Did you know there are 4 different types of Amazon suppliers you can use to source your online business?
Whether you’re selling through dropshipping, arbitrage, wholesale, or private label, product suppliers play a tremendous part in the success of your business. Without suppliers, you’ll quickly run out of inventory thus reducing your sales and profitability! How do you know which type of supplier is right for your e-commerce business? In this guide, we’ll break down the differences between wholesalers, distributors, manufacturers, and closeouts to determine the optimal supplier for your online business. Then, we’ll give you some extra tips on how to find the right supplier for you and your business needs!
Before we get into details about the four types of suppliers, note that some suppliers follow multiple categories. While uncommon, you may run into suppliers who may be both manufacturers and closeouts companies, or any other possible variation. With this in mind, let’s jump into it!
The first and most common type of Amazon supplier is distributors. Simply put, distributors are third parties who work directly with a brand. Distributors do not produce or create any products, but they typically work directly with the brand manufacturer. A distributor working with Nike buys a large number of products from Nike at a low cost, then resells these units for a profit.
Working with the distributor is great for small Amazon sellers and e-commerce businesses since you do not have to buy a large quantity to get access to high-quality, brand-name goods. If you wanted to keep your inventory small, distributors will sell you any quantity of products you need. One disadvantage of this model is that you are not getting the best price for your inventory. Since distributors are hoping to make a profit, they purchase large quantities of products from a brand, then resell the same products at a higher price to Amazon sellers, wholesalers, and other retailers. Therefore you are going to pay more for the products than if you were working with the manufacturer directly.
When should you source from a distributor?
If your business is limited on capital or resources, distributors may be your best avenue to source products. Distributors will provide access to high-quality goods without breaking your bank. If you have the resources to work directly with a manufacturer, we highly suggest that route instead.
The second supplier type is manufacturers. Manufacturers are companies that own their production line, create their products, and brand themselves. Some examples include large brand name companies such as Nike, Adidas, and Intel. Manufacturers are a great source for products if you are hoping to build an inventory. Many manufacturers produce multiple products, meaning you could get access to any product they produce and build inventory variation very easily.
A common obstacle in sourcing from a manufacturer is the difficulty to land a contract. Manufacturers typically make deals with parties who can purchase larger quantities of products for a lower price per unit. If you do not have enough capital or purchasing power, manufacturers may not want to sell you any products. If you do have enough capital to purchase a high quantity of products, manufacturers can sell you a ton of stock at a low cost per unit like they would a distributor. Before you start sourcing from a manufacturer, be sure to keep in mind the storage fees and costs. Whether you have a warehouse or store products in Amazon Fulfillment Centers, sourcing a lot of inventory from a manufacturer entails a lot of storage fees and costs which may impact your profitability.
When should you source from a manufacturer?
If your business has enough capital and space to store inventory, manufacturers are a great resource to source a ton of different high-quality products. If you do not have the purchasing power or resources to store large quantities, it may be best to work with a distributor.
Closeouts are the clean-up crew of the supplier world. Closeout companies buy the last remaining stock from manufacturers and distributors who are trying to get rid of any products. Closeout companies get the lowest price and largest discounts because brands and distributors are always trying to get rid of products as soon as possible. Because closeout companies get their products for such a good price, Amazon sellers can get high-quality products for extremely low prices. The disadvantage of sourcing from closeouts is that the stock and the inventory variation are usually very limited.
When should you source from a closeout company?
If your capital is extremely low and you need quality goods at the lowest price possible. This is also a great avenue for arbitrage and dropshipping sellers who need quick inventory to sell fast.
Wholesalers are the fourth and final type of Amazon supplier. They are a step below the other three in the pipeline, as most wholesalers purchase their products from manufacturers, distributors, and closeout companies and resell these products at a higher price for a profit. Many Amazon sellers and their companies fit within this category as well.
There aren’t a ton of benefits to sourcing products from a wholesaler, especially if you are an Amazon Wholesaler yourself. Wholesale suppliers will sell their products at a higher price than distributors and manufacturers. This means you will have to pay even more to source from a wholesaler than if you were to source elsewhere. In some cases, wholesalers may have products that are still profitable, so it may be beneficial to work with a wholesaler in some cases. Before you source any products from a wholesaler, be sure to calculate the profit margins to ensure any wholesale product is profitable for your business.
When should you source from a wholesaler?
If their products are profitable for you to sell. If you can purchase the same products from a manufacturer, distributor, or closeout company, these other sources may give you a lower selling price that can increase your profit margins. In these cases, it may be more beneficial to source from the other three sources rather than a wholesaler.
Which Type of Supplier is Best for Your eCommerce Business
Now that you have a good understanding of the four different types of suppliers. The next question is: Which supplier is best for my company?
The answer will come down to 3 factors:
1. Resources: how much capital and storage space do you have?
2. Quantity: how much quantity are you hoping to buy?
3. Variation: how many different products can you sell?
Resources will always be the number 1 factor to determine the best supplier. For businesses with lot of capital and can store a high quantity of products, manufacturers can provide you with a high quantity of various high-quality products. If you do not have as much resources, distributors and wholesalers may allow you to purchase good products in lower quantities. Companies with extremely limited resources may resort to closeout companies.
Quantity, like resources, is another important factor. Manufacturers can provide you with the most quantity, while distributors and wholesalers are typically limited in stock. Closeout companies are extremely limited, and will only sell you the remaining products they have in stock.
Variation plays a minor role in determining the best avenue for product sourcing, but it is important nonetheless. Inventory variation is much more viable with manufacturers since they produce multiple goods at once. Landing a contract with a manufacturer may provide you access to the manufacturer’s entire product catalog with a surplus of different high-quality products. As you go down the list to distributors and wholesalers, this variation reduces quickly. With closeout companies, there is very little inventory variation.
No one knows your company and Amazon business as much as you. The next step is reflecting on your business, resources, and bandwidth to see which of these suppliers make the most sense for your business size and needs.
The next step is to start contacting suppliers and begin vetting each of them. We discuss this in detail in our blog, “15 Questions You Need to Ask Your Suppliers” that you can use to learn more about each supplier on your list. While this list is a great start, you should develop more questions that can provide more insight into your supplier’s business.
Specifically, if you are buying brand-name products, one question you NEED to ask your supplier: are you authorized to sell your products to me? Before you purchase, ensure your prospective supplier can provide documentation that proves they are authorized to sell those brands. Why? Because if your supplier is not an authorized seller, those products could be counterfeit or illegally purchase. If you continue to source their products, you may be violating Amazon’s Terms of Service and risk losing your Amazon seller account.
Here are some more examples of important questions to ask:
1. Will I be able to source more products later on?
2. How much more stock of this item do you currently have?
3. Are you currently working with any other online sellers?
Source and Sell
You have all the knowledge and tools to help you find the perfect supplier for your business! What now? Go source and sell! Pick the best supplier(s) from your list, vetted each supplier, and request a catalog. Once you receive a catalog, conduct proper product analysis and calculate the profit margin for each potential item.
For our friends who need assistance with product research, you’re in luck! We have two blogs for conducting Product Analysis and Profit Margin Calculations that can walk you through the steps.
For our wholesale sellers, you may need some tools to help bulk analyze the hundreds or thousands of products from your supplier’s catalog. We can help there as well! Head over to sellgo.com and check out our Search Management tool! This FBA tool performs breaks down thousands of products within seconds and provides you with an easy-to-read analysis of all the profitable products from any supplier catalog!