on your seriousness in this industry or in this business not your perceived size because you can’t fathom the idea that [inaudible 00:34:39] not understand that you can work from your bedroom.
[00:34:43] Scott: I think that’s spot on. I think that a lot of people want to pretend like they’re a huge major business with hundreds of employees. I think that just being open and honest with these factories… I think that this way here you’re not held to what you had said, I think I’m going to do 10,000 units but you really think I’m only going to maybe do 2,000.
That’s craziness. We’ve gotten to this point. Let’s talk a little bit, not too much but let’s talk a little bit about the money transferring hands. What’s the norm? What do you recommend for someone that is either just getting started or maybe hasn’t worked with this company? Is it a red flag if they only offer one type of payment? Do you have any advice on that or any tips on that?
[00:35:33] Sam: Yeah. I’ll say this from the fact that yes we’re a sourcing company, yes we deal with a lot of factories but at the same point the way that our company operates is that our clients pay factories directly. When I give these tips you can keep in mind that it’s not always… The only thing that I have at stake here is my reputation as opposed to my money but I hold that at the highest regard that I can.
It doesn’t matter how you send money to people, what matters is that you’ve accurately validated, accurately qualified a factory. If you really on payment processors as your means to protect yourself then what that says to me is that you’re not confident in this factory. You could be speaking with a factory for an entire year before placing an order. I think that’d be irresponsible but in theory let’s say that you were and you built this relationship with this factory but then what happens is they say that they want to do a wire transfer and you say no we need to do PayPal because we don’t trust you.
That tells me that the entire year that you just spent working with this factory or speaking with this factory you still don’t trust them, so what were you doing for this entire year? This funnel that I’ve explained is there so when you get down to that last factory, the factory that you’re going to work with you can be confident that if you pay them they will deliver. I am a fan of trade assurance. It’s a great service and in the past two years they’ve changed their terms and they’re a little bit more favorable now to buyers than how they once were.
[00:37:28] Sam: Something like PayPal is… I’m not a huge fan of PayPal. I’ve heard of people running their entire business paying factories with PayPal and I look at them as they’re lucky or it must be a pain in the neck to find factories that meet your qualifications, they’re capable of producing your product that you’re happy with and they accept PayPal. That’s a big ask in a sense even though the pond is very big.
For me I’m a big fan of people paying with wire transfers because it’s an extension of good faith. You’re not holding the factory back by saying, “We’re going to send the money to you but we’re really not going to because we don’t trust you fully,” or saying, “After the two months that we’ve spent exchanging samples and negotiating we are of the opinion that we want to create a relationship with you the factory. Therefore you require a 30% deposit on the production of your goods, give us the bank account that you need us to transfer it to.”
As long as you’re transferring safely then there shouldn’t be as big of a concern. There’s always a concern because you’re dealing with China and it’s like we said the Wild West but transfer to only a bank account that is the factory’s name, that also is attached to the factory’s address that they publicly display. Don’t send to a private bank account or what they call the boss’s personal account because they want to avoid taxes.
Play with those things later if you want to try doing those things. Do things by the book. If you can use trade assurance go for it, if they’re okay with it go for it but at the end of the day payment should be the least of your worries. If you’re worried about sending your money to this factory I can tell you without a doubt you should not use that factory because you’re not confident in their capabilities.
[00:39:40] Scott: I agree. I’ve said in the past if you’re doing like your first run you can use either PayPal or I was saying using Alibaba if you’re going through Alibaba using, they have escrow.
[00:39:58] Sam: They’re a trade assurance firm.
[00:40:00] Scott: That is something that I’ve said but I’ve also said that a lot of factories won’t accept the 30% and 70% through PayPal because they’re paying a fee on top of that and they want it to be wired. Again, I would say a red flag would be if they said we need to be paid in full before we do the order or we need to have 80% and then pay 20%.
Most of the time, correct me if I’m wrong, it’s like 30%-70% is pretty much the norm. I think if you’re doing that small validation run it’s 30%. If you did use trade assurance you have a little bit of protection there but I think the wire at that point will also… If you’ve done your homework, like you said, and you have that confidence you’re going to be doing 30% of the complete order and then from there they’re going to want to get the rest of their money. It’s like they’re going to have to shift the goods in order to get that other part of the payment.
That also brings us up to the next part with is like inspections because we’ve got the product done, it’s produced, it’s ready, we’ve given them 30%, now they want to get 70% before they actually ship the product to us and then it comes inspections. Obviously, I’m not going to be able to go there and if I can’t go there I need someone to go there on my behalf.
I know there’re some other companies out there and I know you guys have a service that does that. Can you just speak about that as far as like what that entails? What does it look like for me to hire you on my behalf to go over there, your company to go over there and actually do the inspection for us? What does that look like?
[00:41:34] Sam: If we look at inspections as a whole. We’re a company that offers it and there’s plenty of companies out there offer inspections as well. Companies usually charge between $200 and $400 for this service and what it is is a quality control inspector goes to the factory and they spend roughly about eight hours reviewing the production. They can do at various stages of the production.
Ideally what they’re doing is they’re following your specifications and determining, is this product qualified or does this product pass quality control inspection requirements? For example, if you’re selling a garlic press and the details that you would like the inspector to review are things such as does the hinge on the garlic press does it open and close fully? Is it smooth? Is it something will it get jammed up if I move it multiple times? Can it actually press a garlic? Does it do its job? Is the color the exact color that I requested?
Maybe you want to go funky and you wanted a lime green garlic press, does the color match? Do all of the colors stay consistent? Is it packaged properly? Did you ask the factory to label it for FBA requirements or FBA labeling requirements? Does the bar code actually scan? The first thing within inspection it’s understanding that an inspector doesn’t go there and he doesn’t magically understand what you deem a qualified product.
He takes the information that you provide him and they use those through a series of tests and random sampling. We get a lot of questions with people asking… You still there?
[00:43:41] Scott: I’m here.
[00:43:42] Sam: Okay, just got a little quiet.
[00:43:43] Scott: I’m just listening.
[00:43:45] Sam: We get a lot of questions people asking us, “How long does it take for the inspector to inspect all 5,000 of my units?” The idea here is that it doesn’t always make sense to immediately assume that an inspector needs to inspect 5,000 units. They inspect a randomly sampling and the sampling is a specific table that they use to come up with these. It’s called the accepted quality limit.
They determine if you have an order quantity of 5,000 units based on your inspection requirements we’re going to deem this a level 2.5 on the AQL index that means that we only need to inspect 400 units. They’ll spend their eight hours randomly choosing 400 units out of all the boxes and going through the inspection process.
[00:44:39] Scott: That’s pretty intense.
[00:44:41] Sam: It is intense. It’s very technical is the thing that’s important to remember because when you commission any inspection company to inspect the goods, if you tell them, “Hey this is my product can you guys please go inspect it,” and you don’t give them any specifications the inspector is going to look at that product and they’re going to try to identify any minor thing. For example, if your product has a tiny scurf on the sticker on the bottom that says ‘Made in China’ maybe it was placed where someone’s nail got caught in that and the little edge got bent, something that no one would ever notice, the inspector’s going to call that out.
What happens here is that the inspector will make the report that the production failed. You’re on the other side of the world, you see at the bottom of this inspection report that the inspection failed so the $200, $300 that you’ve just spent shows off that it’s a failed inspection. When you really look at it it’s not failed, it’s just the inspector was doing his job.
One of those important things is to really identify what is it that you want an inspector to look at and then they can go and fully look at exactly what it is that you’ve identified. If those things pass, great. If they don’t pass then you can start working with the factory and say, this inspector identified that here are all of the problems. Now we need to come up with a plan of action as to how to fix it because quite frankly now is the time where you have your best bargaining chip.
You have not paid you 70% deposit yet, the factory’s relying on you to pay them in order for them to make the majority of their money. They have their best mind to want to fix all of these problems as best as possible for you.
[00:46:46] Scott: I would also think too that now you’ve done it on their next order they might be a little bit more careful because they know that you have these inspected. Maybe I’m just thinking that they would but I would think so. If I was a business I’d be like these guys inspect thoroughly let’s make sure that we definitely pay close attention to their orders and stuff. I think that that’s part of the process.
[00:47:10] Sam: We have something in this industry it’s called a quality cliff. Let’s say you’re working with a factory for multiple orders, five orders go by and terms are great and then all of a sudden the quality just drops. It’s like what happened? Is it a new factory? How did this happen? The factory gets comfortable with you. They no longer see your repeat orders as this is great business with us. You’re already factored into their profits.
They expect you coming in, so now what they’re looking for is how do we make even more money on these guys? Their answer is, how about we use inferior materials or we spend less time producing these orders? To avoid this, inspect every time. It’s $200. We charge $199 per inspection. If you think about it it’s the easiest investment for someone not being in China. Even if you are China, do you really want to travel out the way out here?
I’ve been through a lot of cities in China and there’s very few of them that I’d be super excited to go to where I’d have to get onto a plane and travel to and only stayed for eight hours.
[00:48:18] Scott: I’m also thinking of this. Have you had people do this where they say I’m thinking about using this factory, can I just have you go over to check out the factory, take pictures and all of that stuff versus just it being a product inspection?
[00:48:30] Sam: That would be called a factory audit. They’re a little bit different because what happens with an audit is the inspector is not, they’re not focused on a single production, they’re focused on the factory as whole. I know you moved recently, if you’ve ever sold a house and you have a property inspector come in it’s a bit of an ordeal.
It’s the same idea with an inspector going to audit a factory but they’re not just looking at the foundation, they’re not just looking at how the factory is built they’re looking at the employees, they’re looking at their capabilities of production. It’s not a bad idea to do a factory audit but it’s one of those things that if you’re selling on ecommerce where we understand your order quantities are low, if you’re going to audit every single factory that you’ve narrowed down… So let’s say you’re going to audit five factories it’s going to end up costing you a lot of money to do so.
Whereas, in reality if you do the vetting process remotely and then you inspect and you do everything with a proper guideline that you’ve created for your own business model you’ll benefit a lot more than just throwing all this money down the, I wouldn’t say down the drain but you’ll be spending a lot of money.
Then what happens is, let’s say Bed Bath and Beyond reaches out to you or you’ve reached out to them and they give a purchase order for your brand, you’re finally out of Amazon, you’ve diversified your sales and then you want to determine our order quantity has been pretty small considering Bed Bath and Beyond wants to purchase 80,000 units. Can our factory really handle that? If you ask them of course they’re going to say yes but that’s where you want to send an inspector to do an audit to see can they really. Do they have what it takes?
[00:50:22] Scott: I think once you do your inspection you’re also probably going to… I would assume that I could say that on that I want to also maybe see the room that my boxes are in. I could probably say snap a couple of pictures for me. I think at that point in time they’re doing what you require and part of that requirement is I just want see the facility that my item is being stored in before it gets shipped or something. You get a feel it’s not in someone’s barn, it’s in literally a building.
[00:50:54] Sam: No harm in that.
[00:50:55] Scott: It’d be part of your criteria. I think that’s a no brainer, 100%. A lot of people ask me that. They’re like, should I just send directly to Amazon and I’m like, first off if you’re not going to inspect it yourself then you need an inspection company. If you’re going to inspect it yourself, have it shipped yourself but then you’re going to take that fee that you’re going to be paying to reship into Amazon. It just depends on your level of risk and how fast you want get it there.
[00:51:22] Sam: The greatest thing an inspector can also do is they can check to make sure that your products are properly packaged and properly labelled to Amazon’s requirements. It blows my mind how many people will run their business on the idea that they ship all of their products to their garage first to inspect them. What successful, large business does that? It’s not scalable.
If you understand that an inspector could do that on your behalf it’s $200, $300 for them to do this and it frees up a whole lot of your space. Your husband or wife is not going to be ticked that you’re taking up all the space in the garage for their cars. All of this time of you having to go through every single product to make sure that they’re labeled when an inspector can just do it using the time that you’ve already paid for him to go there. He has barcode scanners, he’ll scan it and check to make sure that the labels match up.
[00:52:23] Scott: The only one problem with that now is with the long term storage and all that stuff. People that have 3,000 units and they’re not going to go through those 3,000 that can become a problem so you’re going to have another warehouse for fulfillment center. It used to be easier. Amazon used to be a facility that you can you just store stuff and they didn’t charge you much. Now all of a sudden they’ve really made it to where they’re going to make it harder for you to carry more than six months of inventory without hammering you.
Fourth quarter it almost quadrupled which was insane. A lot of people were shocked by that. I get what you’re saying but in the same breath you’re going to need… it's easier to have another facility that you can send it to in the States even and then just have it store there. It’d be a lot cheaper.
[00:53:06] Sam: Of course cheap compared to what Amazon quotes.
[00:53:08] Scott: Amazon is starting to say we only want product in here that moves quickly. We’re exploding at the scenes. We’re building warehouses all over the place and we can’t even handle the product. I think they literally didn’t allow FBA that were brand new sellers after a certain date in November they were like no more. We can’t handle. We’re bursting at the seams.
[00:53:29] Sam: I heard people were selling their unused…People who started selling on Amazon and then just gave up they were profiting because they were selling their accounts to newbies.
[00:53:39] Scott: I heard that as well. An account that they might have sold to RA things, retail arb things but they had actually sent stuff in and they were okay it’s just anyone brand new couldn’t do it. You could have sold your vacant Amazon account that at least had some history which is always a way to monetize things that you have. We’re going to be wrapping up here but we’ve dig into a lot.
What I want to do is I want to definitely go through Guided Imports. I want to go through the inspection service. I think anyone that’s interested definitely check them out. Everything will be linked up in the show notes here. Also I’m going to have a special link that will go to all the resources for guided imports. That’ll be theamazingseller.com/sourcing. We’ll put everything there. I’m even going to probably ask you Sam if you could even give me that guide and we can link that up for people maybe like some checklist or something that people can have so we can give them some resources.
[00:54:42] Sam: I’ll hook you guys up.
[00:54:40] Scott: Now what I want to talk about is this, and it’s fairly new and it’s where you took all of that work that we’re going to have to do and you made it easier by creating a service that does a validation service. Maybe we can talk about that and exactly what it does and why I would want to use it.
[00:55:00] Sam: Definitely. The idea here is that our company’s goal is to help businesses streamline themselves. Selling on Amazon as a validated business we understand that, selling on ecommerce is definitely a good business model but in order for you to grow you need a way to streamline. One of the services that we offer is this validation service that I mentioned that’s crucial to any business to do.
What we do is we save you the time. You give us your product specifications and we’ll spend the next couple of days putting together a manufacturing cost analysis document or report that explains to you the estimates cost to get products manufactured.
How much will it cost to manufacture products at various order quantities? What are the shipping cost across various shipping methods? When you look at air or cargo and various sea shipments how much are they across multiple order quantities? Are there compliance requirements or duty costs that you’d like to know? Are there mold fees or customization fees or you want to A in the garlic press and you want to tweak it and make it very something that’s very unique? How much would it cost to do that?
What happens here is we deliver this report and you are able to see the final ended cost of how much it will cost to get your products to Amazon or get your products to their final destination.
[00:56:30] Scott: I love that and I’ve already played around with the service and it’s pretty sweet. It was very simple. I literally just fill out a little bit of the details obviously and then it’s like you guys went out and did all of the digging, all of the vetting and finding that stuff. I had to come back with a couple of things because actually the product that we were looking at there wasn’t really one exactly what we were selling or that we wanted to sell. It was going to be a little bit harder.
I think the second part of that was I had to send one of my competition’s products and then you guys were going to use that as a piece that maybe you could ship off to a factory. There’s going to be another extension of what we’re already doing. It totally sped up that process and narrowed it down to like, you guys have a handful of factories that could produce this. The other thing that we just recently used was just a freight forwarding, just to look and see where what the landed cost was going to be for that. You guys I think two options, one was air and one was…
[00:57:36] Sam: Seal
[00:57:37] Scott: That was pretty quick. Actually it came back and I was surprised it was pretty affordable. That sped up the process when before we were always doing it ourselves and that’s definitely something that we’ll be using internally here, me, myself and our team. To me it’s just like you said, it just takes all of that out of there. I just want to know, what’s it going to cost me? Is it even possible?
You were going to give me landing cost and maybe like this just doesn’t make sense, this is too much. Why would I keep that?
[00:58:07] Sam: We see a lot of people that come to us and say, “Listen I’ve got product ideas for the next year. I’ve got 50 product ideas but I’m a little afraid to pull the trigger on them.” This is that time where you can give us your product ideas and we’ll let you know, does it make sense from a manufacturing standpoint? Jungle Scout or Unicorn Smasher, these services do a phenomenon job of explaining does this product make sense from a marketing standpoint.
It’s really only us here that we’re able to explain does it make sense from the manufacturing standpoint. That’s the crucial one because it’s like what we were talking about with shipping. If you don’t know the shipping cost until it comes time to foot that bill and you realize your product is not profitable you’re in a whole world of hurt right now because you’ve spent all this time and money trying to come up with a product that you might not even be profitable off.
This is that key to giving you the idea of determining does it make sense to move forward with this product. If you decide to source on your own which is a very wise decision for a lot of people who are just starting out, then you don’t have to waste all of this time either validating on your own or going through the sourcing stages on your own because we’re telling you right from the start, does it make sense to do this or does it not? If it doesn’t go to the next product.
[00:59:28] Scott: I want to bring up something too really quickly. I had Eric on and we talked about how he sold his business and one of the main reasons was because he came to work for your company. You have something inside of your company that all people that you employ have to abide by, what is that?
[00:59:52] Sam: It’s a no brainer to us. It scares me that not everyone can do this seriously but we understand that the majority of our clients sell on Amazon because of that people regard this, their information as incredibly secure and confidential information. They’re giving us their secrets. They’re telling us, we essentially know all of our clients’ business strategies and ideas because we’re helping them get their products manufactured.
Internally we have documentation for every single one of our employees that states that as long as you are an employee for Guided Imports you’re not allowed to sell on Amazon. They’re not to sell on Amazon two years after they work with us as well but one of the interesting things is Eric Barrette; our marketing director, he started out… He was in Amazon. He was an Amazon seller and he was one of our clients. He was an awesome client for some time and before he fully came on board with us we had to have that talk and say, “Hey, listen it’s either us or the company.
He was successful with being able to sell it off but it’s something we talk seriously. We can fully invest ourselves in our clients businesses without them having to worry of there being any type of conflict of interest.
[01:01:19] Scott: It makes total sense. Just to go back to Eric’s story it was funny because him and I were in contact way before he came on the show. I don’t think he was even… It wasn’t even in his vision to work for Guided Imports. He reached back out to me, we got back in touch and he’s like I’ll definitely come on the podcast but there’s been a little bit of a change in what’s been happening here. I sold my business and now I’m working for Guided Imports which I’m really excited about and I’ll love to come on share. I’m like let’s do it man.
He’s got a great story. I like to go back to that because today might seem like one thing in your business that tomorrow a new door opens up and that brings something brand new but it all came from the one thing that you did or a moment that you made a decision to do like you moving to China. You didn’t plan that going to college that that’s what you were going to do it just unfolded as you go through and you start to see.
Now you’re like there’s an opportunity here. People are struggling with this and I think I can help them and here you are and you build a company. It’s really awesome. I like to highlight that because so many people right now think that they have to figure out that one thing that they’re going to do for the rest of their lives. I always tell them don’t try, just do what you feel is right now and do good with it, learn it and then it’ll take you to where you got to go and it’s perfect.
[01:02:44] Sam: I’d no idea we were going to be here, so it’s awesome.
[01:02:44] Scott: Really, really truly is. This has been a lot longer than I expected but there’s been a lot of great conversation. I think there’s a lot of great nuggets that we shared here and I love that you broke it down like step by step. Again, you classified it is like a funnel and bringing it down to the end where we can actually say these are now the ones that I want to reach out to. The inspection stuff I think is really, really important and then your new validation service I think is something that if anyone is serious about doing this, they don’t want to spend all that time definitely look into that.
I’ll link everything up on the show notes, also there’ll be a special page that I’m going to create. It’ll be at theamazingseller.com/sourcing and we’ll hook you up with all those resources and all of the services that Guided Imports offers. Sam I just want to say thanks man. Is there any last bits of advice that you’d like to give anyone whether it’s mass sourcing or just business in general?
[01:03:46] Sam: Yeah definitely. My last piece of advice is do not be afraid to start again meaning that if the numbers don’t come back as good numbers or you’re working with a factory up until that single factory and you just don’t feel super confident, do not be afraid to just start back from the top. The time that you’re going to waste is going to be a lot better than the money you’re going to spend dealing with your huge mistake. Go with your gut and if necessary start from the top again.
[01:04:15] Scott: I love it. I really appreciate. I’m definitely going to probably have you because I’m sure we can dig into a whole another topic and I’m sure you can get us up-to-date on any changes or anything that’s happening in the market as far as sourcing goes. Sam I want to thank you again man, this has been awesome.
[01:04:30] Sam: Yeah. It’s been great. Thank you too Scott, I really appreciate it.
[01:04:35] Scott: All right, so I wasn’t kidding, a lot of great information and Sam did a really good job of going through the entire process. How to go through that sourcing funnel, as he calls it, because it’s like what it’s like. It’s like you’re casting this wide net and then you’re able to really start to narrow it down before you even get to contacting them. You can do some of that background check so this way here you can see if it’s even worth contacting.
I really like it how he broke everything down and gave us that checklist and all of that stuff can be found at theamazingseller.com/sourcing and you’ll find all of that stuff or you can just head over to theamazingseller.com/332. That’s where all the show notes will be, the transcripts, all the links that we mentioned. If you want to use their service then definitely head over to theamazingseller.com/sourcing. They have inspection services, they have now a validation process that’ll actually do all of that for you if you don’t want to do it and narrow everything down and then give you all of the ones that qualify and take you through that process.
They have an A to Z program where they’ll actually take you through or take your business from product idea all the way to getting it shipped into Amazon. Definitely check out their services, they’re a really good company. It’s someone that I’m backing because I know them now. I’ve met Eric Barrette who I had on episode 276 who talked about his suspension horror story and how he then sold his business and then went to work for Guided Imports which he had to do in order to work for Guided Imports because that’s one of their mandatory things that you have to do.
Sam being able to talk to him for this hour and really getting to know him more I can definitely see that he has all of the right intentions and he wants to create a really great service and he has done that and he continues to make it even better.
[01:06:32] Scott: Definitely go check out those guys, theamazingseller.com/sourcing and that will get you hooked up with all of the resources that they offer there as well.
That’s it guys. That’s pretty much going to wrap up this episode. Remember as always I’m here for you, I believe in you and I am rooting for you but you have to you have to… Come on, say it with me, say it loud, say it proud, don’t just consume this stuff, get out there and take action. We’ll see you guys in the next episode, take care.
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