Planning to start an online business selling a product, did my research and found a manufacturer, got samples and tested the product. Am happy with the product. But the manufacturer wants me to buy 100,000 items of the product costing me $20,000, I don't have that much money to invest, only one fourth of required. Buying lower quantities is drastically increasing the cost per item. What are my options?
Is your research showing, that your business would expect strong increasing sales trend ? Is the revenue expected, shows that you can include bank charges in the cost, and still to be on the positive revenue side ?
If both are yes, do not waste time, but take a bank loan and go for.
If both are no, do not waste time, but think about other business.
If one is yes and another one - no, spend more time on the investigation.
Market investigation is the first and most important one.
all the best
We live in the Net age.
My primary rule about any business idea is what I call my...
Sunset Rule: If I can't turn an idea into a sale by the time the sun sets (by hook or crook), then I figure my idea is no good.
So to say this another way, I only consider an idea good if I can turn it into sales via manual procedures - phone/Skype calls, live talk, forum posts.
If I can't turn $0 into a sale, I consider the idea flawed.
Because... if you can turn $0 into a sale, you have infinite ROI... which means your idea will likely always be profitable.
If you have done extensive testing assuring your product will be in demand and will sell at the margins you need to operate, heres some suggestions:
1. Negotiate with the manufacturer on an agreed amount of sales & discounts over an extended period of time.
2. Talk with other qualified manufacturers about lower pricing and commitments.
3. If you have good credit getting a credit card or a loan is not to difficult and could help here.
4. If you have a winning idea in the eyes of others you could seek out an investor to help with capital.
5. Sell at lower margins to start to and as sales pickup and cash flow you can decreases costs and margins by buying in large quantity.
These are just a few ways. But you can think outside the box and come up with some other methods that may work too. If you need any help I'm just a phone call away.
Business is life and it is your lively hood you must consider. Since you are just starting out, I would suggest that you continue to research manufacturing companies that meet your immediate needs. You can keep this manufacturer in mind for future upgrades, if necessary, once you see that your business is successful and able to sustain. Otherwise, if this particular manufacturer is necessary now, the only other option you have is to consider a partnership with a business investor or another loan.
Great that you're in a spot to start production.
Some decent thoughts here already on how to handle your conundrum, but I'll add two different perspectives:
1. You have $5,000 to invest in production today -- will you profit on the sales of each of those units? If yes, consider what you can also learn from this early batch -- validation of market demand, customer feedback on the product and perhaps customer feedback on how to improve the next batch.
2. Look at the other side of the coin -- what are you thinking on pricing? If the $5,000 investment doesn't produce units that are profitable, perhaps you're not charging enough? What margin would you be OK with on this initial batch of products?
If you wish to discuss, send me a PM through Clarity for 15 free minutes.
First of all, you should have agreed on the minimum order quantity (MOQ) in the very beginning of the project. No matter what the product is, 100.000 for MOQ is too much and not reasonable.
1- Find alternative factories who can accept lower quantity and try to get even lower price than your original factory.
2- After you found the alternative (you don't need to validate samples yet, don't lose time), use this info on your current factory to leverage. Tell honestly that if your factory cannot support you on the quantity, you will move to the other factory.
3- If your factory is really caring about your business, he will listen to you.
4- If not, just approve the samples from the other factory and move on. Don't get into any financial trouble because of this factory. They are not the only factory producing this product in whole China.
Hope this info helps and let me know if I can support you further. I am in Shenzhen for 8 years and very familiar with the environment here.
The product details, which you have not shared here, might be hiding the options you have.
1. If it's something innovative, a commodity that everyone will love, do a crowdfunding campaign.
You have a demo, do your presentation, try to sell it within one campaign. Use the same efforts for the campaign, as you will, when you have the product produced and you will have to sell it (even more effort).
2. Think about step 2, if you have 100k items of whatever it is (no matter how you pay for it), and you have zero cash to market it, how are you going to sell it?
Marketing the product is the thing you should be worrying about. If you have figured it out, the question will already have been answered. But regardless my warning, and if you think you have figured the marketing part out, here are some more tips on the question, besides the standard...getting loans, which I don't advise.
1. Find an angel investor. 15k USD that you are missing is a small amount, that if the product is anywhere good, you will be able to find 1-5 guys that trust in it. Why not an angel club, and get 15 guys on board with 1k. The best option is to have more people with cash, trusting in your idea, even if its 100USD per person.
2. Buy smaller quantities on a higher price, and sell to cover costs. This will validate your idea at a lower cost, you will see the flaws, and will fix it in the next iteration. Then you have your stats, and go back to the previous point with stats. This is always better then getting a loan, as you are just starting and having mentors and experience people involved is more valuable then keeping all equity to yourself.