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Finding Product Sources for Your Business

If you want your business on eBay to really take off, you've got to have reliable product sources first. Our sourcing secrets will put you well on your way to building your own empire.
October 1, 2004
URL: http://www.entrepreneur.com/article/72794

Anyone can make a sale on eBay. But not everyone can make a business out of it. Today, more than 430,000 sellers are using eBay for a primary or significant source of their incomes. The ones that rise to the level of PowerSeller know success depends not just on how much you sell, but also how smart you buy.

Every business seeks the one product no one else has at the lowest price possible, for the greatest potential profit. Few companies will be so lucky. Instead, successful selling relies on choosing reliable suppliers able to offer quality goods at a fair price.

It's the source that counts, and eBay entrepreneurs face a plethora of choices to stock their businesses with anything from collectibles to industrial equipment. Suppliers may be located around the corner or around the globe. They may be someone you know or a factory owner overseas you'll never meet.

Where to Start

So where do you find a supplier? A good search engine can help you find hundreds of companies online using search terms like "wholesale merchandise," "drop-ship services," "closeout dealers," "job lot traders" or "liquidators." For sources in print, check the classifieds in newspapers, trade journals or your community penny-pincher newsletter (available free at supermarkets and drugstores). These publications list dealers specializing in closeouts and discontinued or irregular items, in addition to estate sales, which may include private collections of books and other items that would find eager buyers on eBay. Specialty publications such as Closeout News are also good sources.

Closeouts and job lots are quick, easy ways to get a business going. But when you've got neon-framed sunglasses one month, and you have fleece socks the next, it's hard to establish a niche business that will draw repeat customers. For companies looking to build a specialty, the better choice may be to contract directly with manufacturers or, more commonly, a manufacturer's rep (a salesperson hired by a manufacturer to promote distribution).

Trade shows offer the eBay retailer access to manufacturers and sales reps in one location, plus the benefit of meeting face to face to test the chemistry and assess product quality firsthand. Trade shows typically focus on a specific market segment, such as toys, novelties, military surplus or electronics, so determine what you want to sell before you go.

Making the most of a trade show requires some preliminary footwork to avoid wasting time and money, says Sam Bundy, group president at VNU Expositions, a trade show organizer with offices throughout North and South America. Business owners can check VNU's list of shows at www.merchandisegroup.comor their local convention and visitors' bureau, which usually has a calendar of such events. Make sure the show you choose is worth the admission price by contacting show management and asking about the number of exhibitors-not booths, since one company may have more than one booth-and what products will be represented. Look for shows where exhibitors are mostly small to midsize wholesalers and distributors as opposed to major manufacturers that are less likely to sell to a smaller operator.

Matching a supplier to your own interests or expertise can help move the process along, whether choosing from a trade show exhibitor or browsing vendors online. Jack Sheng got his start as an eBay entrepreneur because of his obsession with electronics, particularly cell phones and cell phone accessories. His hobby made him an expert on the industry's leading suppliers, a connection complemented by a friend who had links to potential trading partners. From there, Sheng, 29, studied the market by attending industry events and traveling to companies to understand how products were made. Today, with $12 million in annual sales, Sheng's Eforcity(eBay User ID: eforcity) in Temple City, California, is one of the largest eBay sellers (ranked by unique customer feedback and by the number of transactions).

After more than 30 years selling used restaurant equipment, A City Discount (eBay User ID: acitydiscount) knows its industry. So when the company, which had sales last year of $3.75 million, decided to expand its business on eBay to include new equipment, it knew which suppliers to avoid and which it could trust. "We picked those we knew had an inventory and would be able to supply the product," says John Stack, CEO of Peach Trader, the Atlanta company that owns A City Discount. The best source for vetting a manufacturer's reliability, Stack adds, is often the manufacturer's own representative. "A manufacturer's rep frequently will tell you if the manufacturer can fill orders on time," Stack, 53, says.

Perhaps the best source of well-priced goods is Asia, but contracting with suppliers out of the country presents challenges. The primary link to this market is through manufacturer's reps or importers in the United States who have connections to an overseas counterpart or to a factory. Every layer adds a surcharge, but the price of experts who know this complex market is worth it. "It's insurance, and you need to add as much insurance as you can," says Jason Sprong, a partner with Vital Sourcingin Boulder, Colorado, which specializes in sourcing and logistics in China. "You still save between 30 and 60 percent off the price of what you'd get in the [United] States," Sprong, 32, adds. A good rule of thumb for overseas as well as domestic orders is to aim for a total cost of acquisition at 80 percent of the selling price and warehouse and shipping expenses.

Sourcing can be an ongoing challenge for startup businesses, and entrepreneurs have to be alert to any way they can keep fresh stock coming. A City Discount stays in touch with suppliers such as national and regional restaurant chains so the company is ready when an opportunity presents itself. A menu change, for example, might make certain equipment obsolete, and A City Discount makes sure it's there to take the items off their hands. "These companies don't want to be in the equipment business," Stack says.

Sometimes, the source can be dozens or hundreds of individuals and small businesses. Med1Online(eBay User ID: med1online) specializes in new and used medical equipment, and some of its sources for used equipment are physicians upgrading to newer technology. When a doctor wants to buy new from Arvada, Colorado-based Med1Online, the company always asks what the plan is for the outgoing machine. "The people we're selling to are also the people we're buying from," says president Scott Carson, 41. The company anticipates sales of more than $10 million this year.

Negotiating the Deal

Companies can consider themselves lucky to have such mutually beneficial exchanges, but even expediency can't overcome price as the deciding factor in choosing a supplier. Negotiations are a tricky process of parry and thrust that only informed entrepreneurs can win.

Consider trade shows. Many exhibitors won't be appropriate trading partners because minimum order requirements are too high. Once you find suppliers who will sell at low volumes, work begins at setting a fair price. "Ask those vendors what their best price is, don't commit to it, then compare it to four or five others," says Bundy. "Then you'll know what the market price is." Submit a bid at that level, or test your luck and low-ball it. You can always sweeten the offer by paying 5 to 10 percent upfront and the rest c.o.d.

Most suppliers expect to haggle over price, but you should resist the urge to bargain down to the last nickel. A supplier who walks away feeling cheated probably won't be eager for more of your business. "I would not try to play the price war," says Sprong. "You're probably going to lose, and if you don't, it will be a one-time transaction."

When you're ready to buy, order as much as you can afford to warehouse if you're not using a drop-shipper. Suppliers are volume-driven, and they offer a better price when more goods are moving. Try to order 10 percent more than your last order.

In some cases, paying less can be an advantage. "Sometimes I pay too much for something and too little for others," says Carson. Such flexibility helps build trust and positions the business relationship for the long term.

Points also go to companies that avoid burdening a contract with terms such as returns of unsold goods. "That's almost consignment sales," says Bundy. "Suppliers are not looking to take your risk."

Negotiating price with a supplier presents a Catch-22. Suppliers offer their best price to vendors who can make products move, while vendors say they can move more products when they get products cheaper. New companies also face the challenge of reassuring suppliers of their staying power. Stack recommends starting with local suppliers who can judge the legitimacy of your business firsthand, and starting with less pricey items that don't represent a huge risk to the wholesaler. The point is to create a track record. "Today, I have manufacturers approaching me to push their lines who had historically refused to sell to me," Stack says.

Demonstrating the advantage of selling on eBay adds to a company's negotiating strength. "You need to educate suppliers about the power of eBay," says Eric Crawford, a partner and co-founder of Essex Technology Group (eBay User ID: buyessex). "We explain that you can sell anything here."

This Nashville, Tennessee, company has its own way of reassuring suppliers. The company specializes in customer returns, overstock and discounted electronics and sells them on eBay on consignment, which means suppliers don't get paid until the items sell. Essex's proprietary tracking software lets suppliers track the status of each item from the time it leaves the warehouse to the moment the product is sold. "Most companies would be scared to send a truckload of product to any Tom, Dick or Harry," Crawford, 30, says. This way, suppliers can keep a close watch on their goods as well as their buyers.

The more reassurance a company provides, the better the business's long-term health. "Confidence," Crawford says, "is the hardest part of sourcing."

What's Your Worth?

You know your business on eBay is a sourcing success when you have Med1Online's problem. The company's inventory had grown so much, customers needed an easier way to find what they wanted.

Many items in the company's stock of sophisticated medical equipment have the same function, but individual features may vary from unit to unit. And those are the features that Med1Online's savvy customers wanted. Scrolling through a few choices is one thing, but when the options fall into the hundreds, says Scott Carson, president of Med1Online in Arvada, Colorado, "it's a whole 'nother enchilada." Med1Online helps customers navigate this complexity with a listing tool that lets buyers search by individual product features, a utility that adds value to the shopping process and gets customers on and off the site quickly. That, in turn, gets products out the door faster.

Adding value comes down to making things easier for customers. It can be as simple as making sure eBay listings are spelled correctly and pictures are professional looking and large enough for eyes older than 40 to see. Med1Online adds value by fine-tuning the shopping experience. But attention to the process can be applied at any stage, either in the way a business leverages its products or in the quality of service and support after the sale.

Leverage at A City Discount means offering customers a one-stop shop. "We have a broad product line that covers different subcategories of restaurant equipment so customers can outfit a complete restaurant from us," says John Stack, CEO of Peach Trader, the Atlanta company that owns A City Discount. The company also lets customers bundle multiple orders so they pay one shipping rate-a small but still appreciated savings.

Integrity also adds value when buying used equipment. Essex Technology Group-which handles, among other things, auction management, asset recovery and product testing for clients-tests each item to see what works and what doesn't, then shares the findings with buyers online. "We tell customers exactly what is wrong," says Eric Crawford, a partner and co-founder of the Nashville, Tennessee-based company. Even then, faulty products usually find a buyer, because "people will try and fix them themselves," Crawford says, proving the adage that anything can sell on eBay.

Where to Buy


Julie Monahan is a writer in Seattle whose articles on small business and emerging technology have appeared in numerous consumer and trade magazines.