The Good, the Bad, and the Phony: Pros and Cons of Working with a Sourcing Agent
Can’t decide on whether you need a sourcing agent for your Amazon business? You’ve come to the right place!
Firstly, what is a sourcing agent?
Essentially, an Amazon sourcing agent is a freelancer hired on a fixed fee or commission to source products for you.
I get asked all the time, should I hire a sourcing agent for my company?
The best way I can answer this is: if you want the best results from China, then my personal opinion is – no.
But if you want to start your business as fast as possible and just start selling, then optimize your sourcing practices later on… it may be a good idea.
There are a few very important things to understand before making this decision.
First, it’s important to be self-aware of where you are in your business. The sourcing process is one of the most important areas of Amazon business you have to master. It dictates two things:
- The quality of your products
- The price of your products
Without a firm grasp on these two factors, it doesn’t matter how good your Manychat flows or PPC skills are.
If you don’t like sourcing, then it makes sense to outsource and focus on other areas of the business. But it’s important to know what you’re missing out on if you do decide to outsource.
Pros of Working With a Sourcing Agent
- If you’re a one man or one woman show, then hiring a sourcing agent will allow you to focus on other areas of your business and free up your time. Yes, dealing with an agent still takes time but it’s a lot less time than talking and negotiating with multiple factories and arranging samples.
- Sourcing agents will have a certain amount of experience with purchasing products from Chinese factories. You can leverage this experience to keep your sourcing practices up to date, as it will take you some time to build up this knowledge for yourself.
- If you have no experience, then a sourcing agent can take a big load of work off your shoulders. Even if it’s not the best deal, it’s still better than what you could probably get yourself. But remember, as you start to scale, you must own that relationship with the factory.
- Some sourcing agents may have established relationships with factories that you can benefit from. If so, they will be able to introduce you to factories which may not be present on Alibaba.com. This can be a huge competitive advantage.
- When working with multiple suppliers, sourcing agents can bundle samples for you and send them to you all together. Without an agent you would most likely have to send multiple samples from different factories which would increase your air freight costs. A sourcing agent can gather all those samples for you and send as one parcel. If they label the samples correctly, you can then select your favorite factory to buy from.
- Finally, a sourcing agent should also be checking the sample quality before the shipment arrives to you. All the samples you receive should be of a high enough standard for you to order from. If you get samples that are poor quality then the sourcing agent is clearly not skilled in that category of product. This is why it’s important to ask an SA which product categories they specialize in.
Cons of Working with a Sourcing Agent
- You can lose the factory relationship. For me, the biggest advantages of buying products from China for your business come from the relationship you have with the factory. However, when you work with a sourcing agent, they own that relationship and they control the communication. Creating your own, great relationship with a factory boss can result in better prices, faster lead times, credit terms, introduction of new items etc.
- You lose the direct line of communication. If you ever have a problem with your stock or a delay in your lead time, you want to be able to pick up the phone and talk to a decision maker at the factory. But when working with an agent, you have to go through them. If they do not interpret your message in the right way or portray your feelings in the right way, you may not get the result you were looking for.
- If working with a single sourcing agent rather than a sourcing company, you will be in big trouble if your agent goes missing one day. Should they take a long holiday, if they don’t feel like working anymore, or if they have a family emergency, you won’t have a point of contact to find out where your goods are, when they will be ready, update on inspections etc. Some agents don’t even disclose their factory details. In this case you will not even know where your goods are being made!
- If you fully rely on sourcing agents to do all your sourcing for you, they may switch suppliers on you without you knowing, which can negatively impact your product quality. If they find another factory making the same product at a cheaper price, they may decide to switch to that factory and pocket the additional margin without you ever knowing.
- Even when hiring a sourcing agent, it’s still very important for you to do your own pricing research. If you just take the prices that you’re given, you will be none the wiser if the sourcing agent has marked up your prices and you’re paying more than you should!
Based on all this info, it’s important you align with the right sourcing agent if you choose to work with one.
Top 7 Things You Need to Know Before Working with a Sourcing Agent
1. Are they a one-man show or a company?
It’s very important to understand if you are paying one person or if you’re paying a company. There’s a lot more risk if you are paying one person as they could take the money and run. As mentioned before, if they get sick or take a holiday you no longer have someone to contact regarding your sourcing.
2. How many years have they been working as a sourcing agent?
This will show their experience. If they are new to the game and have been a sourcing agent for less than 3 years, this may not be the best company to work with. Additionally, you should also be asking your sourcing agent for references of other clients. If they cannot provide references, then again, this is a potential red flag.
3. Will they provide you with a direct relationship and line of communication with the factory?
Remember the value is in the relationship with the factory. If they don’t share factory information with you, then you have very little control over how and where your products are made.
4. What category of product do they specialize in?
Sourcing agents can’t specialize in everything. If they don’t understand your product or category, that’s where mistakes can happen.
Find out what their strengths are: price, quality, negotiation etc. Are they qualified to sign off on samples? Do they have experience in your product family so that they can check and approve it before sending to you?
5. How do they get paid for their work? Up front fee or commission?
Figure out how they charge for their services: is it a flat fee or commission?
Ask them if they are compensated by the factory: they shouldn’t be and they will probably hide it if they do. But it’s good to show you are aware of this practice. A good sourcing agent should not get kickbacks from the factory because that shows they are incentivized by the percentage a factory is willing to pay them rather than where the best place to produce your goods is.
6. What is the scope of their work?
Some only do sourcing and some cover inspection. Others will include testing, introduction to shipping agents, etc. Find out the full scope of their services and fully understand everything you are paying for.
7. What is their process for vetting factories?
It’s good to know if they have pre-existing factory relationships they can leverage. If not, are they just using alibaba? If so, we could have done that ourselves without paying them a margin.
Do they attend the Canton Fairs, or do they travel to the factories to vet them before doing business? Every sourcing agent will have their own process and it’s very important you understand how they select your factories.
If you want to understand more about sourcing agents and other sourcing from China topics, check out this YouTube playlist that covers how to select sourcing agents and how to avoid common mistakes.
Best of luck and happy sourcing!