Jeff Lewis has been sourcing and developing products in Asia since since the mid-’70s. “It was like the Wild West back then,” he says. “The infrastructure was very sparse. Factories that hadn’t finished building their walls yet would start production.”
China’s manufacturing resources have come a long way in the last few decades, but they can still be confusing for newcomers to navigate. Lewis has helped guide a number of clients through producing everything from toys to electric vehicles to agricultural products, and he says many of these creators come to him after costly, frustrating misadventures. “A number of them go the Alibaba route first. That’s risky. You might be successful, but I’ve mostly heard horror stories.”
The low success rate on Alibaba tends to relate to the platform’s limited capabilities in customization, communication, and planning. In Lewis’s experience, the projects that work are the ones that take a holistic approach, mapping out every stage from the first prototype to contingency-plan retail strategies—but it’s hard to think through all these steps when you’re just starting out. Here, he shares some recommendations and tips for first-time makers.
Prototype fast, with your factory
“Don’t spend too much money on the first version of your prototype. It’s going to need some refinement before you can produce it. Do more of a breadboard approach just to prove the concept and convey what it’s going to look like.
There are resources that are really cost-effective in China—and they’re fast. These companies will also throw a good bit of engineering at the prototype, so you come away with something that you can actually take to a factory and put into production.
But usually I find the factory is the best person to do this prototyping—a lot of the time it’s even included in the price. The better factories will provide higher levels of engineering, especially if it’s very simple and straightforward. Your factory wants to be able to make money on it, so they’ll figure out an efficient way to produce it.”
“The biggest thing I generally see is that people want to buy just a few hundred pieces of something. China is not the place for small volume production. The bare minimum is usually about 5,000 pieces of something—and even that is challenging for a factory.”
Quantity also cuts costs
“An injection mold, which allows you to cast custom products, is the most capital-intensive element to development. It typically costs at least $20,000—and that’s at the low end. If it’s very complex, it can be a lot more than that. It also takes some time: at least 30 days, but often more than 60.
If you want to do fewer units, you’re going to pay more. I try to urge my clients not to expect to make money on the first production run, because you’re going to pay a premium for it. But I typically urge them to base their sell price on what it would be if they were buying it in higher volumes, because everyone’s goal is to grow.
A small limited production to start off shouldn’t make or break you. You’ve got to figure it’s a test market. You’re going to see how much demand you really have for it, and if it’s as great as we think it is, then volumes will go up, your prices will go down, and everyone will be happy.”
Get help on logistics
“I generally recommend that you use a forwarder or a broker for importation and logistics. I recommend a company that does door-to-door—from the factory to your warehouse, fulfillment center, whatever. They clear customs and take all of the pain out of it. You pay a bit of a premium for it, as opposed to doing it by yourself, but there are a lot of pitfalls if you’re not using people with expertise. I use a company called Laufer.”
Find the right price
“Your margin will depend on your distribution model. If you’re trying to sell retail, then you’ve got to figure that everyone’s going to be essentially wanting to double the price. If it’s $20 retail, stores are going to want to pay you $10, and ideally you’re going to want to buy it for four or five dollars.
If you’re going direct to the consumer, you can certainly work on a much higher margin. The main cost to be conscious of in that case is fulfillment. Most people don’t realize that it’s really expensive. Shipping out product is not trivial at all. There are some companies that offer full-service help—Whiplash is a good one—and they make it easier, but there is a real cost to it.”
Put flexibility into your distribution strategy
“I think that a lot of people come into this space thinking, ‘I’m just going to sell it online, on Amazon, and create my own website.’ Then they have a hard time scaling their business and they end up going to retailers. I urge people to plan, from the start, as though you are going to go to retail. You might not; maybe you can achieve the scale you need through digital distribution. But if you don’t, then you need a product that will work on a retail shelf, at retail price.
I had one client who had developed a full line of product and developed just plain mailer packaging, a white box. And they received about 5,000 pieces—it was in their garage at that point. They were selling a couple hundred pieces a week and they decided to put it out to retail, but they had to repack every piece into a retail-suitable package. It wasn’t cheap, and it was really a pain to do.”