You want to hire a reliable trustworthy sourcing agent to find the best supplier for your products. We’ll show you how.
In this guide we cover:
What is a Sourcing Agent?
Simply put, a sourcing agent is a third-party that helps you find the right supplier for you.
Product sourcing describes the process of finding a source (i.e. a supplier) for a product you want to sell.
They usually speak the language of the country you source from, are geographically close to potential suppliers and are familiar with customs. One of the most popular countries for sourcing is China, because most products can be manufactured very cheaply there.
China is the world’s largest producer of factory goods and a world leader for many product types. If you want to have a customized product, there is a good chance finding a suitable manufacturer in China for it.
That’s why there are so many sourcing specialists in China.
Let’s have a look at the Wikipedia definition of a sourcing agent:
“Often, services provided by sourcing companies can include market research, vendor / supplier selection, price negotiation, quality assurance, quality control, raw materials pre-positioning, shipping and logistics, pre-shipment inspection, customs clearance, etc.”
What does a Sourcing Agent do?
A sourcing agent or sourcing agency is a person or company who finds the product you want to sell in the preferred country for you.
Thus, it’s their main function to identify qualified suppliers that meet your requirements.
And this is how the basic process looks like:
Step 1: You think of a product you want to sell, including material, size, use etc.
Step 2: You describe your product or product idea to the sourcing company.
Step 3: The sourcing specialist researches 5-10 suppliers for you that meet your requirements for quality, price, scope of services, delivery time and ethical aspects (working conditions, factory safety etc).
Step 4: You choose a supplier from the list your sourcing agent provides.
Step 5: The sourcing agent acts as intermediary between you and the supplier. They facilitate the communication between you and the supplier.
Step 6: You get your product with all the specifications you wanted. Yeah! Many sourcing agencies offer more services besides just connecting you to a supplier.
These services include:
- Communicating & negotiating with suppliers
- Overseeing the production
- Providing you with updates
- Arranging storage & shipping
- Performing quality inspections
If it makes sense to leave all those tasks to your sourcing agent depends on how you’re paying them. If they work on commission, you shouldn’t use them for quality inspection.The reason is that if something’s wrong with your product and you don’t pay the supplier for it, they will lose their commission.
So why should they tell you about it?
More about that later.
Which types of Sourcing Agents exist?
As in many other service industries, there are also different types of sourcing companies. These are:
Single sourcing agents who work independently
Especially in China there are many sourcing agents who work on their own. They usually don’t have many clients at once and can therefore build up a very personal relationship with you.
However, there are also disadvantages to working with only one person.
You are 100% dependent on her and it will be difficult to find meaningful information about her professionalism and performance in advance. In addition, their network is likely to be smaller as compared to a bigger sourcing agency.
The main drawback, however, is that they can disappear very easily as compared to a bigger company.
The risk of getting scammed is therefore a bit higher.
Sourcing agencies are sourcing companies that employ several sourcing agents who have different product focal points. One for consumer electronics, one for beauty products, one for furniture etc.
These sourcing agencies usually have a large supplier network and the human resources to provide you with a sourcing agent that’s experienced with your type of product.
However, in comparison to independently operating sourcing agents, these companies are usually a little more expensive.
Full service sourcing & logistics companies
The last type of sourcing companies are companies that offer sourcing as one of many different services. They usually offer quality inspections and logistics services such as shipping and fulfillment.
Of all three types, sourcing full service sourcing & logistics companies are usually the most expensive.However, large, versatile companies have the advantage that all the tasks from finding a supplier to delivering a product to the Amazon Warehouse can easily be handed over.
The in-house communication will also be better compared to hiring many different companies to work together.
Your risk also increases, as you are strongly dependent on one single company if you leave all logistics duties to them.
Why should you use a Sourcing Agent?
Many Amazon sellers are often deterred from sourcing goods from other countries.
Especially if you don’t know the culture and the language, importing from other countries seems like an extremely difficult task.
In addition, you hear all these horror stories of sourcing agents who are said to have stolen product ideas in order to sell the product themselves or the product idea to a competitor.
However, you shouldn’t be too afraid of that.
You will learn later on what makes a good sourcing agent and what red flags to look out for in order to prevent that. If you consider these factors and carefully select the sourcing agent or agency you will work with, there’s no need to worry.
In the end, there are so many benefits of hiring a sourcing company that it’d be a shame to not do it:
The most important and strongest benefit of hiring a sourcing specialist is that you save a lot of time.
You don’t have to dig through hundreds of pages of dubious suppliers on the Internet, spend no time vetting many different factories and conducting long complicated negotiations about product specifications.
All this is done by your sourcing agent for you.
A sourcing agent will also help you to set up a perfect briefing, which you can then provide to the supplier of your choice. This is especially important if there is a language barrier, as it really depends on exact details.
In addition, the agent knows exactly what needs to be included in the briefing, i.e. everything the supplier needs to know about your product.
Some sourcing companies also offer negotiation services.
They know the suppliers’ “pain threshold” regarding the price. This means they can negotiate the lowest price while still maintaining quality.
A common mistake among Amazon sellers is that they haggle until a point where the supplier “breaks”, meaning that they will try to cut costs by reducing the material or production quality – often without telling you. The product sourcing agent naturally has the advantage that they speaks the language perfectly and knows the culture.
Thus, negotiations are more efficient and faster.
It is always advisable to see official certificates and licenses from your manufacturer.
And we fully agree.
In recent years, more and more manufacturers have attracted negative attention due to bad working conditions, poor product quality or scams.But what’s the point of seeing certificates and licenses if you don’t speak the language in which they were issued?
That’s right. There is none.
Although you can have them translated professionally, it’s very expensive and you still don’t know if the documents are legitimate. I mean, who says that the manufacturer didn’t just come up with a fake agency name in order to seem professional or just faked the whole document?
This is exactly where a sourcing agent can help you. He knows exactly which criteria the manufacturer has to meet, which inspection bodies are responsible and what the official certificates have to look like.
The risk of being deceived by the manufacturer is thus dramatically reduced.
Experience & Network
When you hire a sourcing agent, you are not only paying for the services they actively perform. You also pay for the years of experience and the network the agent can access.
They will have worked with several different manufacturers and know which one is most suitable for which type of product.
What makes a good Sourcing Agent?
As mentioned above, many Amazon sellers are afraid of working with sourcing companies because they are afraid of being scammed or that their product idea will be stolen.
However, the advantages of working with a product sourcing agent are so great that it’s definitely worth it. But how do you know if a sourcing specialist is good or not?
We’ll show you the characteristics that make a good sourcing agent and which red flags to look out for:
Here’s what makes a good sourcing agent:
Would you hire an unlicensed building contractor to build your house? Or entrust your money to a banker who doesn’t have an official work permit? Neither do I. The same applies to EVERY business you work with – including sourcing companies.
A good sourcing agent has an official business license. Have it shown to you.
Experience & Specialization
Another important quality factor is the experience the sourcing agent has. Did they just start the job two weeks ago and have no idea what they are doing or have they been in the sourcing business for years and already gained experience?
This is important because otherwise they won’t know which suppliers are good and which are bad. In the end, that’s why you hire them in the first place.
Their specialization also plays an important role. If you sell consumer electronics and the agent only has experience with apparel suppliers, they are most likely not the right partner for you.
The more experience a sourcing specialist has, the more companies they will have served.
And if the sourcing agent does his/her job well, they will be very satisfied with his performance and way of working. A good product sourcing agent can therefore present a number of testimonials and referrals.
One of the most important tasks of any sourcing company is to mediate between you and the supplier. Thus, it’s essential that they perfectly speak both your language (or english) and the language of the supplier.
Location & Flexibility
Geographical proximity also plays an important role. For example, if you want to source a product from Shenzhen, your sourcing company should also be located there.
There are also sourcing agents that are located further away (say 500km) and offer to travel to the factory for you. However, this will cost you extra.
The more often you want the product sourcing agent to give you updates on your order, the more often you will have to pay these extra travel costs. Therefore your sourcing agent is ideally already close to the supplier.
This point is usually closely interwoven with the experience factor.
A good sourcing specialist is able to present you with several factories that can provide your product. Thus, they should have a large network and know exactly which suppliers are best for your product.
As with any other service provider, transparency is an absolute must.
A great sourcing agent tells you in advance exactly what costs you will incur, which costs could occur unexpectedly and exactly how these costs are composed. In addition, they should agree to visiting the factory with you if you want to.
Transparency regarding the supply chain is crucial. If they are looking for excuses why you can’t visit the supplier and tries to avoid that conversation, it’s definitely a red flag. Speaking of red flags.. (wow, what a smooth transition):
Just as there are very good sourcing companies, there are also many bad, unprofessional or even criminal ones.
So here are some red flags to look for:
The sourcing agent is paid by the factory
NEVER EVER hire a sourcing agent that is (also) paid by the factory they are referring to you. Loyalty is usually granted to the one who pays. Let us take the following example: You want to source power banks.
Factory A is specialized in this kind of products, has been producing highest quality for years and would be the perfect choice for you.
Then there is factory B.
At this factory, the quality is mediocre and the delivery times long. However, if factory B pays your sourcing agent, for example in the form of a commission or a referral premium, and factory A doesn’t, your sourcing agent will probably recommend the worse factory to you.
They offer quality inspections but work on commission
We can’t believe we even have to say that, but we have witnessed this scenario way too often in the past. If your sourcing agent offers to do quality inspections at the manufacturer, but works on a commission basis, something may not be right.
Most contracts specify that the sourcing agent only gets money if you accept the goods. So if your sourcing agent finds a defect in your product, why should the sourcing agent tell you that?
They would lose their commission. So if your sourcing agent urges you to let him do the inspection instead of a third party inspection, something might be wrong.
They don’t have a business license
I guess that’s a pretty obvious red flag.
It takes them forever to find a supplier
Some sourcing agents work by the motto “fake it til you make it”, meaning that they will claim that they have years of experience and the largest network to get you to choose them.
If that’s true, it won’t take them very long to find a handful of suitable suppliers for you. If they need more than around one week, they probably don’t have as much experience and such a great network as they claimed. Actually, the second you describe your product, they should instantly have a few suppliers in mind.
To sum it up: If they’re already dishonest about their experience and contacts, it’s best to stay away from further collaboration.
Their language skills are poor
Many sourcing agents claim that they speak fluent English (or your mother tongue) and the language of the supplier country, such as Chinese.
Be careful: some sourcing agents lie here. Pay attention to how well they communicate and explain things to you. It’s useless if they speak perfect Chinese but can’t explain to you what’s going on in your language. Vice versa, it’s also bad if they don’t speak the language of the supplier well.
After all, manufacturing is all about details and special characteristics your product should have.If they aren’t able to communicate those characteristics properly, you won’t get the product you want.
The location of the sourcing agent is a good indicator of how sophisticated their language skills are.If the sourcing agent has been living in the country you want to source from for years, they will probably be able to speak the language well.
How much does a Sourcing Agent cost?
Now let’s get to the part that’s usually of the greatest interest for most Amazon sellers: How much will you have to pay for the product sourcing services?
There are three way sourcing companies usually get paid in. Let see which ones those are and what pros & cons they have:
Sourcing agents often work on a commission basis.
It’s not possible to give an exact percentage figure here because it depends on the order quantity, order frequency and order value. Usually the commission percentage is between 2 and 10 percent, often around 6%. The smaller your order, the higher will be the commission fee.
A simple example:
If the order value is only $1,000, you will pay about $100 (10%) for the sourcing service. If your order value is $50,000, you usually won’t have to pay $5,000 (10%), but around $2,500 (5%) or less.
Another common structure is that the commission for the first order will be high and for repeating orders lower.
“When’s the payment due?”
The sourcing company does all the work in finding a suitable supplier for you. As soon as you’re ready to place an order, the commission is agreed. You will pay the amount to the sourcing company as soon as the goods are shipped. The problem here is that the sourcing agent has no interest in finding a low priced supplier.
Simply put: the more you pay, the more they make.
The higher the order value, the more the sourcing agent earns from the deal. So why should they suggest a factory that can make your product for $5,000 if they can suggest one that charges $10,000 where they earn a commission that’s way higher??
In this model, the sourcing agent is paid according to his working hours.
The advantage is that no matter how much the deal with the supplier is worth, you will only pay the fixed hourly rate. However, in this case your sourcing specialist has every reason to take his time.
For research work that they can complete in 8 hours, they may then charge 15 hours because there’s no way that you can track how long they really needed.
If their hourly rate is $20 you may end up paying $300 instead of $160. Thus, the two major drawbacks for this pricing model is that you might pay more than the work is worth and, that you will receive the results later than necessary.
With this model, you pay a fixed amount that is agreed at the beginning of the project. The sourcing company starts the research right away and you will receive a list of suitable suppliers and an evaluation of which one is best for you.
There will be no further costs.
The disadvantage here is that you will pay in any case – whether you choose one of the suppliers the agent researched for you or not. The sourcing agent may thus not put that much effort into his research because they will get paid either way
Mixed payment structure
Another common payment model is the mixed one. In the mixed model you will pay a flat fee until a certain amount.
If the order value exceeds that threshold, a commission fee will be charged. The advantage is that you don’t have to commit immediately. Instead, you can first order a smaller amount to see how good the supplier is without paying much to the sourcing company.
You can also test how well the cooperation with the sourcing agent works without entrusting them with a large amount of money right away. You can see how a mixed model looks like in the example below.
How to find the best Sourcing Agent for your Business – 7 Steps Checklist:
To help you find the ideal sourcing agent for your business, we compiled this helpful checklist:
Step 1: Define what you need
The first step is to become aware of what you need and what requirements you have for your sourcing agent and supplier. It’s helpful to write a document describing what is important to you.
With your sourcing agent, this includes the scope of services, language skills, location, level of experience, payment model, etc. Your requirements to the manufacturer should also be clearly defined: Which working conditions should prevail, which material type and quality should be used, how long should the delivery times be etc.
Once you know all this, you can continue with step 2.
Step 2: Set your budget
In the second step, you should think about your budget.
How many units do you want to produce, how much can you spend on your products and how much can you pay your sourcing agent? It is best not to set a 100% fixed budget, but a range, as unexpected costs can always occur.
Step 3: Choose a type of sourcing company
As we have seen before, there are different types of sourcing companies.
Each type has its own advantages and disadvantages. Decide for yourself whether you prefer to work with a single agent, a larger sourcing company or a full service sourcing & logistics company.
Step 4: Research & Compare
Now that you know what you need and what kind of sourcing agent you want to work with, you can start your research.
But don’t just google and use the first result that pops up. Rather use platforms where you can read different independent reviews from other sellers, such as Sermondo.
Then pre-select 3-4 sourcing agents that meet the criteria you defined in step 1.
Step 5: Get different offers & ask for business licenses
Now get offers from the sourcing agents you already included in your pre-selection.
The offer should include the price for each service you want to use, the pricing structure and how the price is calculated.
Important: Get a copy of the business license together with the offers! Then choose the one that fits your requirements and budget best.
Step 6: Negotiate payments
Now that you have chosen a sourcing agent, you still have to negotiate payment with him. While larger companies usually have a fixed price structure, you can often negotiate a better price with agents who work independently.
Also, clarify whether the price for sourcing services will decrease over time when you re-order.
Step 7: Write down everything that was agreed on
In the last step, you should write down everything that was agreed upon.
Then both parties, i.e. you and the sourcing company, should agree (e.g. via mail or weChat). For example, it must be clear who is responsible in the event of poor production quality or if the delivery is delayed.
The type of payment and the amount should also be written down and confirmed by both parties. This way, you will have a document on which you can rely in case anything goes wrong.
Bonus: 18 Questions to ask your sourcing agent
Now that you learned everything there is to know about finding a sourcing agent in China or somewhere else in the world, we want to hear about your experiences:
Which type of sourcing agent have you previously worked with? Were you happy with their performance?
Let us know and drop your comment below this article.
We hope that you feel ready to go out there and find your perfect sourcing agent.