What will be the cost of sourcing from China in 2022?

From product manufacturing to packaging and shipping, sourcing products from China incurs significant costs that vary widely depending on the size of the business, needs, and industry. Below is a breakdown of the fees you can expect to pay.

How much does it cost to source products from China?

Sourcing products from China is a long-term, ongoing practice that includes several moving parts:

Preparation work: product design, supplier search, mold development, product certification, sample development, sample delivery, patent

Manufacturing: designing product packaging, manufacturing products, normal raw material loss

Other costs: warehousing costs, inspection of product quality, transportation within China, customs declaration in China, cross-border transportation, customs clearance in the destination country, and transportation within the destination country.

 

1. Product design costs range from $250 per day for freelancers to thousands of dollars in wages for in-house hired personnel, and most Chinese ODM manufacturers offer free product design.
2. Finding suppliers is usually free, especially when you use a B2B platform like alibaba. But you may have to pay for some selected vendor lists.
3. Developing the mold is the most expensive part, easily over $10,000. Most custom plastic products require the development of molds, and the more spare parts, the more expensive the development cost.
4. FDA certification for food contact materials commonly used in product certification is about 300-400 US dollars, and MSDS certification related to air transport batteries requires 3000-4000 US dollars.
5. The cost of developing samples is usually 3 to 10 times more expensive than the cost of mass production. This is mainly because it costs more to produce a single sample than mass production. In most cases the cost of developing samples will be refunded to the customer after the normal order is placed.
6. Patent applications include appearance patents and utility model patents. “Appearance patent” is for the “appearance shape” of the product; “utility model” is for the “structure and function” of the product. The cost is $200-300.
7. Product packaging charges include commercial packaging of a single product, as well as shipping packaging to protect the product from damage. In most cases, manufacturers will include them in the unit price of the product and not show them separately.
8. The cost of producing a manufactured product is the cost that buyers care most about. We try to ensure the use of high-quality raw materials and a complete manufacturing process to prevent manufacturers from cutting corners.
9. Raw material loss and defective products are inevitable wastes in the manufacturing industry. Manufacturers generally do not specify the cost of this part.

 

Sourcing products from China is a must-do and perhaps the only option for e-commerce sellers. This is your investment in the future, and it deserves serious study.

Undoubtedly, applying it to your company comes at a cost, but like any wise investment, it will eventually reward you in terms of ROI, and it will also give you a competitive advantage.

From producing a product idea to final delivery to your designated warehouse, sourcing from China is a full-service process that helps you achieve your business goals and make a profit.

There are so many moves and strategies to consider, and the range of costs within them, that it’s hard to gauge how much you really cost. How much does it cost to source from China?

Unfortunately, as you’d expect, the answer to this question is frustratingly ambiguous: it depends.

Sourcing from China is a long and complex process, especially when the supply chain is deeply affected by the epidemic.

Once you start a plan to source in China, many costs will recur, and even those you didn’t expect will suddenly increase several times over. It depends on the specific type of product you want to source, the industry cluster, whether you source through direct factory or wholesale market, whether you source through a purchasing agent or your in-house purchasing manager, and how quickly you want to see results.

In this article, we’ll break down everything you need to know about sourcing from China in 2022, including:

• Why purchase from China?
• What is the cost of sourcing products from China?
• Cost differences between different procurement options
• The cost of working with a purchasing agency?
• Why we say hiring a purchasing agent is worthwhile?

Let’s start at the top

 

Why buy products from China?

Let’s look at some data showing Made in China

Data Sources: statista

The continued development of China’s manufacturing benefits from the strong leadership of the government, even in March 2022, when the epidemic is raging, China’s manufacturing production increased by 4.40% year-on-year. Source: National Bureau of Statistics of China

In short, we can summarize three reasons:

1. The vast majority of consumer goods in the world can find high-quality manufacturers in China;
2. If this product can be manufactured in developed countries, then the cost of producing the same quality product in China is cheaper;
3. Except for a few original ecological products that are not suitable for industrial production, the quality of products made in China is more reliable than that of countries such as Vietnam.

 

How much does it cost to source products from China?

OK, we’re on to today’s topic.

Since the cost of different products varies greatly, we will provide an average price based on the assumption that you want the highest quality product.

You can go to alibaba, enter the product word, and find a supplier with the lowest price, but it may not be a strong guarantee for you to win the trust of your customers, and it is almost impossible for you to rely on it to gain a competitive advantage – although most buyers prefer to use this type of way to research product prices.

With that in mind, let’s assume you want to source a really competitive quality product and how much you should expect to pay. This article also focuses on the impact of the epidemic on the cost of purchasing products in China and labor costs.

In terms of labor costs, we divide it into the following main areas:

• Time
• Procurement strategy and procurement planning
• Procurement of software and tools
• Supplier resources
• Product development costs
• The cost of applying for a patent
• Product packaging cost
• The cost of the third-party inspection company

 

Time

First, we need to address the time cost issue. Time is invaluable – you will be investing a lot of time in the process.

Alternatively, you can outsource the purchasing process to a purchasing agent, which is a good idea.

You also have to consider the time it takes to start sourcing until the product is delivered.

In fact, it takes several months from generating a product idea to receiving the product. Much depends on your familiarity with the Chinese supply chain. If you are just starting to work on a new product, this process can take quite a while.

That is to say, you are now ready to purchase the product, you may expect to receive the product within 3 months, but in fact the time you need may take half a year.

Overall, sourcing products from China and shipping to your destination country is not the way to go for someone who doesn’t give time. If done incorrectly, you may face the dilemma of running out of stock to sell.

 

Procurement Strategy and Procurement Planning

As with all business activities, successfully sourcing products from China requires a strategic approach. There are many factors to consider when developing a strategy for sourcing products from China, such as:

• Target audience analysis
• Your value proposition and market positioning
• Your product brand identity and message
• Your marketing goals

 

In the U.S., the estimated total compensation for product managers is $119,754 per year, with an average annual salary of $108,178, according to Glassdoor.

Additionally, you will need a purchasing manager to manage supply chain tasks such as:

• Find suppliers
• Negotiate with suppliers
• Sign a product purchase contract
• Follow up the production progress
• Arrange for international cargo transportation

 

In a previous article analyzing the cost-effectiveness of purchasing agents, we already mentioned that the average salary for purchasing managers in California is $5,464 per month.

For small and medium-sized entrepreneurs, these things are done by themselves. The figures we’ve quoted here are for informational purposes only, and it’s important to know that these jobs may cost more if you hire people to do them, but they’re worth every penny.

 

Cost of purchasing software and tools

While sourcing software is not mandatory, it does make the execution and analysis of sourcing products from China easier.

For example, at SourcingNova, we use custom software to manage all procurement projects. It helps us accomplish the following tasks:

1. Help us to generate product requirement documents according to customer’s purchasing needs;
2. We convert quotations from different suppliers into our quotations to ensure that all supplier quotations are made under the same conditions. This helps us compare apples to apples rather than apples to pears;
3. Help us generate custom-format pro forma invoices, purchase orders, packing lists, commercial invoices and booking slips
4. Help us summarize completed tasks and unfinished tasks, which is very useful for us to follow up the order production status.

 

Custom sourcing software is not cheap, and its advantages over Saas sourcing software are clear:

1. Since we often customize and continuously optimize the workflow, the customized software can deeply fit the daily work;
2. There is no monthly rental fee, no matter how the scale of our team expands, it will not increase the cost of software use.

 

You can also use procurement software similar to procurify, and you can expect to spend tens to hundreds of dollars per month, depending on your plan, the size of your business, and the scope of services you need to provide.

 

Supplier resources

Finding suppliers is one of purchasing’s daily tasks, and perhaps the most important. In theory, with the help of B2B platforms like Alibaba, you can get countless supplier resources for free. But this is not always the case, mainly because:

1. The top-ranked suppliers are not necessarily high-quality suppliers, they just pay higher advertising costs;
2. High-quality suppliers may not necessarily join Alibaba, they prefer to promote themselves through professional exhibitions;
3. Top manufacturers will sign confidentiality agreements with customers, and they will not publicly announce that they are the foundries of xxx brands. You can’t find out which factory provides OEM service for your ideal brand through keyword search.

 

In order to obtain better supplier resources, you need to attend many exhibitions and communicate with suppliers face-to-face, or buy supplier catalogues from exhibition organizers. While buyers don’t need to buy tickets to the show, it’s not an easy task to fly to China from your home country. You need to pay for expensive plane tickets and book hotels. Affected by the pandemic, China has closed channels for overseas tourists. Most exhibitions have moved from offline to online. This further increases the difficulty for buyers to find quality suppliers.

 

product development costs

Assuming you’ve done enough market research and product analysis, you know how to improve an existing product. You need to add some ideas and creativity to the old product and sell it under your own brand. You sketch your idea in pencil and submit it to a Chinese manufacturer, and you hope they can produce your dream product based on your idea. Then you find that they are not interested in it.

It’s really frustrating, isn’t it?

 

But if we put on the manufacturer’s shoes, maybe we can see why they are indifferent to your creativity.

 

A creative blueprint that is passionate and inspiring to you is just another scratch paper for them. They receive a lot of different scratch papers every day, and they draw a lot of scratch paper every day—most of which end up in the wastebasket.

For Chinese manufacturers, especially the top ones, scratch paper means nothing. They will neither believe your description of future orders nor take the time to help you grow slowly from a baby. In order for manufacturers to take time out of their hectic routines to take you seriously, you need to appear more mature—at least not like a newborn baby.

 

There are two ways to get manufacturers to take you seriously:

1. Provide 3D Model or 3D Renders

You need to find someone who speaks the same language as you and has good product development skills, and let him/her turn your sketches into 3D designs or renderings.

You need to ensure that every detail is included, and you need to issue a complete development document, indicating your creativity, design philosophy, and usage scenarios.

There are many such industrial designers on freelance platforms, and their fees range from $100 to $500.  The project in the example costs only $250.

 

2. Find 3D printing companies to print prototypes

Although you can find many people to help you print 3D prototypes through platforms like alibaba or fiverr. But we recommend that it’s best to use a Google search for ‘Product Prototyping near me’ to find nearby prototyping companies. This is more conducive to protecting your own intellectual property.

When manufacturers know you have 3D blueprints and product prototypes ready, you’ll find that they take you seriously. For Chinese manufacturers, the more effort and money you put into an order, the more proof you’re a serious buyer. While your competitors are waiting in line with a hand-drawn sketch, you, with 3D blueprints, 3D renderings and 3D printed prototypes, are already at the forefront of the line.

 

Patent application fee

While we can protect our intellectual property by signing non-disclosure agreements with manufacturers, you cannot prevent competitors from copying your product. Unethical competitors buy one of your products on Amazon and send them to other manufacturers. You will find that Alibaba is full of similar products, and soon your competitive advantage will be eroded. You don’t even know who to turn to for help.

 

A sure-fire way to protect your intellectual property is to apply for a patent.

 

For common products, there are mainly two types of patents available: appearance patents and utility model patents.

The “appearance patent” refers to the “appearance shape” of the product, which refers to the new design of the product’s shape, pattern or combination thereof, as well as the combination of color, shape and pattern, which is rich in aesthetics and suitable for industrial application;

“Utility model” refers to the “structure and function” of the product, and refers to a new technical solution suitable for practical use proposed for the shape, structure or combination of the product;

Although there is also a patent for invention, it does not apply to our usage scenario.

 

Why do you need to apply for a patent in China?

If you own a product patent, you can file a complaint with the platform when others plagiarize your product and publish it on e-commerce platforms such as alibaba. You only need to provide your patent number, and the e-commerce platform will remove the products of the infringers and punish them. This can help you reduce the number of competitors.

 

Who can apply for a product patent in China?

Foreigners, foreign enterprises and other foreign organizations who have habitual residence or business offices in China can enjoy national treatment in the protection of patent rights, that is, they have the same right to apply for patents as their own nationals and thus obtain patent protection.

If you do not meet the above conditions, then you need to find a qualified foreigner, or find a Chinese citizen you can trust to apply for a product patent on your behalf.

 

How much does it cost to apply for a Chinese patent?

It is very cheap to apply directly to the patent office, but it is too difficult for ordinary people.

Usually we find a patent agency to apply.

The appearance patent fee is about 150 US dollars, and the utility model patent fee is about 250 US dollars.

 

How long does it take to apply for a Chinese patent?

This depends on the review time of the patent office. The appearance patent cycle is about 4-7 months, and the utility model patent cycle is about 5-10 months.

 

Do I need to come up with a real product to be able to apply for a Chinese patent?

No physical product required. We only need to provide stp source files to apply for a Chinese patent. An STP file is the format (extension) of a 3D graphics file for CAD drawing software, which contains data for three-dimensional objects; provides support for the exchange of product model data.

 

Product packaging cost

Product packaging has many forms, the most classic is the color box. The color box is more helpful to highlight your product brand image. Although most sourcing agents in China claim to help buyers design color boxes for free, I think it’s worth spending a small amount of money to get better results.

For just $20 on Fiverr, you can get a better-than-expected design.

 

The cost of inspecting product quality

For many Amazon sellers, finding a third-party inspection company to check product quality is a significant investment. In theory, it can help you reduce the chance of complaints about your product. But to get the best results, you need to use pre-shipment inspection services wisely.

 

1. As a buyer, you should choose the third-party inspection company yourself, not the inspection company recommended by the supplier. This is mainly to avoid collusion between suppliers and inspectors. Corruption is everywhere. It’s no secret that many inspectors take bribes from sellers as well as fees from buyers.
2. You need to get in touch with them through the official website of the inspection company, and do not trade privately with the inspector. This protects your rights when things go wrong.
3. Provide as detailed a checklist as possible, listing everything you can think of. Don’t be lazy.

 

Warning: Don’t rely too much on third-party inspection companies, this is the last step in controlling product quality. In fact, when the inspection company finds the product quality problem, it is too late. We believe that instead of choosing an inspection company to check the quality of a mediocre supplier, it’s better to spend a little more and choose a better manufacturer. Top manufacturers usually produce products of more reliable quality than mediocre manufacturers, and they are more professional than inspection companies, they have more product knowledge.

 

The service fee of the inspection company is about 100 dollars a day. If you have a large number of products and each product needs to be inspected, then you may need to spend hundreds of dollars. We believe that investing those hundreds of dollars into the manufacturing process of your product (selecting a more technologically advanced manufacturer and using better quality raw materials), rather than hiring someone to check the quality of your product, may end up in your favor.

 

Hire a professional purchasing agent

Since sourcing from China takes a lot of time and effort, and many entrepreneurs don’t have their own in-house teams, they often need to turn to sourcing agents to handle the work for them.

 

Purchasing agents have the following advantages:

1. Familiar with the local supply chain and know the differences between different manufacturers;
2. Have professional talents to efficiently handle the daily work of procurement
3. The cost is lower than hiring an internal professional procurement team

 

The cost of purchasing an agent will vary depending on the task you are trying to accomplish.

 

Purchasing agents charge different rates based on your order amount

It is worth noting that SourcingNova’s billing standard is the manufacturer’s ex-factory price. In theory, it is in the purchasing agent’s interest to raise the manufacturer’s ex-factory price. But we won’t do it. While it is hard to justify why we work in ways that are not in our own interests, if there is one reason we must find an explanation, it is that it is not in line with our values. Deception of any kind makes us feel uncomfortable. We do not want to betray the trust of our customers. Instead of cheating customers to make money, we want to get a sincere thank you from our customers. The success of customers, the smiling faces of customers, and the affirmation of customers make our work full of positive energy. We never tire of it.

 

We always try to choose the best quality manufacturers, because we believe this is the most core factor in the success of sourcing products from China.

A good way to determine if your sourcing from China campaign is successful is to examine your ROI.

 

Suppose you have imported products with a landed cost of $20,000 from a trading company in China in the past. Among them, the production cost is 18,000 US dollars, and the foreign trade company’s profit is 2,000 US dollars. It costs $300 a month to do a pre-shipment inspection. Your past monthly sales were $100,000.

If you choose SourcingNova’s sourcing services, then we will select the top manufacturers in the industry to manufacture your products for you. Better quality raw materials and advanced technology will increase your production costs, causing your product manufacturing costs to rise from $18,000 to $19,000, our service fee of $1,000, and your product landing costs remain the same. But with this manufacturer’s over 99% yield rate, you don’t need to hire a third-party inspection company to check product quality — which could save you $300 a month. Even more notable is that the quality of your current product is far superior to the previous trading company, and your monthly sales are estimated at $110,000.

Now you may be thinking, is hiring a purchasing agent worth it?

Use the following equation to calculate your return on investment from a purchasing agent:
(investment income – investment cost)/investment cost

 

ROI of your purchases from trading companies: ($100000-$20000-$300)/$20300=392.6%

Your ROI for using a purchasing agent: ($110000-$20000)/$20000=450%

Your ROI has increased by 57.4%.

 

As a moderately targeted entrepreneur, you may not have the budget to drastically increase your product sales, but you can bring in more qualified leads by improving product quality and reducing purchasing costs.

 

The cost of sourcing products from China: you get what you put in.

Sourcing agencies in China offer your company the opportunity to improve ROI based on trust and supply chain optimization.

 

Sourcing products from China is not just about finding a factory on Alibaba to produce your products, you need to locate those manufacturers who have the same high demands and expectations for the future as you, not the mediocre ones.

 

Then, sourcing from China is a long-term task. Choosing a quality supplier is even more of a difficult task. Unless you realize that the manufacturer is a great company, you will most likely have a long learning curve and high trial and error costs.

 

Whenever possible, you should focus your energy on what you are good at. For example, research your target customers and solve their problems. You can outsource the parts you are not good at to real experts. So you can be more flexible.

 

The beauty of sourcing from China is that it provides a more level playing field for entrepreneurs of all sizes. If you invest in a professional purchasing agent whose network can reach 1% of the top manufacturers in China, then you have every chance to have quality products comparable to world-class brands.

 

Use SourcingNova to help you achieve your goals. We were born as a third-party logistics company in Shenzhen, and our years of logistics experience have given us access to the top manufacturers in China. They provide OEM services for world-class brands such as Kohler, Philips, 3M, GROHE, etc. You can hardly find these manufacturers on the Internet. If you wish to be a high-end customer, we can provide world-class custom packaging in wooden boxes. Our partner manufacturers provide wooden gift boxes for luxury brands like LV, Cartier, Omega (this is an authorized genuine item, not a replica). These are just some simple examples.

Sourcing directly from the foundries of world-class brands can revolutionize your business. You’ll need to work with a sourcing agent to find foundries for these top-notch brands. To be sure, this is an investment. But if you invest in the right way, it will definitely pay off.