How to Minimize Overpricing in Promotional Product Sourcing
Tim works in a promotional product distributor company in Portland, Oregon. A member of a 4-person team, one of Tim’s responsibilities is sourcing promotional products. He mainly purchases on ASI and SAGE. While he has had good experiences with some suppliers, he has come to rely on them more.
Recently, Tim noticed his profit margins were lower than expected. This led him to wonder why some suppliers had higher prices. Could hidden charges, like shipping costs, be the reason? Since most suppliers say they are based in the U.S., Tim thought domestic shipping shouldn’t be that high.
If you have been in a similar situation to Tim, this article is for you. We’ll explore the reasons for overpricing in promotional products and how to minimize it. (Note that not all reasons necessarily apply to your case.)
Table of Contents
What is considered overpricing?
Although there are no hard and fast rules on this, if your supplier constantly charges you more by 10% or more for commonly available promotional items, the supplier is overpricing it.
What is not considered overpricing?
1. Price for Rush orders.
2. Price for large-size and lightweight (puffy) items.
Reasons for Overpricing in Promotional Product Sourcing
The Markup
The promotional product suppliers I have worked for make an average 50% markup on product costs. For a coffee mug with a $2 factory price, the supplier quotes $3 even for large orders. That is a 33% margin for the supplier. Compared to the 40% profit margin for a distributor, the supplier makes a lot of money.
How to minimize the high markup
One way I would recommend is to look at similar products on wholesale platforms like Alibaba.com or Made-in-China.com. You can find hundreds of similar listings. Although the prices vary due to different materials, engineering, production costs, and locations, they give you a reference point for your promotional product sourcing.
Caveat
Avoid suspiciously cheap products or sellers carrying many different categories (in Chinese, we call it a Pu Huo supplier). Most of them have no stock or buy shabby-quality items from overstock dealers.
The Hidden Charges
In addition to the high markup, hidden charges are another cause. For example, it’s not uncommon, especially in overseas promotional product sourcing, to get inflated shipping costs. The exact amount varies by supplier. In one extreme case, a person I know who works at a trading company in Guangzhou, China, shared that she once charged a customer 50% more for shipping.
How to minimize the hidden charges
When you place orders to a supplier in China, you may estimate the actual shipping cost using the following formula. It is just a rule of thumb, as it does not consider the cost of customization and land shipping in China.
Shipping cost = Total price - Reference Alibaba.com price * 1.4
Alternatively, at PingPong Sourcing, we have a free service to estimate actual shipping costs for you. Just fill up this form, and we will send you an estimate by email.
Estimate My Shipping Cost
Another cost-effective sourcing strategy is to ask your supplier to itemize the product cost and shipping cost in the quotes. However, whether they will comply is up to the supplier and depends on the order value. This article explains why.
The Air Shipping Cost
More often than not, suppliers listed on ASI and SAGE platforms are Chinese trading companies. When you place small, urgent orders, their pricing is typically based on international air shipping rates. Compared to sourcing from local suppliers, overseas orders incur higher shipping costs.
How to minimize the shipping cost
Let’s be realistic. If you mostly place small orders, have urgent deadlines, or use many puffy items in your project, it makes more sense to buy locally. It is both cost-effective and benefits the local business, but that’s another subject.
On the other hand, if you aim to minimize your shipping cost for large overseas orders, consider the following strategies:
Ship heavy and puffy items together
Don’t pack power banks, phone holders, and doormats separately. If you can combine orders, we can request the shipping agent to pack them in as few cartons as possible. As a result, you incur lower air shipping costs.
Plan early and get advance orders
Advance orders have numerous benefits.
Firstly, you can combine orders to use the cheaper sea shipping. Typically, seal shipping has a three to four-week lead time and could be 50% cheaper than air shipping.
Secondly, with advance orders, we can work with a shipping agent to optimize the packaging, which could further reduce the shipping cost by 10% to 15%.
TL;DR
It is crucial to your profit margin to source reasonably priced promotional products. If you think a supplier’s price is higher than expected, consider these:
- Is it a rush order?
- Am I purchasing puffy items?
If the answer is yes, the price may be justified.
However, you may watch out for three red flags:
- High markup.
- Hidden charge in shipping costs.
- The supplier listed on ASI or SAGE is a trading company in China or other countries. It quotes free shipping but actually charges you for air shipping.
To minimize overpricing, use wholesale websites to research average prices. You can also estimate the shipping cost with our free Estimate Shipping Cost service.
You can also ask your supplier to itemize the product and shipping costs in their quotes.
To lower your shipping cost, pack heavy and puffy items together. Additionally, aim for advance orders and use sea shipping for significantly lower rates.