China Sourcing: How to do it right

I get inquiries all the time from people who have ideas for products or businesses. But I often find out that they have not really thought these ideas through. For example, I got an email the other day from someone who wants an exercise product manufactured in China. He has well-formulated ideas about retail costs, margins and marketing on his side. But he has given very little thought about costs on the manufacturing side. Nor has he considered shipping costs. For example, he asked me if I would approach some vendors in China on his behalf but he did not have a target cost for me. I then had to explain what “target cost” is. My reply to him is below. I think it might be useful for other entrepreneurs out there who have product ideas and want to source in China.

By target costs I mean as follows:

What is the cost you need to pay the manufacturer in China that will allow you to turn a 31% profit on your product after all the other costs as you have detailed below have been taken into consideration. The idea here is that you really need to understand your own product and your business so as to reach a solid understanding about what your manufacturing costs need to be in order to meet your retail margins (31%). I suggest you really cost this thing out and come back with a target cost that I will be happy to pass on to a couple of vendors in China. But please note this cost has to be accurate. You cannot approach a vendor with a target cost of $ 10.00, for example, and then two weeks later come back to them and tell them you made a mistake that and that the new target cost is $ 8.00. If you do that you just can’t work with that vendor anymore.

You would probably ship these by air or LCL ( Less than Container Load) depending on volume. I have no idea of the rates but for LCL but I imagine shipping would add on $ 0.25 per pc. Just an estimate because I really do not understand your product yet. You also should look into working with a shipping agent there in London becuase shipping documentation is both essential and cumbersome.

Anyway, don’t get too far ahead of yourself. It sounds like you really need to do a lot more work as far as product design and cost goes. I won’t approach any vendors until I have some solid specs, as per what I sent to you as an example, and a firm, well thought-out target cost. The goal here is to come off as professional as possible so vendors want your business.

Ex China means before the product leaves China. When I say you need to inspect your product before it is EX-China, I simply mean before it leaves China.

Manufacturing cost plus shipping cost equals landed cost. And then you also need to figure in the costs for inspections. Just look at this thing from all angles.

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