Trading company or factory direct? What the middleman really costs
Buying direct is cheaper. It is also more work and more risk. The honest answer is that it depends on what you are buying and how often.
A trading company typically adds 20 to 40 percent, and you pay import duty on that markup too. In exchange they handle the factory, the quality checks, the paperwork, and the risk.
Going direct removes the markup but hands you all of that work. It is usually worth it above roughly €10,000 per order, on products you reorder, and rarely worth it below that.
There is a lot of noise on this question, most of it from people who make money on one side of it. So here is the plain version, including the cases where the middleman is the better answer.
What each one actually is
A factory owns machines. It makes one family of products, usually well, and often has no export desk, no English-speaking salesperson, and no interest in an order below its minimum.
A trading company owns no machines. It has relationships with factories, a sales team that answers quickly in your language, and the ability to combine several products into one shipment. It buys at the factory price and sells to you higher.
Neither is dishonest. They are different businesses. The problem is only that most importers do not know which one they are dealing with. See how to tell them apart.
The comparison
| Trading company | Factory direct | |
|---|---|---|
| Unit price | 20 to 40% higher | Factory price |
| Import duty | Charged on the markup too | Charged on the factory price |
| Minimum order | Low. They combine buyers. | The factory's minimum |
| Communication | Fast, in your language | Slower, often Mandarin only |
| Quality control | They own the problem | Yours to arrange |
| Compliance paperwork | Usually handled | Yours to get right |
| Mixed product shipments | Straightforward | Hard. One factory, one product line. |
| Price transparency | You never see the factory price | You see exactly what it costs |
| If something goes wrong | One company to chase | A factory in another jurisdiction |
What the markup actually buys
It is easy to call the margin pure waste. It usually is not. A competent trading company is doing real work:
- Finding and vetting the factory, including the ones that turned out to be bad and that you never heard about.
- Absorbing the minimum order. They buy a container and sell you a pallet.
- Checking the goods before they ship, and arguing with the factory when they are wrong.
- Carrying the risk. If the shipment is defective, they usually make it right and then fight the factory themselves.
- Handling the paperwork. Certificates, test reports, export documents.
The honest criticism is not that they do nothing. It is that the price of all that is hidden inside a unit price you cannot break apart, it scales with your order size even though the work does not, and it drags your duty bill up with it.
When a trading company is the right choice
Be suspicious of anyone who says never. Stay with a middleman when:
- Your orders are small. Below roughly €10,000 or $10,000 of goods, the saving will not cover the extra work.
- You buy many different products. Ten products from one trading company is far simpler than ten factory relationships.
- You are testing a product. Do not restructure your supply chain for something that may not sell.
- Yours is the only order they will take. Some factories genuinely will not deal with small buyers.
- Your current supplier is good and the margin is fair. A working relationship has real value. Check the price, but do not burn it for a few percent.
When to go direct
- You reorder the same product. The setup cost is paid once; the saving repeats forever.
- Your volume is meaningful. A container or more per order.
- Your duty rate is high. The higher the tariff, the more the markup costs you in tax on top of itself. See how the duty sum works.
- Your product is stable. A settled specification is much easier to buy direct.
- Your margins are tight and 20 to 40 percent of landed cost decides whether the line is worth selling.
The third option
The choice is usually framed as markup or risk: pay a middleman, or take on the factory yourself. There is a middle route, which is to pay somebody a disclosed, flat fee to do the middleman's work while you still see the factory's price.
That is how we are set up. You see what the factory charged, you see our fee as its own line, and your duty is calculated on the factory price rather than on a margin buried in a unit cost. You still get the inspection, the paperwork, the customs entry, and a company in your own country to hold responsible.
Whether that is better than your current supplier is an arithmetic question, and it takes about 72 hours to answer. Send a photo of what you buy and we will show you both numbers.
Common questions
Commonly 20 to 40 percent over the factory price, though it varies by product and order size. Because the margin is inside the unit price, you usually cannot see it, and you pay import duty on it as well.
No. Below roughly €10,000 or $10,000 per order, the saving rarely covers the extra work of inspection, compliance and shipping. Direct buying pays off on repeat orders at container volume.
Whatever the factory sets, usually somewhere between a pallet and a full container. Trading companies get around this by combining several buyers into one production run.
Yes. You can hire an independent inspection company for a few hundred euros per shipment, or use a service that includes inspection in its fee.
Possibly. Factories and traders talk. If your relationship matters to you, be straightforward about what you are doing rather than going behind them.
No. You can buy on export terms from outside China. What you do need is a clear contract, a safe payment structure, and someone able to inspect before the balance is paid.
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