The Boardroom Blog

How to Choose a Supplier on Alibaba

In this article, we will cover how to choose a supplier on Alibaba for your Amazon FBA business:

I’ll give you a template that you can copy/paste to use when negotiating with suppliers.
I’ll show you how to get a real, binding shipping quote for your manufacturing order.
And finally, you can download a template that will help you estimate your Amazon business’ profitability before you even start!

Let’s get after it.

Alibaba Product Sourcing Methodology

Alibaba is the world’s largest B2B online trading platform. It is the #1 place Amazon sellers go to find manufacturers for their product ideas. Most of these suppliers are based in China, but you can find manufacturers on Alibaba from dozens of different countries.

Once you have a few solid product ideas, create an account with Alibaba and follow my simple three step process to choose a supplier:

Write an outreach template for each product idea.
Search for your suppliers, negotiate price, and order samples.
Get a shipping quote, complete your pro forma financial model, and decide on a product.

Easy as 1-2-3. And the best news? I did #1 for you!

Supplier Outreach Template

The first step in learning how to choose a supplier on Alibaba is to develop templates. You will use these for your initial communication with each manufacturer. This is beneficial for a number of reasons:

It minimizes back-and-forth.
There is standard information that we need to get regardless of the product.
Staying consistent allows you to more easily compare manufacturers and gauge their communication skills (the language barrier can at times be an issue).

Here is one template that I’ve used in the past with success. Please feel free to copy/paste and use this!

Alibaba Supplier Outreach Template

Hello!

My name is [insert your name], Director of Purchasing for Fake, Inc. I am interested in purchasing [insert detailed product description], and shipping it to the United States.

I am talking with multiple potential suppliers. As I review my options, I was hoping you could help with the following questions:

What is the MOQ?
Can you provide the EXW price per unit at the MOQ?
What is the FOB price per unit at the MOQ, and for what ports do you offer FOB terms
What is the FOB price per unit at 2x the MOQ?
Can you please provide the lead-time in days?
How is the product packaged? Do you offer custom packaging
What is the size, weight, and number of cartons at the MOQ?
Do you offer product customizations? What is the typical cost of customizations?
What is the cost of adding a custom label to the product?
Do you offer free samples?

Thank you for your time.

Best Regards,
Charles Camisasca
Purchasing Director
Fake, Inc

Breaking Down the Template

I’ll address the acronym party in a moment. First, a few callouts:

Use simple and direct language with clear instructions.
Note that I am in contact with many suppliers to create competitive leverage.
In my template, I pretend to be a Director of Purchasing. Everybody likes to sign as the CEO, but you might as well sign it “I’m in my living room and I’m not wearing pants.” You want these people to take you seriously and avoid being taken advantage of.
Be sure to describe the product you want in detail, otherwise you’ll probably get a bunch of quotes for things you don’t care about. You may have to modify this from supplier to supplier of the same product idea, if each has a slightly different offering.

The Outreach Template: Question by Question

Now let’s tackle each question in the template:

1. MOQ = Minimum Order Quantity. This is the smallest number of units the supplier will allow you to purchase. For your first Amazon product, you probably want to start with as few units as possible to test the waters.
2. EXW = Ex Works. This is a shipping arrangement where YOU are responsible for getting the product from their warehouse to the port in China. As such, this is the lowest price point because it is the ‘true’ manufacturing cost. I ask for the price at the MOQ because there are usually quantity discounts over a certain threshold.
3. FOB = Freight On Board. This is another shipping arrangement, but in this one the supplier is responsible for getting the product to the port. The FOB price includes the transportation fees. This arrangement is highly recommended. Figuring out local transport in China is not easy and the manufacturer often has low-rate agreements with local companies, so they can get it done for much cheaper than you.
4. This question is a bit of a red herring, in that we will most likely not be ordering 2x the MOQ. But, if the supplier answers this question in a way that makes sense, it means that they speak English pretty well.
5. Lead Time – This is the time that it takes for the manufacturer to complete an order.
6. Packaging will be important for two reasons:
  1. You may want to use custom packaging as a powerful marketing tool. It is a differentiator, a way to build your brand, and increases customer engagement. More about this in the Marketing chapter.
  2. Amazon may have product prep requirements based on your packaging. I’ll cover this in detail in the Shipping chapter.
7. Cartons – Each of your products will likely be in a polybag, shrink wrapped, or a small box. When you place an order, your supplier will place a number of units of your product inside a larger box called a carton. This terminology is important because it is how you will communicate your shipment details to your freight forwarder. For example, my first shipment was of 400 products contained in 100 cartons that were 16x11x8 inches and weighed 21 pounds each.
8. Customizations – You likely won’t get a straight answer to this question up front, but understanding their capabilities is of utmost importance as you consider product differentiation ideas. You should modify this question in order to scope out the cost of your specific differentiation idea.
9. Custom Label – An optional marketing tool at your disposal is to print your brand name or logo directly onto your product or packaging. It is a relatively common practice among private labelers and a good way to increase credibility with your customers and differentiate from your competition. However, it can drastically drive up your manufacturing cost, so be careful.
10. Samples – In most cases, companies will offer samples for free, or will just make you pay the shipping cost ($15-50 in my experience).

Draft your template in a Google Doc, and save it directly in Alibaba the first time you send it. Armed with this template, you are ready to rock and roll!

Search, Negotiate, and Order Samples

The first step is to type your product name into the Search bar. The results can be organized by Products or Suppliers.

Scroll through and open 10 suppliers (in a new tab) that have high quality images and a relatively low price point, and send them your Outreach Template.

Be aware that the results will be made up primarily of two types of companies: Trading Companies and Manufacturers.

Trading Companies do not manufacture the items themselves and just act as a middle-man between suppliers and importers. They typically charge a premium, so avoid these companies and opt for the original equipment manufacturer (OEM) instead.

Click Contact Supplier to send them your template.

Repeat this process for each of your top product ideas. Most will respond within 1 day, but remember that these are most likely Chinese businesses, so you’ll usually need to wait until at least 8pm EST for a response.

Assess Each Supplier Carefully

As the replies start to roll in, make a mental assessment of the communication skills and professionalism of each supplier. If the language barrier is too steep, they aren’t worth your time. You will need them to carry out some very specific instructions in order to ensure your product is prepared correctly and eligible to be listed on Amazon, and you can’t take the risk that something will get lost in translation.

Generally, the suppliers who actually answer the majority of your questions will be the front runners (believe it or not, many of your template’s questions will be ignored).

Negotiate

As you go back and forth with your potential suppliers, keep in mind that everything on Alibaba is negotiable.

I recommend that you get creative with your tactics. The result could just be a minimized manufacturing cost.

Here are some tips and strategies:

Don’t immediately accept the first price you are quoted. Offer an alternative price and be prepared to haggle.
Tell them you only have a budget of $X. Miraculously, the next quote happens to come in juuust under budget.
Tell them that if this order goes well, you’ll be a long-term partner making repeat orders in the future. Use that as leverage to ask for a quantity discount on your first order, even though you’ll only be ordering the MOQ.
Use simple, direct language.
Be polite and complimentary whenever you can.

Order Samples

Some vendors will attempt to charge you for the shipping cost of samples, but hey – that’s negotiable too!

I recommend getting samples from 3 vendors of each product you are considering, in order to compare quality.

It isn’t worth it to choose the cheapest vendor if the product is flimsy. You’ll wind up with an onslaught of complaints and 1 star reviews until your listing is shunned from the Amazon marketplace.

Instead, consider carefully the relative cost and quality. Some Amazon customers are bargain hunting, but not all of them; you can charge a premium for a high-quality product.

Pay Attention to Differentiation Capabilities

If you are making modifications to product features as a means for differentiation, then product sampling becomes doubly important.

Don’t be afraid to go back and forth with your supplier a few times until they get your product right. Remember – differentiation is the most effective strategy for capturing market share from existing Amazon sellers!

It’s well worth waiting an extra week to see a revised sample from your manufacturer before placing an order.

Get a Binding Shipping Quote for Your Order

One of your biggest expenses when launching an Amazon FBA product will be importing the product to the US.

As a result, it’s important to get a solid estimate up front. To do so, follow this guide.

First, go to the FreightOS site and set up a free account.

FreightOS is a 3PL (Third Party Logistics Company) marketplace. These 3PLs will help you import your products to the US and deliver them to an Amazon warehouse. Don’t sweat the details, we will dive into Freight Forwarding in detail in a separate article.

For now, we just want an estimated cost for getting the products from the port in China to an Amazon warehouse.

(Note: my guide assumes that you have negotiated FOB shipping terms from your supplier.)

Enter the total number, dimensions, and weight of the cartons, taken from the supplier’s answers to your Outreach Template:

Finishing Out the FreightOS Form

Follow these steps to fill out the FreightOS form:

Select that the Freight Forwarder should Label and Palletize your boxes.
For Origin, use the lead time from your manufacturer to estimate a ‘Goods ready’ date, and enter the FOB port identified by your supplier. If you don’t know the port yet, just plug in Ningbo, Zhejiang. It is one of the busiest ports in the world and there’s a decent chance that your goods will pass through there.
For the destination, enter the Amazon Warehouse #ONT8. It’s based in California. Your goods will likely be delivered to the Port of Los Angeles, so this is good enough to give us an estimate.
Identify in the next step that you will need customs clearance and to purchase a customs bond (which you will!).

Run the search and watch as FreightOS pulls in dozens of binding quotes from well established and reliable shippers.

Boom! You now have a valid estimate for your shipping costs.

Estimate Your Profitability

Learning how to negotiate with Suppliers on Alibaba is important. But it is a means to an end.

Ultimately, you want to choose the best supplier for your business. You definitely want to consider the quality of the products and how differentiated each one will be in the marketplace. But you also need to consider the numbers.

We just got a shipping quote in the last section. You can plug in your manufacturer’s responses to get a sense for manufacturing costs. Those are your major costs to consider at this stage.

Estimating Revenue

Revenue will be the hardest thing to forecast. What will you be able to charge for each of your potential products? There are so many factors to consider…Have you differentiated your product? How can you quantify the premium for that differentiation?

Go on Amazon and find out what your closest competitor is charging.

I would recommend that you start with an assumption of an average price of 10-20% lower than your closest competitor. When you get started, you may want to undercut them as a way to drive sales volume to gain traction and reviews.

In any case, this is a conservative estimate and leaves us some wiggle room to beat our own financial projection when sales start coming in.

Use The Excel Template!

To help you keep track of all the responses, I developed a “Supplier Selection Excel Template” for you to use.

Through the button below, you can plug in the responses from each manufacturer and watch as the formulas complete your pro forma financial model for you automatically! You will see your estimated Total Revenue, Total Cost, Profit, and ROI.

Click Here to Download the Template