By Rom Meir
Your business idea is finally taking form. You thought of a great product to sell in your online store, and you’re ready to get started. But how do you actually manufacture your product?
Making the transition from idea to physical product isn’t necessarily quick. Finding the right product manufacturer, in today’s global economy, requires a lot of research. This is where many entrepreneurs lose traction and give up on their business idea, but we’re here to help.
This article will cover exactly how to manufacture a product, as well as how to ensure they’ll produce high-quality items that’ll allow for maximum profitability.
Understand What You’re Looking For
Before you start searching for product manufacturers, you should have a clear mockup of the item you want to sell. You’ll need a fully formed idea of what your product is and know exactly how it’ll look and function.
If possible, your product should already be designed or even have a prototype. A proper design would include the materials, dimensions and functionality you envision. If you’re not sure how to approach this, you can always hire a designer or engineer to help you flesh out your idea.
Approaching manufacturers without a thought-out design could lead to manufacturing flawed products and eventually losing money.
Domestic Vs. Overseas Manufacturers
One of the first decisions you’ll face when producing your product is whether to manufacture locally in the United States or abroad.
Manufacturing abroad typically refers to Asian countries, such as China or India. This is due to the relatively low manufacturing costs in these regions. Low-cost manufacturing isn’t exclusive to Asia though. Savvy entrepreneurs can find affordable international manufacturers in Latin America, Eastern Europe or Africa as well.
Your type of product can also affect your manufacturing location options. Certain products may be easier and cheaper to produce in certain regions, depending on source raw materials, expertise, etc.
But there’s many considerations to take into account when deciding on domestic or overseas manufacturing. Both options of potential manufacturers have their pros and cons:
Overseas Manufacturing
Pros:
Low manufacturing costs
Large number of manufacturers to choose from
Cons:
Products may be lower quality and harder to verify beforehand
Language, time zone and cultural barriers affect communication
Difficult and expensive to visit manufacturing site
Shipping may be more expensive and take longer
Less security and legal recourse regarding payments and intellectual property
Importation and customs laws can be tricky
Lower labor, ethical and environmental standards
Less overall oversight
Domestic Manufacturing
Pros:
Higher quality of manufacturing
Easier to communicate
On-site visits can be done more frequently
Manufacturers can be easily verified
Cheaper and faster shipping
Improved labor, ethical and environmental standards
Greater security regarding payments and intellectual property
Locally manufactured products have an increased marketing appeal
Cons:
Manufacturing costs are often higher
Fewer manufacturers to choose from
Limited product options (Some products aren’t manufactured at all in North America)
Types of Suppliers
To avoid confusion, it’s worth mentioning that not all suppliers are manufacturers, though they’re often grouped together. This is especially true when searching for overseas manufacturing. Let’s break down some of the most common terms to make sure we’re on the same page:
Factories
Factories are where products are actually made and are what you’re most likely searching for.
By dealing with a factory directly, you can get the lowest manufacturing price. However, the drawback is that it’s often harder to communicate and close deals with factories overseas where the potential for profitability is highest.
Wholesalers
Wholesalers don’t manufacture products. They just buy and sell products in bulk.
Dealing with a wholesaler instead of a factory has several advantages. The most important is that you’ll likely be able to deal with a domestic company, making communication much simpler. They may also have local warehousing, so shipping may be faster and cheaper.
Working with a local wholesaler can add some security to your venture. Rather than communicating with a factory owner in China, you may be able to deal with Western companies. If anything goes wrong, your legal recourse is greater as well.
The downsides of wholesale are also substantial. The price per unit is bound to be higher because the wholesaler will undoubtedly take a cut.
Possibly the biggest downside of working with wholesalers, is that the products are preexisting. If you want to create a new product that’s unlike any already on the market, you’ll need to find a factory.
Trading companies
Trading companies are similar to wholesalers, but typically deal in smaller quantities and a larger variety of products. This is their greatest advantage.
Like wholesalers, these are middlemen, which drives up your price per unit. The biggest downside, however, is the lack of responsibility these companies carry. Often, trading companies won’t be responsible for defective products. You likely won’t know who the actual manufacturer is in this case either, reducing your overall security.
How to Find Manufacturers for Your Product
Once you’ve decided whether you want to manufacture your product nearby or abroad, it’s time to actually find a manufacturer. There are five main ways to research this:
Online Manufacturer Directories
Referrals
Search by NAICS Code
Forums and Social Media
Google
01. Online manufacturer directories
One of the easiest ways to find a factory to manufacture your product is through online supplier directories. The top directories offer thousands of manufacturer profiles you can browse and choose from.
Manufacturers found in these directories are often vetted and reviewed. This can give you some additional assurance that your supplier is legitimate.
While some directories focus solely on domestic manufacturing, which will help you find a manufacturing company near you, others include a wide range of international suppliers. Many directories also let you filter your search by regions.
Domestic directories:
Overseas directories:
02. Referrals
Getting the right referral can set you on the right path immediately. If you have any connections in the field or someone in your professional network that may have some insight, don’t be afraid to approach them for recommendations of potential partners.
If you lack the right connections, you can initiate conversations with other professionals on Linkedin.
Even manufacturers you speak to but don’t offer quite the service you need may be able to refer you to others. Don’t be afraid to ask.
03. Search by NAICS code
Another way to find a manufacturer for your product is by identifying a similar product that’s on the market and then finding the manufacturer who created it. You can do this by using the already-made product’s NAICS code.
The NAICS, or the North American Industry Classification System, is the federal standard for business classification. The purpose of NAICS is to collect, analyze and publish statistical data related to the U.S. business economy.
Almost every product in the U.S. has a NAICS code. As an entrepreneur, you can use the NAICS directory to look up any product, or simply Google the NAICS code.
With this method, you may be able to find the manufacturers of products you already know, ensuring the quality and professionalism beforehand. You can then reach out to these manufacturers and request a quote for the product you’re looking to create.
04. Forums and social media
Forums are a great way to find information in your niche. You can use search engines to find forums that discuss the type of product you’re seeking to manufacture.
An active forum is a great resource. You may be able to find threads discussing manufacturers, or you can start one yourself. Though not all experts are keen on sharing their knowledge, many are willing to help out a newcomer. The r/startups subreddit or The Manufacturer Community are good places to start.
The same is true for social media. For example, you can look up Facebook or LinkedIn groups dedicated to the type of product you’re looking to manufacture, or even groups dedicated to sourcing products.
Forums and social media aren’t as straightforward as online supplier directories, but may provide you some unexpected gems.
05. Google
Of course, anything can be found with a Google search these days.
Finding good manufacturers may be a little more difficult, though. Many factories, especially overseas, will have outdated websites that aren’t optimized for search engines, making them harder to find with Google’s algorithm.
When googling, try to use different search phrases, such as “manufacturer”, “supplier” or “factory”, in combination with the name of your product or its source materials.
Verify Your Manufacturer’s Quality
One of the biggest apprehensions small business owners have, especially when manufacturing a product for the first time, is the credibility of the factory and the quality of the final product. This is entirely understandable, as working with an unprofessional manufacturer can be extremely detrimental to your business.
Once you’ve come up with a shortlist of suppliers, it’s time to verify their credibility to ensure that you're in for some good manufacturing. Make sure to properly vet each and every option before making a decision. Any red flag should likely disqualify the manufacturer.
Check with the Better Business Bureau
The Better Business Bureau (BBB) is an organization set up to ensure trust between buyers and sellers. Any scam or mistreatment in the marketplace is usually reported to the BBB.
You can use their website to look up any business and see their rating and accreditation, customer reviews and customer complaints.
As the BBB only operates in North America, manufacturers outside of the U.S., Canada or Mexico must be vetted elsewhere.
Read reviews
Reviews are always a great way to find out the reputation of a business place, but they’re not always available or easy to find.
You can start by looking up the supplier in different directories. The BBB is the main one in North America, but other countries often have similar organizations. Using Google Translate may help navigate foreign websites.
The factory’s website may also have reviews. They’re likely to be only positive, but you may be able to find and reach out to other customers of theirs to personally inquire about their experience.
Last, but not least, look up the manufacturer on social media. You may be able to find reviews or even random posts that can shine extra light on the supplier.
Inquire about experience with your type of product
After doing your online research, it’s time to approach manufacturers.
First, you’ll want to ensure that they can actually manufacture your product. Inquire about their experience with similar products and make sure they understand your needs.
Your potential suppliers may be able to refer you to satisfied customers of theirs. Don’t be shy when it comes to asking questions and speak to as many people as possible to get the best idea of what the manufacturer is capable of.
Request a copy of the manufacturer’s business license
Requesting a copy of your manufacturer’s business license will give you a few vital pieces of information:
You’ll be able to ensure that they’re a legitimate business with proper credentials. This may sound extreme, but is especially crucial overseas.
Most business licenses include a scope of operation. This is a range of activities the business is legally allowed to participate in.
A business license will include additional information on the manufacturer, such as a license number. You can use this info to do some more in-depth online research.
Ask for product samples
Even after deciding on a reputable manufacturer, you’ll want to ensure the quality of the product before you go ahead and make an order. Request a product sample.
There are often misunderstandings when it comes to the actual manufacturing process. Your product design may be incomplete or the factory may take certain liberties on design decisions.
You’re better off discovering these problems with a sample, rather than a full batch of product meant for sale.
Request a Quote
After landing on a few manufacturers, it’s time to request formal quotes.
There are a few vital pieces of information you need to make sure you receive:
Minimum order quantity
Price per unit
Turnaround time
Payment terms
Minimum order quantity
You may be thinking that the most important thing is the price of manufacturing. In fact, it’s often much more critical to find out the minimum order quantity.
This number varies from manufacturer to manufacturer and you may find some factories’ minimum order to be too large scale for you.
Make sure you can handle the minimal quantity or move on to other suppliers.
Price per unit
The price per unit is extremely important. This is the basis of your expenses and it has a huge effect on your profit margins.
Make sure to inquire about prices for different order sizes as well. Ordering 100 units and ordering 10,000 units will likely result in wildly different prices. You'll need to manufacture your products in the most cost effective way possible.
Turnaround time
The turnaround time is the time it takes to manufacture your order. Make sure to ask about the duration for different bulk sizes as well. Knowing this will help you better manage your inventory for seasonal shifts in the market.
Payment terms
When making large orders, the terms of your payment can have an impact on your decision.
Often, you’ll only start generating income after your products have arrived. Some manufacturers may allow you to pay in increments, while others may require full payment upfront.
Make sure to know how you’ll be paying before making an order.
Maintain Your Profitability
This may seem obvious, but you need to ensure your business remains profitable after all is said and done. The best way to do that is to crunch some numbers before you choose your manufacturer.
Here are five calculations you should make before partnering with a manufacturer:
01. Compare Quotes
To get the best deal, you should request quotes from several manufacturers. This will help you make the right decision and ensure you don’t get overcharged.
A quote much lower than the rest might also raise a red flag. Make sure it’s not a misunderstanding or a product of different quality.
02. Calculate Manufacturing and Shipping Costs
The last thing you want is to create a product, manufacture it and market it, only to discover you’re losing money.
Make sure to calculate every single cost associated with the manufacturing process. Take into consideration extra costs like shipping and handling, insurance and customs tax.
03. Find Your Product’s Market Price and Determine Your Quantities
Ensuring you don’t operate at a loss includes calculating your potential income.
Do your market research on the product you plan to manufacture. Find out the average market price and gauge the amount of units you’ll be able to sell.
It’s always a good idea to research your competition and target audience as well, preferably before entering into a new business venture.
04. Consider Dropshipping
A good way to cut costs and increase your profits is by using dropshipping.
Finding a manufacturer that dropships means they’ll take care of storage, fulfillment, and shipping for you. This is especially useful for new businesses. Dropshipping lets you start out with less overhead and investment because you won’t need to worry about storage space or a distribution plan.
You can find manufacturers that offer these services, as well as products to dropship, on platforms like Modalyst.
New to dropshipping? Check out our dropshipping guide to set up your business.
05. Calculate Your Profit Margins
Once you’ve determined your costs and your potential revenue, you can calculate your profit margin.
The profit margin is the percentage remaining from your revenue after deducting all costs, for a unit of your product.
Here’s the formula to calculate your profit margin:
[ (Selling price – Cost per unit) / Selling price ] * 100
For example, if your selling price is $50 and your total cost per unit is $20. Your profit margin would be:
($50-$20) / $50 = 0.6 or 60%
Your profit margin represents how much of your sales income translates to profit. It’s a common metric used to evaluate the financial health of a business as well. A higher profit margin means more profit and less risk.
Calculating your profit margin is a simple way to assess your profits. If you take all of your expenses into consideration, it should help ensure you keep a positive bottom line.
Extra Tips
How to approach product manufacturers
Approaching a manufacturer can be daunting if you’ve never done it. It’s also not uncommon for a supplier to provide a generic response, or none at all.
To make sure the factory you’re contacting takes you seriously, you should be as professional as possible. Let them understand you mean business. You can do this by having an already-made professional eCommerce website you can direct them to.
Your email should be focused. Describe the product you want to manufacture, including materials and dimensions.
Afterwards, make your request simple and understandable. Ask for pricing for several different quantities that are relevant to your business. Don’t ask for quotes for batches so small that they wouldn’t warrant their time, or too large for you to handle on your end.
Don’t hesitate to negotiate
New entrepreneurs find it hard to negotiate with suppliers and manufacturers.
If you’re executing a business idea and manufacturing a product, bear in mind that negotiating is acceptable. You shouldn’t settle blindly on the quotes you receive, you may get a better deal if you insist.
Ready to start your business? Create your online store today!
Rom Meir
eCommerce Blogger
Rom is a writer and content creator, who specializes in eCommerce, sustainability and agriculture.
Image Credits
Article By: Rom Meir - eCommerce Blogger
Rom is a writer and content creator, who specializes in eCommerce, sustainability and agriculture.
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