China Sourcing Agent Fees: Commission Based or Fixed Cost?

Many companies tend to use China procurement agents while it comes to import from China. Knowing China sourcing agent fee structure is definitely beneficial to nurture a healthy and long-term relationship with your China purchasing agent or if you are looking for sourcing agent in china. In a nutshell, there isn’t any set standard for what exactly a China product sourcing agent should follow. Mainly it can be classified into two types: commission based or fixed cost.

  1. Commission-based

Some China procurement agencies would charge certain percents of the total buying amount as service fee. However, be careful of those sourcing agents in China that offer free service or charge as low as 1-3%. If something seems too good to be true, it is. While most businesses are making 20-30% of profit margin, how can a business survive with such tiny fee? They would be taking from somewhere else like kickbacks from suppliers.

Many foreign sourcing agents in China or quality inspection companies in China would accuse that only Chinese buying agents would get kickbacks from suppliers even some would get as high as 10-30%. That’s not true. Lots of foreign buying agents in China, buying agents in Hongkong have been tempted to do the same too. That’s the business environment in China: unfair competition.

Some cases for example.

When I was visiting an LED factory in Guzhen with my UK customers, the China LED supplier would secretly asked me how many percents of commission do I need. While I told her I didn’t need any commission she was shocked and told me the last buying agency in China asked them to add 20%.

I wouldn’t discard my working ethnics for black commissions as my customers were also very nice and I was paid reasonably.

Nevertheless, there’re lots of times I met some shaddy customers who thought everything was cheap or even free in China. They would say, before contacting you, another company offered me service fee of just 2% of total buying amount, so I’ll give you 2.5% that’s already very high in China. It couldn’t be that much in China. Sometimes the distance between different factories was quite far even hundreds of kilometers they wouldn’t care how much time and transportation fee it would cost. It’s included in the 2.5%. My God. They were only buying several thousand dollars not as what was told several hundred thousand.

What’s worse, the dishonesty of Chinese suppliers especially in delivery time, production, etc..made the situation worse. Lots of factories were located quite out of town hard to find the locations unless they pick you up at some major points. I’ve met countless of Chinese suppliers as we confirmed meeting time several times then they would turn up an hour late or even longer. And when I arrived in the factory, the goods were not ready or packed as I was told or they were just starting to pack so I had to waste at least several hours or even longer.

I don’t want to put my hands in the game of black commissions and eventually I cut off all those customers.

  1. Fixed Cost

There are also some other China sourcing companies that would charge fixed costs usually a much expensive upfront payment for some services as followed.

*Sourcing products.

*Verifying whether the suppliers are manufacturers or trading companies. Supply qualification, product certification…etc.

*Quality inspections.

*Shipping&logistics.

Some procurement agents in China would list clearly how many products would be sourced in an upfront payment since the workload is completely different sourcing 10 suppliers in a total amount of $100,000 and sourcing 1 supplier of the same amount. Placing OEM orders that require lots of works including prototyping, sample shipping, confirming is miles apart from buying stocks directly from China wholesale markets or China factories.

As to verifying supplier certifications, it’s better to provide detailed information as to where the suppliers are located coz the transportation fee and time can vary quite differently.

Experienced China buying offices or China buying representatives usually have their own standards for quality inspection. While it comes to shipping and logistics, most sourcing offices in China have cooperated forwarders, however, it’s suggested to use a local forwarder in your own country that knows the tax, vat, customer declaration and also have a presence in China.

Comparison of Commission Based and Fixed Cost

Commission-based Fixed Cost
Service Charge Looks like much cheaper but depends on total purchase amount. Usually a more expensive upfront but depends on service package.
Incentives More incentives for your China buying agent to look for good products. Null.

 

Hidden Commissions Tend to get commission from suppliers as well but depends on your agreements. Not much related to kickbacks but some do.

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