Sourcing Agent : Who are They? How They Work? How They Charge?
Nowadays, sourcing agents /companies play an increasingly important role in managing international supply chains. However, many small businesses still confused about sourcing agents, especially there is ambiguous and outdated information online misleading them. Therefore, I sorted out 8 buyers’ most concerned and confused questions about sourcing agency and gave you the most objective answers.
Let’s dive right in now, and you can click on the question that interest you,
- What is a sourcing agent or sourcing company?
- Sourcing agent VS sourcing company comparison
- Who needs a sourcing agent/ company?
- What services do sourcing agents/companies provide mostly?
- How much do sourcing agents/companies charge?
- What tricks does a bad sourcing agent/company play? Kickback, bribe, etc.
- Where to find sourcing agents/companies for different types of business
- Practical tips to find trustworthy sourcing agents/companies
1. What is a sourcing agent or sourcing company? What do they do?
A sourcing agent is a person or agency that represents a buyer to source commodities, buy products that are out of the buyer’s reach. Sourcing agents/companies are often needed in international trade.
In the traditional sense of the term, a sourcing agent is only to source suppliers for his client. Indeed, the services provided by sourcing agents can include selecting the right supplier, price negotiation, following up production, quality control, product compliance & testing, shipping & logistics.etc.
It’s not said that sourcing agents/companies are due to provide the full range of services. The work scope depends on the agreement/consensus reached by both sides.
2. Sourcing agent VS sourcing company comparison
In the global market, people often take these two words as one meaning. For example, if you want to find someone sourcing for you, you can say – I need a “sourcing agent” or a “sourcing company ”, it doesn’t matter. But actually, these are two different concepts.
1) Sourcing agent
A sourcing agent can be an individual sourcing agent, who can be hired as a full-time agent for you. This individual sourcing agent usually has only one or two people, they usually work at a small office or home office.
Some of them may have several years of experience working in a trading company or sourcing company. These individual sourcing agents can be found on some freelancing platforms (like fiverr, Upwork, etc. ), and a few of them may have also set up their own websites on Google.
2) Sourcing company
Sourcing company, also known as sourcing agency. It is easy to understand, a sourcing company is supported by a team of expert sourcing agents and organized apartments, like sourcing, quality inspecting, warehousing, and shipping systems. They can integrate supplier resources more efficiently and can serve many different buyers at the same time.
Sourcing companies generally locate in industrial clusters. For example, most China sourcing agents/companies are located in Yiwu, Guangzhou, and Shenzhen in China.
Conclusion: Both sourcing agents and sourcing companies are essentially a link between buyers and suppliers, and it’s all about which one you prefer to choose to serve you.
3. Who needs a sourcing agent/ company?
1) People who have no experience in importing
Importing from overseas involves too many complicated aspects, like sourcing right suppliers，following up production，product testing and quality control，and dealing with shipping, etc.
If you have no experience in overseas purchasing, you can find a sourcing agent/company to help you start your first importing journey.
2) People who have multiple product categories to deal with
Selecting 2 reliable suppliers for 1 product may need you to contact 10+ suppliers. Suppose you are looking for 10 products, then you need to contact at least 100 suppliers and verify them. In this case, a sourcing agent/company can not only do the tedious job more efficiently but also consolidate all the goods you required.
3) Large retailers, supermarkets
Is it saying that a large importer with abundant funds and experiences doesn’t need a sourcing agent? Certainly not! Large enterprises also need them in order to manage their supply chains better.
Take the chain supermarkets as an example, they will need to buy thousands of products categories. It is almost impossible for them to go to each factory and purchase every product by themselves.
Retail giants such as Wal-mart and Target are all procured their products by sourcing agents or trading companies.
4) People who deal in special product categories
Besides daily necessities, there are some special product categories such as building materials, chemistry, medicine and so on. Take the Chinese chemistry & medicine industry as an example，it is quite difficult to find suppliers neither at the exhibition or online. So you have to entrust a sourcing agency or trading company who is specialized in the industry to help with your business.
Three advantages of sourcing agents/companies
A reliable sourcing agent/company plays an important role in international trade purchasing.
a. They can find suppliers who offer a competitive price and good quality. A good sourcing agent can help you find capable and reliable manufacturers. Because a good agent/company has accumulated a lot of qualified factories’ resources already that you may not find online.
b. They can improve sourcing efficiency. A local sourcing agent/company can help you overcome barriers of culture and languages. He knows exactly what you want, and negotiate with suppliers about the details of the products, and in turn deliver the message to you in fluent English, which greatly reduces the communication cost.
c. Reduce your risk of importing from overseas. A good sourcing agent/company must be experienced in dealing with product production, quality control, compliance certifications, import and export process rules, and international shipping.
4. What services do sourcing agents provide mostly?
Sourcing service fees vary according to the work scope you order from the agent. So make sure you have made it clear about the service scope and charges before you start cooperation, in case some potential disputes occur. That’s why I cover one chapter to introduce the service of sourcing agent/company services.
Following are the main services most sourcing agent provide:
1) Sourcing product suppliers
It is the basic service of every sourcing agent to verify and select the supplier that meets the requirements of their clients. And they will negotiate with the supplier on behalf of the buyer to get the best price and confirm the details of production.
However, some buyers may be entangled in whether the sourcing agent/company should give the supplier information to them. Some even think the agent is cheating them or making shady money by not giving the supplier information to them.
Let me explain to you here, whether the supplier information is provided to the buyer depends on the service model of the sourcing agent.
Individual sourcing agent
Some individual sourcing agents can be found on Fiverr or Upwork, who are usually paid a fixed salary (by hour/day) or can be paid a fixed commission for one project. This mode of cooperation is just like finding yourself a sourcing assistant in a foreign country.
Essentially, the buyer pays the salary to get the supplier information, so it is the obligation for the agent to provide the supplier’s contacts to his boss–the buyer and the buyers themselves will communicate with the suppliers to negotiate the price.
If it is a sourcing company /agency, they will not give the supplier information directly to the buyer. The following are the two core reasons.
Firstly, these quality suppliers are their accumulated resources (including those can’t be found on B2B websites), which is why you can get a competitive price from the sourcing company.
Secondly, they charge their service fees by a certain percentage of the total value of goods, that is to say, this is their profit model. (I will discuss the sourcing agent/company charge methods further in question 5 later).
Although they are not telling the buyer the factory contact information, they are willing to take the buyer to visit the factory and let the buyer have a certain understanding of the production ability of the factory. But this usually happens with larger orders. If the buyers order small value like $1,000 shoes or $1,000 hats, they are less likely to take buyers to visit the factory overseas.
2) Follow-up production, inspect the quality and arrange shipment
After finding a suitable supplier, it’s time to arrange the production of goods. Sourcing agents/companies will help coordinate with the factory, monitoring the whole production process and make sure the factory finishes the production on time and the goods are in fine quality.
They will also provide a quality inspection service. They will cooperate with the quality inspection company to inspect the finished products and minimize the defective rate before shipment.
Then comes the last step– shipping arrangement, which requires a high level of expertise. Because apart from a bargain for the most competitive shipping prices, they will also need to inform you what documents and product certificates you should prepare for the custom.
These services are also available by most sourcing agents/companies. You can choose any part of their services based on your own situation.
3) Other services
In addition to the mainstream services mentioned above, some large professional sourcing companies also offer private label solutions, including but not limited to the following aspects:
- Customize the product
- Customize packaging/labels
- Free product photography for eCommerce
In a word, there are good as well as bad sourcing agents in this industry. This leads to the result that many buyers afraid to try the sourcing service. Therefore, it is important to find a reliable sourcing agent for long-term cooperation and a stable supply chain.
5. How does sourcing agent or sourcing company charge?
Do you know this is an interesting question-how does a sourcing agent charge? There is no specific charge standard as there are thousands of sourcing companies and individual sourcing agents around the world. The sourcing agent fees vary greatly according to the service scope, the cooperation methods, the product category, and the amount of the order.
Many purchasing agents/companies attract customers with low service fees even free service for trial order, but the buyer will finally find that the overall procurement cost (product cost + shipping cost + time cost) is not low at all. And the buyer may receive unsatisfying goods even the agent declaim they did the quality inspection.
To give a general idea about the sourcing service fees, I introduced 4 common charging methods of sourcing agents in the following.
1) Fixed salary for each project or a certain period
Many individual sourcing agents charge a fixed salary for each product or a certain period (week/month). They usually charge less than $50 for each product. Pretty cheap, right? And you can talk to your suppliers about your products and build a business relationship directly. The disadvantage is that these agents are usually not professional, and the suppliers they find are usually not the most cost-effective ones.
Some experienced buyers prefer to hire an individual full-time sourcing agent for weeks or months, to do some simple sourcing work like finding suppliers, translating and communicating with the suppliers. If you want to import from China, you can hire a full-time China buying agent around $800 a month to work only for you.
2) No extra charge but gain from the price difference
Many individual sourcing agents or sourcing companies use this charge method. Usually in this situation, the sourcing agent can provide good suppliers with more competitive prices or better product quality, which is impossible for the buyer to find these suppliers through normal channels, like some B2B websites.
In turn, if the buyers could find their competitive prices on their own, they would never consider such sourcing agents.
3) Percentage service fee based on product value
Charging for a certain percentage of the whole order value is the most common method among sourcing agents or companies. Why？Because usually they provide other services like follow-up the production, quality control, shipping arrangement，consolidation and so on. So, they will charge a certain percentage of the value of the goods as the service fee.
In China, the common service charge is around 5-10% of the total order value. Another point, the product categories and the size of the order also greatly affect this percentage. For example, if the order is for some products with high price competition and high demand like rolled steel, or the value of the order is over $50 0,000, the service charge maybe about 3% of the order value or maybe less.
Usually few sourcing companies willing to accept service fees less than 5 % for the daily consumer products. It does exist some sourcing companies may try to attract you with 3% or less service fees, but you’ll end up finding that products prices are much higher than most online suppliers(like Alibaba suppliers). Or you can be delivered with poor quality goods even you get the perfect sample at the beginning.
Takeaway: No matter what the charging method is, you should evaluate whether the agent can reduce the overall procurement cost, improve the sourcing efficiency and ensure the quality of goods and so on.
6. What tricks does bad sourcing agent play? Kickback, bribe, etc.
Now finally to the part that everyone CARES about. You may have heard a lot about the dark side of sourcing agent/company, such as accept kickback or bribe from the supplier, which make the buyers are afraid to use the sourcing agent. I will now reveal the common sourcing agent tricks in the following.
Kickback and bribe from suppliers
First of all, kickback or bribe happens to either individual sourcing agent or sourcing company. If the buyer and sourcing agent/company have agreed on product price and supplier information transparency at the beginning of cooperation, the agent still asks the supplier for a kickback, it becomes illegal/unethical acts.
For example, suppose now you get two equal prices from supplier A and supplier B, if the B supplier offer kickback to the sourcing agent, then the agent is likely to choose the B no matter if the product quality from B is good or not. If your sourcing agent accepts kickback, you may end up with the following situations:
- The goods you received are not to meet your quality requirements, or product that is in non-compliance with the certification requirements in your market and thus illegal to import and sell.
- If there is a dispute over product quality, your sourcing agent will not stand on your side or try to defend your interests for you, but more likely to excuse the supplier for various reasons.
Objectively speaking, kickback usually happens in large orders with tens of thousands of dollars. For small orders with thousands of dollars, most sourcing agents will not bother to get involved in kickback or the bribe.
The kickback phenomenon is much less now compared with 4-5 years ago, especially in the daily products industry. Because the buyers can find suppliers directly through many channels, such as B2B websites like Alibaba, Made in China, etc. They can make a comprehensive comparison on their own, and then weigh if the product price and service commission provided by the sourcing agent is reasonable.
So, a good sourcing agent/company plays an important role in your supply chain management. In addition to helping you to obtain competitive product prices, they also devote to take care of the follow-up processes, because the good service is the core competitiveness of their business model. As to some individual sourcing agents who might do a one-time business, I can’t guarantee the service quality.
8. Practical tips to find reliable sourcing agent or sourcing company
Tip 1: Choose Chinese sourcing agent VS sourcing agent based in other countries（USA, UK, India, etc.）
As China is the largest consumer goods exporting country, Chinese sourcing agents account for a majority of the world’s agents. So I will divide sourcing agents into two types, China sourcing agents, and non-Chinese sourcing agents. What’re the differences between them? Which one to choose? Let’s see the pros and cons of them separately.
The pros and cons of Non-Chinese sourcing agents
How do the sourcing agents based in other countries operate? Generally, they are natives of a certain country and help buyers in their own country purchase from other Asian or Southeast Asian countries, such as China, Vietnam, India, Malaysia, etc.
They usually have their own offices in both the purchasing country and their own country. The team usually has several people, they mainly service for some large buyers.
If you are in the USA, choose a local sourcing agent and you don’t have to worry about language and culture barriers between you and the sourcing agent, the communication efficiency is improved.
If you purchase a large order, you can consider finding a sourcing agent in your own country. However, they are not very friendly to some small businesses, because their service commissions or their own profit is high.
The pros and cons of China sourcing agents
Compared with Non-Chinese sourcing agents, obviously service commission or profit of China sourcing agents is much lower. Besides, they have more professional sourcing teams and richer Chinese supplier resources than non-Chinese sourcing agents.
However, they might be unable to communicate with you as smooth as your native agents due to language differences. In addition, the Chinese sourcing industry mixed with good and bad agents, which makes it hard to distinguish the good ones.
Tip 2: Choose the sourcing agents specialized in a certain item
If you want to import a lot of different types of daily consumer products, choose a sourcing company that has already sourced a lot of daily consumer goods for previous buyers.
If you specialize in importing certain industrial products, then find the sourcing agent specialized in this industry like building materials, medical products. Because these sourcing agents must have accumulated a lot of good suppliers in this industry and can give you sound purchasing and production advice.
Tip 3: Choose the sourcing agent located close to the industry cluster
Each country has its own industrial clusters, which are groups of similar and related firms in a defined geographic area.
For example, if you want to purchase daily commodities from China, the sourcing agent of Yiwu is a good choice. And for clothes, the sourcing agent in Guangzhou will have more advantages.
Locating close to the industry cluster is convenient to contact with factories and reduce intermediate costs, like freight cost, quality supervision fees and so on. For example, If you want to purchase electronic products, the sourcing agents in Yiwu will not have better price advantage than the sourcing agent in Shenzhen.
If you want to source products from China, here is a table of industrial clusters for some industry categories in China for your reference.
Tip 4: Ask the sourcing agent/company if he can provide happy clients’ referrals
A good sourcing agent that provides value would have a lot of happy customers, and they will be happy and proud to provide you the happy customer contacts. So you can check out what the sourcing agent most good at-are they good at finding the best price or inspecting the product? Can they provide a good service?
Tip 5: Choose the sourcing agent with longer sourcing experience
Sourcing experience is a vital factor you should take into consideration. An individual agent who works as an agent for 10 years can be much more resourceful and more reliable than a sourcing company that only established only several months.
The number of years he has been in business is proof of his track record. This means he has continuously provided his clients with a good quality business. Other than being knowledgeable in choosing suppliers he should also be extremely capable in the areas of quality control, logistics and audit.
If you have any other questions, please feel free to contact us.
Qindao Kailipu Electromechanical Co.,Ltd
Factory：Xishanqian Industrial Park, Jimo, Qingdao, China
Office：No.89 Changcheng Road, Qingdao, China
E-mail: [email protected]