Tips on Negotiating Costs and MOQ with China Suppliers

2021-11-18

Are you wondering how to negotiate with China suppliers? You are not alone. Negotiations with China suppliers, when done right, could offer significant price reductions. That is why everyone, from seasoned players to beginners, tries to negotiate to the best of their ability. Also, negotiations are quite the norm in China, and no China supplier expects you to accept the very first offer they make.

Striking the right balance during negotiations is crucial. If you go too low, the Chinese supplier may end up cutting corners to make a decent profit. Too high, and you may not have a profitable deal. Creating a win-win situation with your suppliers is the primary goal of negotiation. Choosing a supplier simply because they quote you the lowest price could be a costly mistake.

So, where do you start?

Tips for negotiating costs

So, how do you get the best price from your China supplier? Through effective negotiation. The following tips could prove helpful in a successful negotiation with your China supplier.

Be realistic about your order volume

Many importers overstate their order volume because they think that it will give them more bargaining power. They think that if the China supplier thinks they are getting a big order, they may lower the prices significantly. These importers may think that a supplier may be more interested in doing business with them if the order is larger due to economies of scale.

However, it is never a good idea to state an absurd number only to get the supplier excited about the order. If you are looking at China sourcing as a long-term solution to get quality products at reasonable rates, you want to build a healthy relationship with suppliers. Lying to or deceiving the supplier about your order volume will create mistrust, which is never good for a long-term relationship.

Also, China is the most preferred destination for sourcing, and China suppliers receive inquiries from all over the world. They have received their fair share of promises of "large orders," and not all suppliers would fall for such a promise.

Start with a small trial order so that you can test the waters. If you like the products and how the supplier works, you can offer a realistic figure on the negotiation table.

Get multiple quotes

Getting multiple quotes from different suppliers gives you leverage, which is usually pretty useful during a negotiation. Since you are at the beginning of the process, try to get as many relevant quotes as possible. They need not be the exact match. Getting a good number of quotes gives you a feel of how competitive the market's supply side is. You can also determine how much leverage you have during negotiations.

Analyzing the various quotes will also help you set a baseline price if you haven't already. If there is only a small difference in prices, you may not have a lot of room to negotiate on the product price. In such cases, focus more on product quality rather than price. However, if there is a considerable difference in prices, the opportunity is yours. You can get a great deal if you negotiate right.

Start your negotiations with the supplier you are least interested in

Multiple quotes give you leverage, but how do you use that leverage? If you are unsure or are new to negotiations, start with the supplier you are least interested in doing business with. What you are going to do is practice negotiation with them. Choose those whose prices are either too high or too low, have poor communication, or submitted an incomplete quote.

Start by asking them questions about their price and quality. Ask them about their machinery and the raw materials that they use in their products. Gather more information about the supplier's production method, such as production line design and production workflows. Ask about how labor-intensive the product is and what materials can be substituted to make the product cheaper.

By negotiating with suppliers you are least interested in, you have nothing to lose. You were not going to work with them anyway. However, your time with them can help you learn a lot about the supply market conditions. This information could come in quite handy when you get down to actual negotiations.

Negotiate with the supplier you are most interested in last

Now that you have practiced your negotiation skills and have a good idea about the supply market, it is time to approach your preferred supplier. At the outset, let them know that you have spoken with other suppliers. Negotiate with confidence and from a position of knowledge.

Asking pointed questions could turn things in your favor.

  • Your price is not the most competitive; what can you do?

  • How does your product compare to others?

  • What are the materials you use in the product?

  • Do you design your own mold for the product?

  • Can you customize the product?

  • Have you done customizations before?

Assert your quality expectations before negotiations

Two suppliers could make the same product but with different materials. For instance, if you are sourcing watches, 17 dollars is reasonable for a stainless steel watch. However, for a zinc alloy watch, even 10 dollars is a terrible price.

So, how do you know if you are getting a good deal for the price you are paying? For that, you need to have clear product specifications. You should be assertive about the kind of materials you want to use in your product, what makes for good quality, and what does not.

Until and unless you understand the specifications and customizations for your product, you will not be able to engage in successful negotiations.

Make yourself seem bigger than you are

Sadly, people judge you based on how you come across. If you come across as a small business, China suppliers may not give you the best pricing. Therefore, you need to make yourself seem bigger than what you are. Also, you don't need to exaggerate your order volumes or lie through your teeth.

Start by calling yourself a team. If you consider all the freelancers and vendors you work with, you do have a large team. You could also tell the suppliers that your role is to source, find suppliers and communicate. Remember that all companies, even the giants, were small companies once till they landed their breakthrough deal.

You need to ensure that suppliers feel that they are working with someone who knows what they are doing. Getting the best deal will become easier.

Get the suppliers on board with your growth objectives

You may not have a very large order volume, but if the suppliers get on board with your growth objectives, they may be willing to give you the best rates. Think of it like going to a bank for a small business loan. The bank would want to see a detailed business plan to make sure that your business is profitable in the future to repay the loan. The bank basically takes a chance on you when they give you a business loan.

Similarly, your Chinese supplier is also taking a chance on you just like you are taking a chance on them. Any supplier will prioritize a business that provides a steady stream of orders compared to a one-time large order. Businesses that provide a steady stream of orders are more valuable to a supplier. If you can prove to a supplier that you have a solid plan for growing your business, you can become more valuable to them.

Ask to buy an initial test order

If the price you are getting is a good one, the MOQ being asked may be too high. MOQ or Minimum Order Quantity is the least amount of units that a supplier is willing to sell.

Say the supplier has given you a quote for 10,000 units, but their MOQ is 20,000 to give you the best price. How do you offset this?

One way is to ask to buy an initial test order. You may not get a great price for it, but it is a good way to test the waters. If the product fares well in your domestic market, you can back it up with a bigger order.

The second way to offset this problem is to create a larger purchase order comprising of multiple products. This option could only be feasible for those who do not have any budget constraints. The supplier may want you to buy 10,000 units, but you could counter it by buying four different products of 2,500 units each. It could be a good way to test the domestic market to see which product does well. You may also consider adding one of these products as a freebie, helping you create market differentiation.

Unless you are making OEM products, the China supplier should not have any problem meeting small order quantities.

Use your annual sales forecast to negotiate

Negotiating from a position beyond the transaction point may help China suppliers see the big picture. The transaction point is the order that you are placing now. The strategic point is how much you will buy in a year.

When you negotiate, keeping your annual volumes in mind, it shows the suppliers that you have done your homework. You have a solid plan to sell. The annual figures also make the numbers look more powerful and your business more valuable. That is why it is essential to get the suppliers on board with your growth plans.

Use your product knowledge to negotiate

It is very important to have in-depth knowledge of your product. If you are an expert on your product, you can use it to your advantage during negotiations. Share your knowledge with the suppliers so that they know that they cannot take you for a ride.

When you ask a China supplier if they could make the product for you, the answer will almost always be yes. That is true for all Chinese suppliers. However, just because a product is simple for you does not mean that it is as simple for the supplier. Be sure to test the knowledge of your supplier to ensure that they know what they are doing.

What to do if you are not a product expert? Learn. You should take the time to learn more about market trends, material specifications, selling price range, and more. Your own research combined with what you learn from various suppliers will quickly make you're a product expert. Having more knowledge about your product gives you more leverage during negotiations.

Don't bargain too hard

Bargaining too hard during negotiations is a mistake that you want to avoid at all costs. The supplier may give in to your demands and give you the price that you desire. But did you really strike a good deal? Maybe not.

There is a saying that goes, "You get what you pay for." This saying perfectly sums up manufacturing in China. A drop in price could also signal a drop in product quality. Bargaining is a part of the sourcing process, but bargaining too hard could make you end up with inferior goods.

The China suppliers, like you, are running a business. It is quite natural that they would want to make a profit too from your order. How will they do that? They may cut corners, such as inferior quality raw materials or cheaper parts to make your products. When you offer too low a price, your product quality, more often than not, suffers.

You should try to create a win-win situation for both of you during negotiations. You should be able to get good quality goods at a reasonable price, and the suppliers should also be able to make a profit.

Tips for negotiation of MOQs

Why do China suppliers have an MOQ? China factories need to purchase raw materials in bulk, and getting machines up and running for production also involves high start-up costs. That is why they always insist on a MOQ or Minimum Order Quantity to minimize their risks of losing money. Before you start negotiating, you should try and understand why the supplier insists on an MOQ. When you understand their position, you will be able to negotiate better and give them a better counter offer.

Most importers opt for a trial order, which is usually a small quantity because it helps them validate the supplier's quality and the product's market. You would want to buy this order at a minimum cost.

So, how do you negotiate with suppliers who insist on a certain MOQ? Here are some tips.

Limit product customizations

You can customize a single product to varying degrees. A pre-existing design is a lot easier to make compared to a product made entirely of customized components. Simple product customizations allow the supplier to still use standard components. However, complex customizations could mean that the supplier needs to step out of their normal purchase routine and subcontract a new design. Highly customized components may not be compatible with the supplier's original product line. Therefore, they may force you to purchase a certain MOQ.

If you limit the extent of product customizations, the supplier may also feel comfortable letting you purchase a lesser MOQ.

Streamline the usage of raw materials

The MOQ that suppliers insist on is often a direct reflection of the MOQs of their sub-contractors. Most China suppliers buy raw materials from multiple sub-contractors and not just a single one.

If you order a product that is made of many different materials, the supplier may be forced to fulfill the MOQ requirements of various sub-contractors. This, in turn, will force them to escalate the MOQ requirements for your order.

Using the same material on a large number of different products could allow the supplier to meet the MOQ requirement of their sub-contractors. Limiting the number of raw materials used in your products could be a way to get your China suppliers to lower the MOQ requirement.

Offer to pay a slightly higher price

Most Chinese suppliers maintain a stock of "high turnover" raw materials and components. Therefore, most of them can manufacture a small number of products, good enough for trial order. However, due to a small profit margin, most suppliers are not willing to put in the time or effort. Offering to pay a slightly higher price could work as an incentive for them to accept small orders.

Conclusion

When it comes to negotiations, importers must understand that even China suppliers need to make a decent profit. Asking them to lower the price significantly is like asking them to lose money on your order. Negotiations are important, but not to the extent that the supplier incurs a loss. If you are looking at sourcing as a long-term solution, you need good suppliers who are willing to work with you.

Don't just focus on the product price alone. There are several other factors that could make your China sourcing deal a great one. Your supplier may offer tooling amortization or better payment terms. Some may be willing to give you a warranty guarantee or free extra parts. When you can't go too far on the unit price, look for other valuable things.

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