Understand the reverse sourcing strategy to find winning profitable products and wholesale suppliers to expand your Amazon catalog!
In this article, we’ll be covering a new product scouting strategy called “reverse sourcing.” Whether you are a new seller or an experienced seller, reverse sourcing can be an awesome method to find reliable suppliers who produce winning products.
If you haven’t already, I highly suggest you read our previous blog on How to Source Your Amazon Business with Leaf Sourcing before you learn about reverse sourcing. Essentially, leaf sourcing is a scouting method that uses one product as a starting point to finding similar products that have high profitability and sales performances. While both leaf sourcing and reverse sourcing are great individually, they work best when used together.
By the end of this article, you will have the knowledge to execute both reverse sourcing and leaf sourcing! Then, you can combine these two methods and develop an optimized product sourcing strategy to find winning products to grow your FBM or FBA business.
What is Reverse Sourcing Wholesale?
To understand reverse sourcing, you need to understand how traditional sourcing works.
In the old methods, sellers would source products by contacting suppliers, manufacturers, or brand owners. After establishing a business partnership, sellers would get access to the supplier’s product catalogs where they can select which products they like, and then stock their stores full of these products. Although it seems simple enough, the traditional sourcing process has one major flaw: sellers never knew which products would sell or which products would have a good return on investment. Essentially, the traditional process was extremely risky, like throwing a dart in the dark and hoping it would hit something. The status quo often led to sellers purchasing random products that seem like good investments, but down the line, these products performed very poorly leading to negative profits and excess inventory.
The new method, reverse sourcing, negates a lot of the risk by adding a crucial step. Instead of starting with the supplier, reverse sourcing starts in the opposite direction: with the product first. Instead of going directly to a supplier, sellers using the reverse sourcing method identify one profitable, sustainable, and replenishable product. Once a seller identifies a single product, you take the product and identify the supplier that produces that single product. From there, you can ask that particular supplier about their catalogs and source other profitable products that they produce to add to your store.
Reverse sourcing guarantees that the single product is profitable and every additional product will add more guaranteed profits. From one single product, reverse sourcing allows sellers to identify a reliable supplier and access a ton of other profitable products. As a result, reverse sourcing takes away all of the risks from the traditional sourcing process and supplies sellers with profitable, sustainable, and replenishable products to sell on Amazon or any other e-commerce platform.
Why You Should Use Reverse Sourcing for Amazon FBA
While we’ll go into further details about how exactly reverse sourcing works, here are some of the clear benefits you gain by using reverse sourcing.
- Benefit #1: Easy access to suppliers. Finding quality suppliers may be one of the most difficult parts of sourcing products for your store. By using reverse sourcing, you can easily identify suppliers who are guaranteed to produce your product. This cuts down the product research time significantly and allows you to contact suppliers as soon as possible.
- Benefit #2: Reduce the risk of DOA products. DOA or “dead on arrival” products are products that do not sell well. We discussed this a bit in the previous section, but in traditional sourcing methods, sellers essentially guessed on products and hoped that they would sell. This often led to sellers buying a ton of products that never sold or sold poorly, lost capital, excess inventory, and poor return on investments. By reverse sourcing, you guarantee that at least one product sells well and can center your business around a guaranteed winner.
- Benefit #3: Access to supplier catalogs. While you could get access to a supplier catalog with traditional sourcing, reverse sourcing helps you find multiple profitable products more efficiently. Once you reach out to a supplier of your initial product, you can request access to the supplier’s entire catalog and then hand-pick winning products to stock your inventory.
- Benefit #4: Cut out the middleman. In traditional sourcing, products are often provided by distributors, not manufacturers. Distributors are essentially middlemen who purchase bulk products from manufacturers and then resell them to sellers at a higher price. Meaning sellers had to pay extra for the cost of goods because they had to go through distributors. With reverse sourcing, you go directly to the manufacturer and can negotiate for the lowest price possible. With the lower cost of goods, your profit margins may increase significantly, and products that were not profitable before are suddenly gold mines.
- Benefit #5: Build more personal relationships with manufacturers. We discuss this topic heavily in our blog about 5 Rules to Maximize Supplier Relationship Management. In summary, reverse sourcing empowers sellers to work directly with manufacturers. By collaborating and working collectively with your supplier, it leads to more personal relationships and trust. This may ultimately provide additional perks such as reduced prices on goods, reduced shipping costs and fees, and exclusive rights to specialty products.
With the benefits in mind, let’s jump right into how to reverse source for products.
Step 1: Picking Your Initial Product
The first step to reverse sourcing is finding your initial product. When finding your initial product, you should use 3 core criteria:
- The product is NOT sold and shipped by Amazon. If the product is sold and shipped by Amazon, dump it and find a different product that isn’t.
- The product should have 3 or more sellers. If the product has less than 3, it probably is a private label product that you won’t be able to source.
- The product’s selling price is at least $20 or more. Products sold for less than $20 usually don’t provide enough profits after you pay for the cost of goods, FBA fees, service fees, etc.
*Note that these are the same 3 criteria you should use with leaf sourcing. This is a hint at how you can use leaf sourcing and reverse sourcing at the same time!
For our example, we found this product:
Portable Blender, Personal Size Blender Smoothies and Shakes, Mini Blender 4000mAh USB Rechargeable with Six Blades, Handheld Blender Sports, Travel, Gym (Blue)
As you can see from the photo, this product meets all of our core criteria for an initial product. The product is shipped by Amazon but sold by another company, Aoozi. The product has more than 3 sellers. Lastly, the product is sold for $29.99, which meets our selling price threshold.
Step 2: Contacting the Wholesale Supplier or Brand Owner
The second step is quite easy: find the supplier or brand owner. In this case, the brand owner is “Aoozi.” To find their contact information, simply type the brand name into a search engine like Google or Bing. We instantly found Aoozi’s website where they sell their portable blender and even include different web pages for their other products including webcams and LED lights.
While we could look into their product catalog now, what we want is at the bottom of their webpage where it allows you to “Contact Us,” or Aoozi in this scenario.
After clicking Contact Us, you will be directed to a contact form and be given the address, phone number, and email to connect with the brand owner.
At this point, you can choose your communication method depending on your urgency. We recommend either sending them an email to schedule a meeting or a phone call if you are prepared to make a deal immediately. Whichever method you decide, remember that your goal is to move towards action whether it be asking for a catalog, landing a contract, or putting in an order.
Step 3: Requesting a Product Catalog
Before you land a wholesale contract and start sourcing immediately, we highly recommend step 3, which is to request a product catalog from the supplier. The product catalog is a list of all of the products the supplier produces and is available to purchase for sellers.
The supplier should also provide a pricing sheet that explicitly states the product, ASINs, cost of a single unit, the minimum order quantity (MOQ), and the selling price or minimum advertised price (MAP). As a seller, this is a huge resource because you can see all the different products you could potentially order to supply your inventory.
Step 4: Conducting Product Analysis
Once you receive a product catalog, move to Step 4 to conduct proper product analysis. We cover product analysis in our blog A Guide to Product Analysis, but you typically have two options: manual product analysis or automated product analysis with an FBA tool.
For manual research, you should calculate the profitability of the product by accounting for the cost of the good, the selling price, FBA fees, service fees, shipping costs, and storage costs. We recommend using Amazon’s FBA revenue calculator to help speed up this process. For the FBA calculator, simply enter the ASIN or product identifier (UPC, ISBN, EAN) and the calculator will allow you to compare all the potential costs. Afterward, you should receive a net profitability figure that provides the expected return. Sellers need to take their time analyzing entire catalogs. Miscalculating a single product can have huge implications on your revenue and profit margins as well as the overall health and sustainability of your business.
The second option, and the one we highly recommend, is using an FBA tool to automate all of these bulk calculations for you. Manual product analysis can take days if not longer depending on the size of the catalog. Some catalogs are in the thousands, so automated product analysis is essential for picking the best products with the best profit margins and return on investments (ROI).
If you do not already have a tool, check out Sellgo’s FBA tools. Within the Search Management tool, you can easily upload the product catalog from the supplier and the Profit Finder will conduct bulk automated calculations for you. After, you will get an organized table of all the products that you can filter and sort based on profit margins, ROI, and more. Instead of wasting hours doing manual work, you can just use FBA tools to get the best products instantly.
Step 5: Source Winning Products and Sell, Sell, Sell!
By Step 5, you should have finished product analysis on your supplier’s catalog and have a list of products you expect to bring in tons of revenue and profit.
Looking back on the reverse sourcing process, you started with a single product. From there, you got into contact with brand owners, collected catalogs, analyzed the products, and now you have a list of products that you know will be profitable. Not only were you able to increase your inventory with reverse sourcing, but you hacked the system, lowering the risk of DOA products and can ensure secured revenue and reliable sales!
The last step is to start selling! You can contact your supplier again and put in an order to begin sourcing and selling products on Amazon.
Combining with Leaf Sourcing
Now that you understand reverse sourcing and leaf sourcing, let’s think about how you can use these strategies together to maximize your product scouting process! Leaf sourcing and reverse sourcing begin at the same place: the initial product. Once you identify your first product that meets the 3 core criteria, you can then implement leaf sourcing and reverse sourcing cohesively.
Leaf sourcing will enable you to find new products that are similar in price and profits to your initial product. In comparison, reverse sourcing focuses on identifying reliable brand owners and suppliers. When you identify new products with leaf sourcing, simply use reverse sourcing to find the supplier for the new products and contact them about their product catalogs or landing a wholesale contract. As you find more and more products with leaf sourcing, you can use reverse sourcing right after to find more and more suppliers! These two strategies together provide the perfect storm for any seller trying to expand their catalogs with new products or meet new suppliers.
In the end, your product scouting process will lead to amazing products that will grow your sales and suppliers who will support your business and accelerate your growth!
Revamp Your Amazon FBA Inventory with Product Sourcing Strategies
Congratulations! You’ve successfully learned how to use leaf sourcing and reverse sourcing strategies that will drive your Amazon business! The next thing to do is start implementing these strategies now and start finding new products to sell.
Although these strategies may require a ton of work, you can automate a lot of the bulk work by using useful FBA tools including Sellgo’s Search Management, Profit Finder, and Product Tracker tools! Check out these tools at Sellgo.com to quickly source products and begin selling today!