Factory Direct vs. Sourcing Agent vs. Trading Company: What You Actually Pay

Ask ten importers whether it's cheaper to buy factory direct or go through an agent, and you'll get ten confident, contradictory answers. That's because the question has no general answer. What you pay depends less on which label the party in the middle uses than on how that party earns its money.

Three structures dominate China sourcing: buying factory direct, buying through a trading company, and hiring a sourcing agent. Each earns revenue in a different way, and the mechanism — not the quoted price — is what predicts your final cost. Below is how each one works, what published figures say it costs, and when each genuinely wins.

The three models, by revenue mechanism

Factory direct

How they make money: Margin on production. The factory quotes a price that covers materials, labour, overhead, and their profit. What you pay is what you see.

What that incentivises: A factory quoting a cold, unknown foreign buyer has no reason to give its best price. You have no order history, no volume commitment, and you may never come back. The number you get is their standard margin to a stranger.

When it genuinely wins: Large, repeat orders of a single product. Once you clear the MOQ comfortably and the relationship is established, no structure beats it on unit price.

Trading company

How they make money: The spread. They buy from the factory at one price and sell to you at another. The difference is their revenue, and it lives inside the unit price you're quoted.

What that incentivises: A wider spread means more profit, and because the spread is invisible, there's little pressure to keep it narrow. Industry-published estimates put trading company markups at roughly 10–30% over factory cost, varying by category and order size.

The structural catch: You don't choose the factory. The trading company does, and it typically won't tell you which one. If the factory underperforms, you have no direct line to fix it — and you can't verify whether the supplier you think you're buying from actually makes anything. That question is worth its own investigation: how to check whether a supplier is a real factory.

When it genuinely wins: Small quantities, mixed product lists, and speed. Trading companies consolidate across factories, so they can accept orders no single factory would take, and they move fast because export paperwork is routine to them.

Sourcing agent

How they make money: Commission on order value, quoted separately from the goods. Industry-published rates cluster between 3% and 10%, usually tiered — around 10% on small orders under $10K, 5–8% in the mid range, and 3–5% on large orders.

What that incentivises: This is the part worth sitting with. If the fee is a percentage of what you spend, then the agent's revenue rises as your bill rises. It doesn't make agents dishonest — most are not — but the incentive does not point the same direction as your budget.

What you get for it: A layer that is structurally independent of the factory. The agent shortlists suppliers, but you pick. Quality control is run by someone whose payment does not depend on the factory passing inspection — a meaningful difference from a factory checking its own work. If it helps to see what that looks like in practice, here is how we run a sourcing project end to end.

When it genuinely wins: Multi-factory projects, custom products, and anything where a quality failure is expensive.

The three models side by side

Why factory direct often isn't the cheapest

This is the assumption that costs new importers the most money. "Cut out the middleman" sounds like arithmetic, but several structural costs sit underneath it.

• MOQs are set for factory economics, not yours. Direct MOQs commonly start at 500–1,000 units and climb from there. Below that threshold, many factories simply will not quote.
• Freight on a small order can exceed the goods. A factory sells you goods at the factory gate. Getting a sub-container shipment across the world is your problem, and on small orders the shipping bill can be larger than the invoice it's attached to.
• Most factories cannot sell to you in English. The majority of Chinese manufacturers are small operations with no English-speaking sales staff and no export department. This is precisely the gap trading companies exist to fill.
• You become the QC department. Direct means the factory inspects its own output. Catching a defect after the container lands is the single most expensive way to find it.

None of this makes factory direct a bad choice. It makes it a choice with unpriced work attached — the work of managing a factory relationship — and that work does not disappear when you remove the intermediary. It moves to you.

The costs nobody puts in the quote

Every quote you receive is for goods. The costs that actually decide whether an order was cheap tend to sit outside it.

• Sample rounds. A product rarely arrives correct on the first attempt. Each round costs sample fees, courier charges, and one to three weeks.
• Rework and rejects. A 5% defect rate on a 5,000-unit order is 250 units you cannot sell, plus the argument about who pays for them.
• Delay. Missing a season is not a line item, but it is often the largest number in the whole exercise.
• Your own hours. Time-zone-shifted messaging, translation, chasing updates. Real cost, rarely counted.

The right comparison is never quote against quote. It is landed cost plus the cost of everything going wrong, weighted by how likely that is under each structure. Some of the orders we've run were won or lost entirely on this second half.

A fourth structure: profit share

Look back at the three models and one pattern repeats. In each of them, the party helping you buy makes more when you pay more. The trading company's spread widens. The agent's commission scales with order value. Neither is dishonest — it is simply how the revenue is built.

There is a fourth structure that inverts it, and it is the one we use.

Source with Tophney operates as a foreign business development partner to a group of factories rather than as a reseller or a commission agent. We take a share of the factory's profit on the order instead of a markup layered on top of it. There is no spread between what the factory charges and what you pay, because there is no second price.

Because there's no markup layer, the price is structurally at minimum what the factory would quote you directly. It is often better — not because we negotiate harder, but because the factory's math changes: they keep a profit share and get foreign business development they cannot build in-house, so a routed order is worth more to them than a cold inbound one at the same price. You can read more about who we are and how we work with our factories.

Where this model does not win: it is worth being direct about the limits.

• It only works in categories where we already have consortium factories. We are not an all-category sourcing desk, and where we have no factory, another structure will serve you better.
• For a very large, single-product, repeat order, going direct to the factory yourself is genuinely competitive. At that scale the volume does the negotiating.
• It requires trusting a profit-share arrangement you cannot audit from the outside. That is a real ask, and you should weigh it as one.

How to pick

Match the structure to the order, not to the label.

1. Large, repeat, one product, established relationship. Factory direct. The volume earns the price.
2. Small quantity, mixed items, need it moving quickly. A trading company. You will pay the spread; you are buying access and speed with it.
3. Custom product, several factories, quality failure would be expensive. A sourcing agent, or a partner with a structure that does not scale its fee with your spend.
4. Many products for one business, and you are juggling suppliers. Consolidate. We can source everything one business type runs on, in one project, or you can browse the six categories we source factory-direct.

Whichever way you go, ask one question before you commit: how does this party make money, and what does that incentivise them to do? The answer predicts more about your final invoice than any quoted number. If you want a second opinion on a specific order, tell us your product and order size and we will tell you honestly which structure fits — including when it isn't us.