2019 FBA Case Study: Part 4 – First Payment & Production Start!

In part 3 of the 2019 Case Study, I showed you how I selected the 3 best suppliers. And how I managed to negotiate the price down to $4,70 – $4,85

Just to quickly recap:

  • The average product sales price is around $29,99.
  • I have estimated that my landed cost ( production cost + shipping ) will be around $6 per unit.
  • After FBA fee’s I will have $12,79 leftover in profit.

Amazon FBA fee calculator

So with a unit cost of $4,70 I am right on track! This will leave me with $1,30 to ship the product!

Unit cost:          $4,70
Shipping cost:  $1,30
Landed cost:    $6,00

Testing the samples!

I have received the 3 samples from the suppliers and I’d say that all over them are high quality. So it is time to test the samples!

Stress testing

I decided to do a lot of stress testing with them. I have used the samples as rough as possible. Throw them around, put them in water, let my dog have a go at them. Just to find the breaking point of each sample.

Get other peoples opinion

I spend about a week evaluating the samples. I had everybody who came over to my house test out the samples as well. I think this is very important as I am already pretty biased to go for the supplier with the cheapest price.

Picking a supplier

So now that we have done our testing it is time to pick our final supplier. I have added the sample info in my Excel sheet to get a clear overview of all the pros & cons of each supplier.

SupplierPortFOB PriceQuantityBrandingPackagingLead timeSample Quality
Mr. ANingbo$ 4.701000Yes

$0,10 per unit

Yes

+ $0,3 per unit

30 daysGreat
Mr. DNingbo$ 4.701000Yes

No extra charge

Yes

+ $0,50 per unit

40 daysGreat
Mr. ENingbo$ 4.851000Yes

$0,20 per unit

Yes

+ $0,40 per unit

30 daysAverage

All suppliers will ship from Ningbo. Unfortunately, I don’t have any other shipments leaving from this port this month. Else I could combine the shipment to fill a container, as this will greatly reduce my shipping cost. If one of the suppliers would be based in Shenzhen for example and I had another shipment leaving from Shenzhen, that would seriously impact my decision.

Here is my thought process when picking a supplier:

Mr. A

Total unit cost will be: $5,10. Normal lead time & great sample quality.

Mr. D

Total unit cost will be: $5,10. High lead time & great sample quality.

Mr. E

Total unit cost will be: $5,45. Normal lead time & average sample quality.

Mr. E total unit cost is simply too high & his samples wasn’t that great. So I have to choose between Mr. A & D. Both offer a great product for a low price. The only advantage Mr. A has that his lead time ( production time ) is 10 days less. I don’t really care about this too much so it’s time to negotiate again. I send both of them another message:

Hi,

Thank you for the sample. I think your quality is very high quality and I appreciate that you always have great communication. However, there is another supplier who also send me very high quality sample but his price is $4,60 per unit.

Is there anything you can do about the price?

Thank you!

Mr. A was willing to work with me and dropped his price to $4,60. While Mr. kept his price at $4.70.

For that reason, I will go with supplier Mr. A.

First payment

To start the production, the supplier will need some kind of down payment. Normally this is 30% of the total order. If you are having doubts about trusting your supplier you can ask him if it’s possible to pay with Alibaba Trade Assurance. However, I have only used this option once in the past 4 years.

I have wired the 30% to the supplier. My bank takes a couple of days to process international wire transfers. So I always take a screenshot from the transaction and send that the supplier while my bank is still processing it. After a while, I will hopefully have build up a relationship with my supplier and there is mutual trust. They will then start the production as soon as I send them the wire transfer screenshot. This will reduce the production time by a couple of days.

 

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13 Comments

  1. Hello!

    I am at a similar point in the product selection process as you and wanted to know your take on the process of product branding for a new item. I have only launched one product in the past, and have learned a lot since then. We tried our best to add value to our product by giving it nice packaging and branding but failed to differentiate our product enough causing us to lose footing and eventually fall to competitors who were able to out-price us.

    My question is in regards to the effort you put in branding and packaging for a product such as the one you are investigating in this case study.

    We made efforts to get great photography and packaging design but had difficulty working out the order to a process that allows us to efficiently launch. For example, if we wanted the product to be modified from what the original samples we received to give us an edge on our competitors, we would have to wait for those to be produced and sent to us. Then, after we received samples of those modifications, we would need to forward those to our photographer to take photos. Then, we would need to give those photos over to our package designer who would then have to forward those designs over to our manufacturer. For our first product, this process took almost 6 months, mostly due to it being our first product. My worry is that if we had just ordered our product unmodified and in a poly-bag, we would have already reached market months before if we had attempted to differentiate and could focus our design time/money on a better listing and photos.

    I believe that to have found a niche that I could do very well in, at least by the numbers, but am worried that it may falter if I do not differentiate the product enough. I’m sure this is what this entire business is about, but how would you suggest weighing a decision like this and for a new seller to not get caught in their own head about the “what-ifs”? And as well, do you feel it is necessary to modify a product significantly if there is little competition or is good branding enough increase the value of a product?

    Thank you for all of the great information you have posted by the way! It has helped me smooth out many of my processes and has been a great inspiration for me to keep trying!

    1. Hi mate,

      That is tough. 6 months is a long time when want to get your product to market ASAP. I guess for this reason I don’t make any major modification to my products. I only change the color of the product and spend a lot of time on nice packaging ( which makes a huge difference ).

      So far this has been working great for me. I guess once everybody starts doing this I will needs to make major modifications to products as well.

      Good luck!

    1. I usually push until there is 1 supplier leftover who can offer a high quality product. Can’t really express this in a %, as this differs every time.

  2. Hi mate, great work !

    Is there any reason you don’t use Revolut or TransferWise for your international payments to China ?
    They will charge you less and the transfer will be faster.

  3. Hello,

    I love your articles and I am following everything on it. However I have a question regarding payment. My supplier in China said this:

    “We can provide you with samples for FDA testing when we produce large quantities, because both processes take time.Our terms of payment are 30% deposit and 70% tail payment.
    But our shipment will be delivered after the final payment is paid.”

    How do I guarantee that my products(when they arrive to me) will be made with good materials and not cheap ones, as well as, having no defects on them? How do I tell my supplier this? We don’t have a relationship where we can trust each other, yet because this is my first product I will be selling on Amazon the this supplier is my first one that I’m dealing with(I already narrowed it down after talking to 2 other suppliers)

    1. Hi,

      Make sure you find a inspection company that can test the materials you are using. Plan the inspection right before you pay the 70% ( so when most of the goods are done ). Make sure to tell the inspection company to really test the type of material you are using.

  4. Hi,
    Can I ask a question about down-payments. I heard people use credit cards to pay the chinese suppliers, at least when you new to Amazon. If something goes wrong, you have the backing of the CC companies. Would you recommend this strategy for the new seller?

    1. Hi,

      I actually don’t know about this. Where I am from paying with creditcards is not that big so I have never paid a supplier with a credit card. However, I have heard of other sellers doing this. And apparently you can also get cashback with some cards. Definitely worth checking out.

  5. Good information mate.
    You’re experienced enough, but for others, don’t always go for the cheapest option. Many times in China, the middle price turns out to be the cheapest.

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