Sourcing Agents in China are compensated in a variety of methods. The majority work on some form of commission. Commissions generally can range from 3-15% of purchase value which is not unreasonable when the savings generated can double that amount. The problem with working on a commission is that the Agent has no motivation to decrease the price, and may tend to try and make one-off big-ticket deals that may not be in your best interest.
Another compensation option is a percent of savings scheme where payment to the Sourcing Agent is based on your savings. This is difficult to arrange, as it requires full disclosure from all parties. Furthermore, your agent will now be inclined to advocate for whichever factory has the cheapest price. Often this is not the best price/quality ratio for your given target price.
The best option is one that aligns the buyer’s and sourcing agent’s interests. This results in some form of a Monthly Supplier Management Fee (perhaps in combination with one of the above mentioned options). Under this method the Sourcing Agent’s job is to get the best price/quality ratio possible based on buyer’s exact needs.
An arrangement of this type with a trusted agent who has a presence in the local market is of great value and provides peace of mind to the customer. This option will lead to a long-term relationship built on mutual understanding rather than one-off commission-based deals or legal documents (like letters of exclusivity) that mean very little in the reality of China. The agent’s job is to make sure you remain profitable and are a happy customer.
A good Sourcing Agent is not afraid to work in a very transparent environment where you have full disclosure of OEM and product information. Be wary of agents who want to keep you in the dark.
Companies that are understaffed or on a tight budget can turn to China sourcing agents. Outside help on China sourcing ranges from matchmaking to consulting on logistics and quality control. procurement agents’ fees in China sourcing range from 3 to 12 percent of the purchase price, depending on the level of service.