“I am sick of Alibaba!” It’s something we hear every day… When talking to factory owners about how they find new clients, we are amazed to hear that less and less of them use Alibaba because of the expense of the platform. So how much does it cost to sell on Alibaba.com ?
The business of selling on Alibaba.com for suppliers is NOT easy… Here’s why!
Of course, Alibaba is a useful website to conduct market research, price research, occasionally source products and it is arguably the most popular platform in the world for sourcing… especially sourcing products from China.
Alibaba is great for purchasers (in my opinion) if:
- you only need to find one or two products,
- you only need to place orders a couple of times,
- you don’t mind dealing with (potentially) a trading company,
- you don’t mind spending the time to develop relationships with your suppliers,
- you don’t mind paying a premium price.
If all of this sounds okay, then by all means, live it up on Alibaba!
If not and you are trying to get away from Alibaba and use another means of sourcing products, such as Gaia Sourcing, then please read on.
In this article I explain from a cost perspective, why suppliers dislike alibaba.com and answer the mysterious question: How much does it cost to sell on alibaba.com?
It you would prefer to watch the video I made talking through these points, please watch here:
Reason No. 1: The “Golden Grade Shop”
The first of many fees for a supplier.
This is their most expensive membership fee for suppliers. It is called “金品店铺24月”. Translated into English this means “24 Month Golden Grade Shop”. This is a 24 subscription to the platform. It costs… $24,000 USD ($188,000 HKD) to be a verified supplier for 24 months.
That’s about $1000 USD per month and this subscription is only the start of your costs as a supplier.
It doesn’t include payments for keyword ranking, Pay for Performance ads, the cost of hiring an operations team, sales team or management team. Therefore, it is now very expensive to be a supplier on Alibaba. Who might the extra costs be borne by?
How much does it cost to sell on alibaba.com? single year expenses tally:
- Golden Grade shop – $24,000 USD
Reason No. 2 – Star Ratings
Suppliers are ranked from 1-5 stars based on their effort and amount that they pay into the platform. When a supplier purchases the Golden Grade shop 2 year package for 188000 HKD (24,000 USD). It only gets them to 4 stars. After that, suppliers must pay lots of fees and essentially “feed the machine” with ad spend in order to reach 5 stars.
It’s a pay to play game with supply side Alibaba (something that Amazon sellers know a lot about as well).
Factories put their chips into the pot and before they know it, they’re pot committed and the more invested they become, the harder it is to get out, which in turn pushes the prices of Alibaba products up!
Reason No. 3 – Staff
A lot goes into attaining a level 4 or level 5 rating on Alibaba as a supplier.
Firstly, I would like to explain WHY it is desirable to have a high level rating on Alibaba. It’s quite simple: The higher your star rating is, the more the algorithm favors your product and pushes you to the top of a search category.
If you are a 5* gold supplier, your shop will be promoted to high-level buyers and “big spenders”.
Becoming 5* is not cheap and requires mastering (or at least constant monitoring) of the platform by a team of full-time employees, who have deep knowledge and experience of the platform’s SEO.
This kind of employee is not cheap. In China the cost of high quality sales person is going up. A decent sales rep or someone that has some experience managing Alibaba can cost up to 120,000 per RMB year. If you only hire ONE of these sales reps, then the total comes to about $16,780 USD per year!
Most suppliers in China do not even bother hiring this headcount. They prefer not to and will keep their costs low and find customers other ways.
Further adding to our “How much does it cost to sell on alibaba.com?” single year expenses tally.
- Golden Grade shop – $24,000 USD
- Staff – $16,780 USD
TOTAL = $40,780
Reason No. 4 – Pay 4 Performance Ads
In order to reach 5 stars, each month a supplier is required to spend over $8000 HKD (just over $1000 USD) on pay 4 performance ads. If my mathematics skills are as good as yours, that’s $12,000!
The system operates on a debit model, where each supplier must “top-up” their account balance. Every time someone clicks on one of their advertisements, a small amount is deducted from the supplier’s account – similar to how Google ads work. Suppliers I’ve spoken to feel particularly frustrated with this system. They often lose money to hundreds of clicks every day yet receive only a fraction of the clicks as actual inquiries. To make matters worse, when they do get inquiries, many seem to come from fake accounts. I’ve seen this firsthand: one supplier we work with showed me his inquiry inbox, and I was shocked. Among the last 20 inquiries, eight contained the same copy-and-pasted message, yet they all came from users of different nationalities. It seemed suspicious, to say the least.
The P4P Ads further add to our “How much does it cost to sell on alibaba.com?” single year expenses tally:
- Golden Grade shop – $24,000 USD
- Staff – $16,780 USD
- Pay 4 Performance Ads – $12,000
TOTAL = $52,780
Reason No. 5 – Key Words.
The price of the Keyword “Power Bank” on Alibaba cost $150,794 HKD ($19,400 USD) for the top spot for one year, only for the mobile version of Alibaba, not including the desktop version.
They even sell the Keywords for Mobile and Desktop individually, so top spot purchased on the mobile version of the app is different from the desktop version of the app.
The craziest one that I saw was the Keyword Bluetooth speaker, top ranking on the mobile version cost $230,000 HKD ($29,600 USD) and for the computer version, it cost $180,000 HKD ($23,154 USD). I cannot fault Alibaba for coming up with this ingenious revenue model, but in the end, the price has to be born by someone… that someone is YOU the buyer.
For the sake of our ongoing “How much does it cost to sell on alibaba.com?” single year expenses tally, let’s say a supplier would like to purchase a mid-level keyword for the year, on both mobile and desktop for $10,000 USD, our conservative tally of expenses looks like the following:
- Golden Grade shop – $24,000 USD
- Staff – $16,780 USD
- Pay for Performance Ads – $12,000
- Keywords – $10,000
TOTAL = $62,780
Reason No. 6 – Response Time
After paying all of the above costs, would think that the platform would give you some slack and even hire someone to do all the responding for you. In reality, suppliers must have someone monitoring their Alibaba page around the clock. Failing to respond to requests within a certain time frame impacts their star rating.This does not take into account what time of day it is and the difference in time zone between suppliers and buyers. A supplier could receive a request in the middle of the night, not see it until they wake up and all of a sudden their star rating will have dropped a whole star.
Number 7 – Handling Fees
- Any order below $5000, Alibaba will charge the supplier a 2% handling fee.
- Any order above $5000, Alibaba will charge $100.
Number 8 – Withdrawal Fees
Each time a supplier would like to withdrawal their funds from the platform, the withdrawal will comes with an additional withdrawal fee. Suppliers pay a $15 fee for each withdrawal from the platform.
Reason numbers 6, 7, and 8 showcase how much the platform takes advantage of suppliers. The platform tries to squeeze every last drop of juice out of their users, on both the supply side and purchasing side. The 2% handling fee and 15% withdrawal fee needs to be borne by someone. Suppliers on Alibaba will just increase the price of their products by 2%, which they pass straight to the customer… i.e. YOU!
What can suppliers do now?
Have you ever heard of the term Sunk Cost Fallacy…? This is a theory it is our tendency as human beings to continue with an endeavour we’ve invested money, effort, or time into – even if the current costs outweigh the benefits.
This is where a lot of suppliers sit with their views on Alibaba. They have invested so much at this point that it is hard to step away. However their costs to be on the platform continue to rise. They have to be “all-in” or it isn’t worth it.
On top of the membership fee, Alibaba has 5-6 other ways of bleeding everything out of suppliers in every way possible. Alibaba’s aggressive pricing model forces suppliers to invest into the platform, and makes them more reliant and afraid to let go, when they think they have gotten in too deep. Suddenly becasuse of rising platform costs, supplier prices are 10, 15, 20, even 30% higher than what they used to be.
So, how much does it cost to sell on alibaba.com ?
Simply put, it is not cheap. The tally that I have been taking throughout this blog post has reached well beyond $60,000 USD – and that is a very conservative figure. All of these costs eat deeper and deeper into margins, which only causes suppliers on Alibaba to raise their prices.
Have you ever thought of working with Alibaba suppliers without using Alibaba? Let me know… my email is [email protected]
