When you are sourcing products from China, you may want to get help from a professional China sourcing agent. You already know that a purchasing agent can bring many benefits to your business, and you already know the responsibilities of a purchasing officer. Now all you need to know are agent fees.
- How much do sourcing agents charge for their services?
- Is there a formula to determine their prices?
- Are they worth the money you spend?
If you are looking for the answers to these questions, then you are in the right place. Today we are going to discuss how buying agents charge, and how much they actually make from you.
What are China sourcing agent fees?
China is a leader in manufacturing products. Some people are able to find and purchase their products independently. Others need the assistance of a professional sourcing agent to find products on their behalf. China sourcing agent fees are what you pay for the services of the agent.
Factors affecting purchasing agency fees
There are many types of sourcing agency fees. These largely depend on the cost of the services provided, as well as a reasonable profit for the sourcing company. Here is a simple formula on how to calculate those fees:
Purchasing agency fee = Purchasing agency’s cost + Purchasing agency’s profit
Cost of runing a sourcing agent
How are fees calculated to run a sourcing agency in China? Here are the 3 main ones:
1.The amount of work you want completed
The more you want the sourcing agent to do, the more it will cost. Long-term projects, such as a new product, are going to cost more than a readily available product. Amazon sourcing is a good example. Amazon sellers who source goods from China to sell on Amazon are some of the biggest sourcing agent clients. Do you want product inspection with labeling and photos? This is a good idea, but it will mean additional work. This will increase your costs.
2.Salaries of employees of purchasing agents
Many believe the salary of a full-time sourcing agent in China is $800.00 U.S. a month.
This is incorrect. Here is why.
China is a large country. Each region has its own economy. The same job will pay a different amount in each region.
Regions like Shenzhen, Yiwu and Wuhan are in the southern, eastern and central regions of China.
In 2022, the minimum wage standard in Shenzhen is 2,360 Yuan/month ($348.00 U.S.) ; the minimum wage standard in Yiwu, China is 2,070 Yuan/month ($305.00 U.S.); the minimum wage in Wuhan is 1,520 Yuan/month ($224.00 U.S.).
Source of information: Shenzhen Human Resources and Social Security Bureau, Jinhua Municipal People’s Government, Wuhan Municipal People’s Government
If you consider the cost of purchasing agents from the salary level of employees, Shenzhen pays the best; Wuhan the least; Yiwu in the center.
3.The infrastructure of the company
Infrastructure, some may call it ‘overhead,’ refers to the elements that go into running the sourcing agency. This includes things like electricity, computers, Internet and the like.
Some smaller sourcing agents work from home and have little infrastructure. Most sourcing companies rent office space for their business.
Sourcing Nova has warehousing near Yantian Port and Shenzhen Baoan Airport.
If you consider the cost of purchasing agents from the perspective of infrastructure, investment warehouse is the highest cost; a home office the least; a leasing office in the center.
Profit a sourcing agent expects
There are several different ways for purchasing agents to make their money. Good purchasing agents earn reasonable profits. Bad purchasing agents make their money sneaking in extra fees.
We will detail the extra fees later in the article.
Other factors affecting purchasing fees
In addition to operating costs and profits, there are other factors that affect the cost of a purchasing agent.
1.The total number of sourcing agents in the industrial cluster
Supply and demand determine prices of both products and services. Each year, new people want to become sourcing agents. They have no clients, sourcing experience and no network of suppliers.
How do they get their first customers? These new sourcing agents offer free or extremely low rates. This low price competition hurts the overall economy with many sourcing agents.
2.Niche product industry
There are some niche buying agents who charge higher commissions and fees. This is because they source high value merchandise for the customers. A purchasing agent looking for medical devices and products charge more than a purchasing agent looking for plastic toys.
3.Optimization of the supply chain
Professional purchasing agents work hard to reduce the total cost of purchasing for customers. In addition to reducing product production costs, they work hard to reduce product transportation, inspection and storage costs.
Many purchasing agents have strategic alliances with all entities in the supply chain, and some large procurement companies acquire the business of related competitors.
New purchasing agents do not have the ability to optimize supply chains. Rather than trust someone new and inexperienced with the supply chain of your product, you are better off looking for a more established sourcing agency. You will have a much better experience this way.
4.The urgency of procurement
You may want a rush on your product order. The purchasing agent will need to pay the manufacturer for this.Those who want faster product inspection, photography and shipping will pay more as well.
5.Rewards for loyal customers
Become a loyal customer. Purchasing agents enjoy offering discounts to repeat customers. Buyers can apply for a discount as well, provided you have placed multiple orders regularly.
How do purchasing agents make money?
Many buyers ask how the purchasing agent makes money. They also wonder if the services are worth the costs.
There are a few ways purchasing agents make their money. We are going to share the pros and cons of each method. You can choose the method that works best for you.
A one-time fee for finding a supplier
You can often find purchasing agency services on freelance platforms. The agents claim they can find you a manufacturer in China to produce your products. The agents will tell you the supplier is an actual manufacturer and not a trading company. They claim to help communicate the need for your product to the manufacturer. In exchange, you pay a one-time fee for them.
This one-time fee can be calculated in various ways, such as finding X manufacturers and charging Y dollars or working X hours and charging Y dollars.
|Lower costs than established Chinese purchasing companies||NO understanding/NO concept of the Chinese supply chain|
|You can estimate costs on your products||Determining hours worked is impossible|
Warning: Do extensive research before using these sourcing agents. The information is easy to find and important. Many of these sourcing agents are from Pakistan, Bangladesh or India. These “sourcing agents” have ZERO understanding of the China supply chain and the Chinese language.
Do you really want to invest your time and money with someone who is completely clueless about China, industrial clusters and the Chinese supply chain?
Order, and purchase a one time only, simple product
Some purchasing agents offer one-time services. This way they can help a variety of customers.
For example, you want 100 sets of customized polo shirts for a company, or you want 100 insulated cups for advertising. The only thing you need is a logo. You do not want custom packaging. This is a one-time order with no plans to order again.
The purchasing agent finds a suitable manufacturer for you, forwards your request to the manufacturer and places an order. The purchasing agent follows your order until you receive the goods. In exchange, you pay a one-time fee, say $100.00.
|A single, one time fee||You may pay higher prices for the goods|
|The cost is the same for 100 or 100,000 products||There is no push for the agent to provide you with high quality goods.|
Warning: Purchasing agents who provide one-off services seek to maximize short-term profits. It is common to increase product prices for maximum profits. If there is a quality problem with the product, do not expect any after-sales service. After all, you’re not going to make a repeat purchase anyway, right?
Sniping a personal sourcing agent
Some buyers and sourcing agents agree to work together and independently of an established agency.
This is common for some trading company salesmen looking for part-time jobs. They are familiar with the expertise of a particular product category and know the supply chain for that product like the back of their hand. You hire them away from the agency to work for you individually (sniping). Your new personal agent promises to be completely transparent with you.
In this business model, all information is transparent. Your personal purchasing assistant needs to provide the contact details of the factory, forwarder and all their email communications are cc’ed to you. As a buyer, you pay the factory directly. The price you pay is the monthly salary (at least on the surface) of a personal purchasing agent, say $1,500.00.
|Your virtual purchasing assistant is intimately familiar with your product and business.||Bribes from manufacturers are common|
|You get one-to-one full service and all the details in real time.||In the Chinese legal system, this is an illegal act and is not protected by Chinese law.|
The main source of this personal purchasing agent is the trading company. We know a lot of these stories, and know some in the industry who do this.
An actual case scenario:
In 2005, one of my classmates worked in foreign trade company in Shenzhen. Let’s call her Sophia. The client she had at the time was the director of footwear buying for a supermarket chain in a South American country. Let’s call him John.
Sophia was earning about $800.00 a month at the time and had been working for John for over a year. Sophia was in charge of all documentary and shipping work.
One day, John said to Sophia: Hey, Sophia, let me be your boss, and I will pay you $1,000.00 a month directly in the future. Sophia left the job, and she continued to work for John at home.
John visits China, and Sophia accompanies him to visit the shoe factory. At that time, the average ex-factory price of a pair of shoes was $5.00 U.S.
Sophia and the factory agreed that each pair of shoes would receive a rebate of RMB 0.5, which was about $0.07 cents U.S. The rebate amount seems small, but John’s purchase volume is very large, 7-8 standard containers every month.
It didn’t take long for Sophia to use the continuous kickbacks to buy two houses in Shenzhen. Their partnership lasted for many years until political unrest in John’s country.
John is from Venezuela. A country rife with civil unrest and issues.
The story seems like a fairy tale. If John continues to purchase products from the original trading company, he will definitely pay more, and Sophia will lose her steady income. If it weren’t for the political turmoil in Venezuela, it is possible this story would continue.
There are some stories with bad endings, and we won’t go into the specific details of the stories.
Let me ask you a question: what options do you have if something bad happens?
You can speak poorly of the sourcing agent. You can publish your story on the Internet so that people will learn the truth.
But you can’t recover damages or lost money. You have no legal protection.
Here is the hypocrisy: Buyers are doing unethical things (employee poaching) but expect virtual purchasing assistants to have high ethical standards (no kickbacks from suppliers).
Misrepresenting product prices and other costs
Some buying agents offer very attractive commission rates to buyers, like 3%. The agents then raise the manufacturer’s cost.
For example: You buy 1,000 products. The manufacturer charges $10.00 each. The purchasing agent tells you the price is $11.00 each.
The purchasing agent charges you a 3% commission on $11.00. You pay $11,300.00 for your product order (1,000x11x103%).
An honest purchasing agent tells you their commission rate is 5%. They do not raise the manufacturer’s cost like the first buying agent. Now you pay $10,500.00 (1,000x10x105%).
Which is the better deal for you?
Commission based on total purchase order and no other hidden charges
A better Chinese sourcing agent usually charges a reasonable commission rate, usually 5%~10% of the product purchase amount. The commission rate is slightly different according to the professional level of the purchasing agent, the product type, the total order amount and the project duration.
Essentially, you are paying for the sourcing agent’s expertise and connections.
The formula for calculating this fee is:
Purchasing agency fee = Manufacturer’s cost + (Manufacturer’s cost × commission percentage) + shipping costs
Shipping costs vary based on factors such as weight and distance. Therefore, purchasing agents provide prices for these services on a case-by-case basis, rather than including them in the cost of the order.
|High-quality and reliable professional purchasing services||Manufacturer contact details are a trade secret|
How does the commission rate model work for a purchasing agent?
Under the percentage commission fee structure, the sourcing agent will not charge upfront for product sourcing services.
For example, they will help you find suitable suppliers and get quotations for free, and if necessary, they will help you collect samples and send them to the designated place for free.
The sourcing agency does not charge commissions until the customer approves the sample, price quote and places an order.
How to use the commission rate model to select the best purchasing agent?
When choosing a sourcing company, look not only at who charges competitively, but also what services they offer and how they will deliver them. For details, please refer to: What does a sourcing agent do?
Commission billing mode with prerequisites
Some purchasing companies require prerequisites before the quote. The purchasing company charges a percentage of the order amount after order confirmation.
The prerequisite may be an upfront fee or purchase and testing samples.
Why conditions + order amount percentage??
More and more buyers seek quotes from suppliers. The buyers want the lowest quote to save money or do basic market research. Many Chinese manufacturers recognize this and ignore mass emails from buyers.
For sourcing agents, this phenomenon has a downside. It brings in buyers who are not yet ready to import.
There is a layer of isolation and protection between the buyer and the manufacturer. The buyer asks the purchasing agent for a quotation. There is no concern the manufacturer ignoring the request.
Although the purchasing agent quoted a competitive price, the buyer will not place an order for a variety of reasons.
This costs the purchasing agency time and money. The relationship between the manufacturer and the purchasing agency also suffer.
The solution is a system Western managed sourcing companies found. The upfront fee + the percentage model attracts buyers who are 100% committed and serious about ordering products from China.
|Buyers who meet the preconditions can get better service||Not good for beginners doing market research|
Some prejudices about Chinese sourcing agency fees
Prejudice 1: 90% of Chinese sourcing agents will take bribes from manufacturers.
This was true a few years ago. Bribes happened between unregulated purchasing agents and unregulated small and medium-sized manufacturers. China’s purchasing agency industry is now highly regulated and carefully monitored. Many better purchasing agencies post on their websites they do not accept bribes from manufacturers.
Some excellent manufacturers ignore buyers wanting bribes.
There is no fool-proof way to identify a bad agent. Look for buying agents who publically state they do not take bribes. An agent who says this is likely more reliable than one who does not make the same statement.
Prejudice 2: Only Chinese sourcing agents accept bribes from suppliers
Western purchasing agents and quality inspection companies in China tell overseas buyers that hiring them means manufacturers will not bribe Chinese purchasing agents.
If you believe this, you are already fooled.
Many third-party inspection companies ask for bribes from the manufacturer. If the manufacturer does not pay, the inspection company will find fault with the product order, create a failing inspection report and submit to the buyer.
Some western sourcing companies demand more in cash bribes and kickbacks from manufacturers than their Chinese counterparts. The companies threaten the manufacturer unless bribes are paid.
Basically, it is hard to determine who is and who is not honest.
Prejudice 3: Everything in China is cheap or should be free
Some buyers send emails like this: “Hi. Another company quoted me X dollars on my product. I will pay you Y, which is good for Chinese manufacturers. You do not need more money than this.”
We cannot change people who think this way. Sourcing Nova is not interested in the cheapest prices. We are interested in finding the best manufacturer for the best products possible. We are looking for customers with a similar mindset. In other words, customers who do not mind paying more for the best possible quality product.
What is the best purchasing fee?
There is no one-size-fits-all solution. No one model of China sourcing agency fee is better than another.
The answer depends on your specific situation.
Consider: One man’s trash is another man’s treasure. In other words, what works best for one buyer may not work well for you. You need to choose the option that suits you and your business needs.
This is why we wrote this. No matter which method you select, it is important to know the services covered in the fee. Avoid models or agreements that are not upfront with their fees and terms. This will be bad for you down the road.
Which purchasing agency fee is best for you and your needs? Do you know of another purchasing agent charging model?
Let us know. Leave us a message.