5 Common Mistakes for New Importers
I regularly work with a lot of new importers, especially new e-commerce sellers selling through Amazon or eBay platforms. Most importers, when first starting out are very excited and charged up about the new venture, and want to get things moving as quickly as possible.
When first importing from China, there is a steep learning curve and it normally takes 2-3 shipments for an importer to understand the process flow and all the terminology involved in International trade.
With limited understanding of the import processes and that of the working style of Chinese factories, comes increased risk, especially quality risk as well as the increased likelihood of incurring losses on the first import from China due to getting the numbers wrong.
Here I look at 5 common mistakes, I often see with new importers first starting out of China.
1. The “Urgent Order Syndrome”
This is by far the number one issue, I notice with enquiries from new importers and I like to call it the “Urgent Order Syndrome”. Normally the first email we receive from a potential new importer would go somewhere along these lines:
I am looking to import 2,000 units of kitchen scale from China. These are required urgently as we have huge demand for these. Can you help us out and get us the best possible prices on these?”
While the exuberance is totally understandable as all new entrepreneurs are excited about their venture and want things to move fast, this can often be a recipe for disaster.
This urgency often results in requirements for product & packaging not being “specific” enough, quality control procedures being lax, factories skipping procedures to cut down on “production time” and last but not the least, losing out on good suppliers, who may have a quality product but are not flexible on their delivery times, or have longer delivery times simply because they have more business.
All these issues can lead to quality problems and the loss from these quality issues can be far greater than the time savings achieved by trying to speed up the process.
Another thing I see commonly in such cases is people negotiating aggressively on “Delivery Period” and choosing a supplier because they promise a slightly shorter delivery time relative to the “Industry Standard”.
In many of these cases, suppliers tend to quote a shorter delivery time to close the sale and may still take the same time, in other cases, they may skip processes to speed up production which can lead to quality problems.
2. Not comparing “Like for Like”
For most new importers first importing from China, the sourcing process starts on a B2B website like Alibaba. It involves contacting multiple suppliers, getting quotes, comparing them and shortlisting the best suppliers, in many cases based on price.
However, from my experience, often people do not compare like for like specifications albeit unintentionally. For a majority of the products, there are so many subtle differences in a product that influence the pricing. These can be materials, components, type of paint, dimensions (thickness is a common culprit) or other specifications.
This problem is less severe, when someone knows the product well, however even in those cases differences among suppliers start to get highlighted, when you are deeper in the sourcing process.
In many other cases, especially when people are sourcing new products that they haven’t worked with before, very obvious differences are sometimes missed, leading to good suppliers being shot down because their first quote looked expensive.
One of the ways to deal with this is to spend some up-front researching and understanding the specifics and finer details of the product as well as expected quality problems with that product. Asking a lot of good questions about the make-up of the product, to the first few suppliers you speak to also helps.
3. Overestimating the Profit Margin on a Product
This is a very common problem when first starting out importing and normally happens due to the nature of international trade. Even in a simple international trade transaction there are several parties involved which can make it difficult to calculate the landed cost of a product and hence the expected profit.
On top of that, what I often see in the consulting work I do with a lot of e-commerce clients is that when you factor in other costs for e-commerce platforms, say Amazon seller fees, domestic courier costs, marketing costs, professional product photography costs, etc. the profit margins don’t always look viable & there might be better opportunities in a different product.
New importers often base their costing on the obvious costs such as product cost, logistics, and inspection. However, there are often other not so obvious costs that influence profit margins for a product.
These can be for unexpected contingencies such as cost of random customs inspections at port of loading or port of destination or unplanned contingencies such as cost of returns.
4. Not Realizing how “Economies of Scale” work
This is a difficult one for new importers which takes a while to get used to when importing from China. This is also critical when it comes to working out the landed cost of your product.
When requesting quotes from Chinese factories, the first question you can expect is about your quantities. The answer to this question influences:
Whether the supplier will respond to your email
The quote you get from the supplier (High-Low)
The “service level” you will get
Your customization options (White Labelling, Customized Packaging, etc.)
Your logistics cost per unit.
All these things will have a significant influence on your “Landed cost” & quality of the product. While this should be a whole post in itself, I would like to mention out of the factors above, “logistics cost per unit” is the most important one, especially for sea shipping, I often see people losing margins because of getting this wrong when it comes to LCL shipments.
5. Expecting Perfection on Small Orders
I am a huge proponent of being very clear & specific on your requirements when importing from China, as it’s one of the best levers against quality problems. This is one of the reasons we ask a lot of upfront questions to our client when starting a new sourcing project.
However, this is a bit different from expecting a “Perfect Product”. While the objective of every quality control process should be to aim for perfection, in reality this may not always be achievable for “smaller orders”, especially on your first order with a given factory.
There are several reasons for this, relating to how factories in China work, economies of scale, the thought-process of the factory workers, and the perception of the factories towards what is considered perfect or acceptable.
I have often seen importers lose valuable time, in trying of get minor things perfected such as the taping of the box in a certain way. The law of diminishing returns comes into play here, i.e. the time spent and the QC cost of getting this level of perfection, often outweighs the cost of doing so “for smaller orders”.
But more importantly, for e-commerce sellers this cost can often be bigger, when you take into account the “opportunity cost” of potential lost sales during the time spent on reworking the goods.
Some of these requirements are essential, for e.g. when working with Amazon FBA, they tend to have very specific requirements on how the packaging needs to be and hence it is for the importer to identify what are the non-negotiables when it comes to the product & packaging.
It is easy to misunderstand this point, so I would like to emphasize that, perfection in itself is not always hard to achieve, but what I am referring to here is more about the link between the degree of perfection you aim for and the value of your order.
Smaller & medium end factories that are willing to accept smaller orders often have less resources to achieve perfection relative to larger, higher-end factories.
Also, normally, it takes a couple of shipments with a given supplier in China, for them to really understand your requirements in-depth and have the process perfected & customized for your unique requirement.