Suggestion: Watch the 10 minute video tutorial before reading this article
Calculating profit margins directly on a unit price is not a wise decision. When importing from China, there are many costs to take into consideration, and I’m not only referring to shipping and import duties. Buying products from Chinese manufacturers is much like flying with a budget airline. No extras included. You get what you pay for. They provide machinery, labor and (hopefully) manufacturing expertise. You provide the rest, including things that a buyer would normally take for granted.
Need a customized component or material substance analysis? That’s on you, not the supplier. Businesses importing from China must manage, or pay someone to manage, critical parts of the supply chain, including product development, quality inspections, tooling and laboratory testing. In this article we explain what costs you need to keep track of, when buying from Chinese suppliers.
#1: Tooling costs
Injection molds are used when manufacturing a wide range of consumer and industrial products. Chinese suppliers do keep molds in storage, often financed by previous buyers. When buying factory designed products, the buyer is usually not expected to pay for the injection mold. However, when manufacturing customized products, the buyer is expected to pay for the necessary tooling.
In many countries, the tooling cost is also part of the customs value, thus resulting in increased import duties and other taxes (e.g. VAT if you’re based in the European Union). If you’re on a small budget, stick to factory components whenever possible.
#2: Product samples
Buying wholesale products in China is rarely an option, especially for importers base in the United States, Canada, Europe and Australia. Instead, product samples serve as demonstrators of suppliers’ manufacturing capabilities. Many suppliers hand out factory samples for free, but custom designed and branded samples almost always comes at a cost.
#3: Procurement and product development services
Selecting a random supplier online, without any prior knowledge about supplier sourcing in China, is likely to result in disaster. That being said, in order to know what to look for in a supplier, you need to confirm which product safety and labeling regulations apply to your product.
But that’s not all. Different suppliers manufacture products of different quality standards, using different materials and components. At a minimum, you need to draft a product specification. If you plan to have a custom designed product manufactured, you need to create even more material, such as design drafts and prototypes. Never rely on a supplier to take care of product development for you.
What I just described was only for starters. After drafting a product specification and researching legal product requirements, you need to find reliable suppliers capable of manufacturing a product according to these. Keep in mind that the vast majority of manufacturers in China are NOT able to comply with foreign standards. That’s why many importing businesses choose to hire sourcing agents, rather than making a supplier selection on their own.
Nothing of this is free. The costs depend entirely on the complexity of your product, and how much of the procurement and product development process you are able, and have time, to manage on your own.
Chinaimportal.com offers this kind of service for an affordable price. Click here to find out about our “Starter Package”.
#4: Social Compliance Audits
Child Labor and horrible working conditions went out of fashion about a hundred years ago. In this time and age, consumers do care about social compliance. However, so far, social compliance is not part of any legal directive, such as CE or RoHS.
That being said, small businesses can improve their image and brand by showing that their suppliers are able to pass a social compliance audit. Retailers (potential buyers) care too, considering they are put under more media scrutiny than smaller businesses. What’s more, a social compliance audit is not expensive these days. The price is about the same as an iPad. It’s a very cost efficient brand investment, and I’ll think we’ll see more small to medium sized businesses using such services in the near future.
Cost: Starting from US$609 at Asiainspection.com
#5: Quality Inspections
By the time your cargo is shipped from China, you really need to be sure that the items are compliant with your product specifications and quality requirements. The only way to do that is by inspecting the items prior to the shipment. You can either do it yourself, or hire a quality inspector based in China. What you shouldn’t do, however, is to schedule quality inspections until after delivery. By then it’s already too late to send defective units back to the assembly lines.
A quality inspection is well worth the investment. Manufacturing is not a science. It’s not a matter of whether or not there will be defective and damaged units – that is certain. The question is how big a percentage, and how severe the defects will be. You can live with 1.8% of the units coming out of the assembly lines with minor cosmetic defects, but your business will go under if you receive a batch made of cheap, substandard and potentially toxic materials.
It happens. Sometimes quality issues occur due to misunderstandings between the buyer and supplier. Sometimes because the supplier decided to use cheap and substandard materials, without telling the buyer. A quality inspection is the only way to uncover noncompliance while there’s still time to do something about it.
Cost: Starting from US$299 at Sofeast.com
#6: Laboratory testing
While a quality inspector can test functions, check weight, dimensions other physical properties, he or she cannot analyze product chemical and substance content, while in the supplier’s factory (however, thanks to this recent development, substance analysis on the site is soon to become reality). In order to verify that your product is compliant with legal acts and directives regulating substances, such as REACH, RoHS and FHSA, a sample must be sent to a laboratory. In fact, third party testing is sometimes mandatory, especially when importing toys and other children’s products.
Cost: Starting from US$10 per component to several thousands of dollars, for more complex testing procedures. The laboratory fees are based on the number of different products and standards, each item is required to be in compliance with.
#7: Shipping costs
Getting your products from the factory floor to your warehouse involves a myriad of costs. Below follows a short list of shipping costs:
- Delivery to port of loading (in China)
- Export clearance
- Freight charges (port to port)
- Document delivery (Bill of lading, packing list and commercial invoice)
- Local charges in port of destination (unloading and administration)
- Inland transportation
Shipping costs are based on Incoterms. This means that a supplier can quote a product, including freight to the port of loading in China, to the port of destination in your home country (with or without local port charges) or including delivery to a specific location in your country – for example your front door. Click here to read more about Incoterms when shipping from China.
Cost: Based on the cargo volume when shipping by sea, and both the weight and volume when delivered by air.
#8: Import Duties and Other Taxes
Imports from China are in most cases subject to import duties. Tariffs vary between different products and markets. So does also the customs value, of which customs duties and other taxes are calculated.
Ready to import and launch your own product?
We know how hard it can be to go from an idea, to a mass produced and profitable product. The Starter Package is the only all-in-one solution that includes everything you need to get through every step of the process:
a. Private Label & OEM Product Manufacturer Lists
b. Product Specification Templates
c. Product Label Samples
d. Compliance Document Samples
e. Tutorials, Video Walkthroughs and Task Lists that guide you step-by-step through the entire process
In addition, you can also book quality inspections, lab testing and shipping directly from the platform. Click here to learn more.