Million Dollar Case Study: How to Find the Best Suppliers and Maximize Your Profits

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  • How do I find the best suppliers?
  • What budget do I need to reserve for Alibaba suppliers?
  • How to calculate profits?
  • What is a Purchase Order Contract and how can I execute one?
  • Missed an episode? See them all here.

Plus, get your FREE digital download of our Budget & Profit Calculator and our Purchase Order Contract Form!

We’re covering all of this today in our sixth episode of the Million Dollar Case Study. Watch the video, keep reading and don’t forget to claim your EXCLUSIVE Jungle Scout Discount!

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Before you get started, if you’re not already using Jungle Scout, you’ll need to get a Jungle Scout subscription to follow along with us and complete your product research.

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Welcome Back to the Million Dollar Case Study!

We’re back for another episode of The Million Dollar Case Study. This is Episode 6 where we’re publicly launching and scaling an Amazon product from scratch and giving all of the profits to Pencils of Promise.

In today’s episode, I’m going to teach you how to evaluate Chinese suppliers and samples and proper budgeting so you can decide exactly what product you want to launch. I’ll also go over the Purchase Order Contract I used when finalizing my deal with my supplier (which you can download for FREE at the end of this blog post). 

How to vet Alibaba suppliers for Amazon FBA.

In last week’s episode, we discussed how to reach out to various suppliers using Alibaba.com and how to start to vet them based on their communication skills, and if they are answering all of our questions found on the Supplier Outreach Template. Today I want to share with you the 5 Step Vetting Method I use to start weeding out suppliers.

5 Step Vetting Method

  1. Communication
  2. Willingness to work with you
  3. Profile statistics
  4. Price
  5. Quality of suppliers

Step 1: How to communicate with Alibaba suppliers.

Of the 50+ factories that I reached out to, there were 25 responses, and 7 were worth following up with.

The good responses answered all of the questions that I asked. They were timely in their response and demonstrated a solid command of English. There were photos attached, and some initiative on their part to show why they would be a good business partner for us.

Step 2: Determining if Alibaba suppliers are willing to work with you.

The one who stood out the most provided me with a 3D rendering of my “poor man drawings”. This showed a great attention to detail and tremendous effort on their part of wanting to work with me, as well as their aptitude to build my product design in-house. A clear sign they were a manufacturer and not a trading company.

Step 3: How to see Alibaba suppliers profile statistics.

Gold Standard and Length of Time on Alibaba – the “Gold Supplier” badge can be purchased, so it’s not a definitive indication that the supplier will be a good one. But it helps as a rule of thumb to go with suppliers who have a longer track record of completing transactions on Alibaba.

The Country Test – evaluate where a bulk of the products are exported to. There is a general assumption here that suppliers who export to North America and Western Europe have a higher quality standard to meet.

The Common Thread Test – Ensure the supplier sells only products that are within a reasonable scope of what they can actually manufacture themselves. For example, if they only produce bamboo textile products or magnetic toys for kids, it passes the Common Thread Test. Otherwise, there is a chance that the supplier is a trading company, and another middleman may mean higher costs and harder to communicate and customize on the product.

Step 4: how to get the best price from Alibaba suppliers.

Price is always negotiable. Get pricing from 5-10 different manufacturers. Find the median (range) and then use these negotiating tactics:

1. Ask for a quote at different MOQ’s and/or different specifications.

Once you get an idea of what the different unit costs are depending on how many units are ordered, you have a little wiggle room and an understanding of how pricing can fluctuate with quantity. This is helpful so that we can find a cost that works for us, while also ensuring suppliers are ultimately happy with the final negotiated price.

2. Play Up A Bright Future

As any entrepreneur knows, optimism is a critical component to keep pushing through, especially when things are challenging. And we certainly want to portray that to suppliers we work with so they know we’ll be a worthwhile partner for them.

3. Explore Different Packaging Options

The packaging options and various product specifications that we opt for can impact the product costs and our profit margins. It’s helpful to hear the different suggestions and capabilities the suppliers have offered for our packaging and compression bag.

4. Pitch Against Competitors

Now that we are narrowing down our final choice for a supplier, we can use the pricing and information that we have gathered to leverage our own negotiations. Meaning, we can go to one supplier and see if they will price match other suppliers.

Step 5: How to judge the quality of Alibaba suppliers.

By ordering a few samples from my top 3 picks among the various suppliers, I was able to assess the quality and the overall efficiency of the factory. I was able to narrow down my search to my No. 1 pick and now I’m ready for the next steps.

How to budget and calculate Amazon FBA profits.

I like to split things up into 2 different categories. The first is Long Term Costs and the second is the one-time Startup costs as shown below:

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What are long term costs?

  • FOB Price – Free on Board (or Freight on Board). This basically means that the cost of delivering the goods to the nearest port is included but YOU, as the buyer, are responsible for the shipping from there and all other fees associated with getting the goods to your country/address.
  • Freight Cost – the cost of getting your goods from China to the port of the US (either by air courier/cargo or ocean freight)
  • Domestic Shipping Price – the cost of getting your goods from the US port to Amazon’s Distribution Center.

These costs factor into what we would call our Landed Cost, which is the cost of the manufacturing, packaging, importing, customs, shipping, and domestic shipping all the way to Amazon’s warehouse. This number is important because when you are forecasting cash flow, this would be considered money out of your pocket so it’s good to know your numbers beforehand.

What are the costs that come out of revenue?

  • FBA Fees – fees assessed by Amazon to use their fulfillment services (fees include: Amazon Referral Fee, Monthly Storage, Fulfillment Fee).
  • PPC Fees – Amazon Pay Per Click campaigns (general rule of thumb: 5% of revenue).

💡PRO TIP: Use Amazon’s Fee Calculator to get an estimate of Amazon’s FBA Fees.

Lastly, in the Budget and Profit Calculator, we factor in what I would consider one-time Startup Costs, which we certainly would want to factor into calculations, however, these fees are not ongoing.

What are startup costs?

  • Samples – the cost to order a product sample from your manufacturer
  • Photography – any product photography you outsource
  • Design Work – any graphic design work you outsource
  • Giveaway – one of our launch strategies to help us rank organically on Amazon’s platforms is to offer coupon giveaways, so we definitely want to factor in that upfront cost
  • Miscellaneous – here you can enter any costs that may pertain specifically to your product launch

I found a manufacturer that’s great to work with, the samples look great, and I’m liking my numbers… what NEXT?

How to place an order with Alibaba suppliers.

We may be ready, but we also want to put some safeguards in place and make sure we are as detailed as possible with the manufacturer. To do this I have put together a Purchase Order Contract. Your weekly Workbook download has an editable template!

The most important thing here is that you and your manufacturer are on the same page before any money is exchanged for the final purchase. Any changes that may come after this agreement can be costly, which is why I can’t stress enough: details, details, details!

Your Purchase Order Contract should always include the following sections:

  • Production – order quantity, number of items, packaging details (e.g. where the logo goes), product details (e.g. colors, dimensions)
  • Total Cost – if multiple variants are involved with your purchase, ensure that each one is itemized and ultimately summed up at the end.
  • Inspection – here we are stating that the factory should be “self-inspecting” by sending us periodic production photos. Additionally, we are also stating we have the authority to send in a third-party inspection company.
  • Photography Sample – in this section we are a requesting a final product sample be shipped to us for product photography.
  • Shipping – a detailed description of how the products are to be shipped (we will discuss the various shipping methods at a later date in Episode 8).
  • Confidential Information – a clause that the supplier can’t/won’t discuss the product, brand, or business with others.
  • Payment – what method of payment have you and the Alibaba supplier agreed upon?
  • Appendix – additional information such as images, PDF, and CSV files relevant to the order.

How to handle deposits and payment terms with Alibaba suppliers.

The first rule as far as deposits go is simple: don’t pay 100% of the costs upfront. This will leave you with no leverage if you need to negotiate in the future, in case of delays or if you’re not happy with the product quality.

What is more typical is either 50/50 or 30/70, as in pay 50% or 30% of the total cost as an initial down payment, then pay the balance upon successfully completing the production run and passing inspections.

As far as payment methods, T/T, also known as a wire or bank transfer, is typical.

There is also Alibaba Trade Assurance, an Alibaba escrow service that holds the money until the successful completion of the manufacturing order, at which point Alibaba pays the suppliers. Not all suppliers are associated with using this service, but it is a nice assurance for those who feel uncomfortable about sending money via wire transfer for a first transaction.

Comment below with any questions you may have and don’t forget to join us for our LIVE AMA (Ask Me Anything) every Thursday at 3pm EST. You can get access here.

Now, it’s YOUR TURN!

First, you need to get access to Jungle Scout. To help you get started, we’re offering you 30% off the Jungle Scout Web App and the Extension. Plus, you get a pretty fantastic FREE t-shirt to go with it.

Get your FREE MDCS Workbook HERE!

After you’ve completed the Action Items found in the Workbook, post your progress in the Million Dollar Case Study Facebook Group! You don’t have to reveal all of your best ideas – just let us know you’re working on them! You can also post them to Instagram with the hashtags #mdcschallenge or #freedombuilders.

Here’s what you could be eligible to win at the end of the MDCS! We’ll be drawing for names and the more photos you post and share as the weeks go on, the more chances you get.

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We love doing the Million Dollar Case Study. It’s a team-wide effort and we value every opportunity it gives us to connect with sellers like you.

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20 Comments on “Million Dollar Case Study: How to Find the Best Suppliers and Maximize Your Profits”

  1. This was a great episode and even though things went fairly well with my first order from China 6 months ago, I would have liked to have known all this information first. Q: For a reorder of product from the same company, do you request physical samples again to assure the same quality, just photos, an inspection before goods are shipped? (I didn’t have an inspection done the last time.)

    1. Hi Wendy,

      There are a couple schools of thought on this from the sellers on the Jungle Scout team. Typically, if you haven’t made any big changes to the product, and you’re confident in your supplier and were pleased with the first order, then it isn’t necessary. Obviously, if you’re making significant improvements you would probably want to check it out yourself first.

      You could also include a condition in your supplier agreement with something like “If I get a bunch of returns because the product breaks you will pay me back half my unit cost or credit me on the next order” which would give them a better incentive to do a better job so they don’t’ have to pay you back.
      A simple inspection with photo evidence would also be the quickest and easiest route. Every seller is different based on their relationship with their supplier. I hope this helps and you’re able to get going on your reorder with greater confidence!

      Melissa

  2. Hello Jungle Scout,
    I heard if you are a new Amazon seller, you cannot send your product after October. Is this accurate?
    I will appreciate some response.
    Thank you
    Stella

  3. Hey, do you still put the shipping costs and timescales in the supplier agreement even if you are using your own forwarder which has not been arranged by the supplier?

    1. Hey Dillon,

      It’s important to specify in the agreement at which point your freight forwarder will be taking over (from the factory, port, etc.) from your supplier, but you don’t need to include shipping costs that are unrelated to your supplier. You’ll take care of those details with your freight forwarder separately. If you have timescales to include you can do so, but those specifics will most likely be coordinated between the forwarder and supplier at a later time.

      Hope that helps!
      Melissa

  4. When I attempt to download the workbook, budget/profit calculator I’m taken to a page that thanks me for registering. But there’s no link to download the items. I’ve tried that on a previous episode, too, and had the same result.

    1. Hi Barry, have you checked your email? The download links should be sent to the email you registered with (check your spam folder too!).

      If not, reach out to [email protected] and they will sort it out.

      Thanks,
      Melissa

  5. Hi Rolando and Greg, I have tried many times to access episode 6 to view and it keeps givingth emessage – this video is unavailable when I click on it. Are you able to help with that? I have been able to watch all the others.
    thanks very much. Leonie

    1. Hi Leonie,

      We looked into this and it should be available and accessible from your location. If you’re still having an issue, can you send a screenshot of the message you’re getting over to [email protected] – they will be able to assist from there. Sorry you’re having technical difficulties!

      Melissa

  6. Hello,
    in episode # 6 of the MCSE4 the link to get the Spreasheet Budget & Profit Calculator Here! does not work. After registering my email I received e email to subscribe to the case study but there is no link for the speadsheet.

    Regards

    René C.

    1. Hi René,

      If you’re still having issues, see if you can access the Budget & Profit calculator through the link in the MDCS workbook here. The links in the workbook are working fine without any glitches!

      Thanks for your patience,
      Melissa

  7. Hello,

    I have tried entering my email a few times but cannot get MDCS workbook which has supplier templates at all. How can I get that?
    Thanks

  8. Hey Rolando and Greg!, I read that actually in China the HHH agreement it’s taken even more seriously than a purchase order contract. its basically really similar but with some differences. Have you ever heard about that? Any experience with it?

  9. Hi there,

    I am getting ready to contact supplier and let them know we are ready to move forward. Do you have an email template that I should use to send to the supplier? Thanks, Sarah Socro llc

    1. Hi Sarah! There is an email outreach template that is included in the MDCS workbook which you can grab right here.

      Hope that helps with your supplier outreach! Let us know how it goes.
      Melissa

  10. Hi JS Team, when it comes to re-ordering products, do you send them all to Amazon or do you send them to a storage facility and then send part of the order on to Amazon. I am thinking of buying a larger order and then just feeding Amazon from a local storage facility. Is this normal practice?

  11. Hi there,

    Could I clarify on the last few sentences. Rolando mentioned about not having a US bank account. I do not have one. Is it a must to sign up for Payoneer or similar services to be able to liaise with the suppliers?

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