The business of importing – calculating the true cost!
go here Are you worried about the cost of due diligence? Is it because you really have no idea about how much it costs and no one has told you how to calculate or plan for it? Let me explain this for you so that you can stop making silly mistakes, taking on bigger and bigger risks!
Firstly, let me start with “ here manufacturing in China can be cheap, but cheap means greater risk”. There are generally two types of risk associated with manufacturing in China which is why due diligence is so important. The first type is when you risk getting the wrong products because you didn’t clearly communicate your instructions, or when the factory has made a mistake. The second type is when you are ripped off by a fraudulent supplier. The first scenario is bad, but can generally be recovered. The second is usually fatal and if it’s a genuine fraud case you have little chance of recovering anything including your pride.
So rather than say ‘what is the cost of protecting yourself from the risks of manufacturing in China’ let me re-phrase this and get you into the habit of saying ‘what is the true cost of importing from China’. You see importing is not just about calculating the unit cost provided by the factory, adding transport and tax and then calculating your margin. Import costs must be calculated to include due diligence – things like inspections, sampling and testing. If you were to buy your goods from a wholesaler at home, they would absorb this due diligence cost and pass it on to you –that’s why it’s more expensive to buy from home. When you import yourself, you are removing this safety net and taking on the risks yourself.
So next time you are calculating your cost to import, consider this – up to 15% (depending on your product of course) should be added to the unit cost provided by the supplier to put towards your own due diligence, ie quality inspection, contracts, checks and compliance related activities. If you order was $100,000 for example, at least $15,000 should go towards due diligence. If your unit costs $1 each, the overall additional cost per unit would be .15 cents. Doesn’t seem like much when you consider it as a per unit cost. This cost effectively gets passed onto your buyer anyway – so what’s the big deal?
Be realistic importers low cost = high risk. The only way to reduce your risk is to protect yourself against it. The only way to do this is to think more like an importer and develop a strategy for business sustainability and growth – not quick profit and early retirement.