A good pricing strategy is the pre-cursor to initiating negotiations with a China supplier. What all have you considered while setting a price for your product? How much can you pay the supplier and make a healthy margin? Conducting market research and understanding how suppliers on Alibaba and other China supplier directories have set prices and MOQs for your product category is imperative. This data will tell you whether you're getting ripped off, quotes that are reasonable for that category, or incredibly low prices, which may not be a good thing.
Setting your target price can help you engage in meaningful price negotiations. If you don’t know the right target price, you can request quotations from a few suppliers to find a price baseline. Also have a look at product sourcing websites and find online suppliers in China. This is to make sure you have enough information to make correct estimates.
Price negotiation is an accepted norm in China, and suppliers don’t expect you to accept the first price they offer. There are limits to how low you can push the price, but you can send the supplier your target price and ask them to match it. That said, always get quotes from suppliers before communicating your target price. There is an outside chance that the price you’ve set and are ready to buy at is more than what the supplier quotes! It will put you in a sticky situation and send the supplier feelers that maybe you're new to sourcing from China.
The bottom line is to ask for price reduction only after receiving the initial quotation from the supplier. Aim to negotiate a fair price rather than driving it down too low, as explained below.
The right supplier can be extremely vital to the cost-effectiveness and success of your business. For a sustainable relationship, it is important that your supplier also makes enough to keep their business afloat.
In reality, Chinese suppliers make a thin margin. They may walk away if you’re forcing them to accept a price that can hurt their business. The possibility is that the supplier may agree to the price but make products commensurate with it.
That is, the supplier may use cheap raw materials and components, manufacturing inferior quality product that don’t sell well. Or you may be forced to charge lesser for your products, which will drive down your margins.
Even if quality isn't abysmally low, the supplier may cut corners and have a knock-on effect on your margins anyway. For instance, it may not be financially feasible for the supplier to focus on quality control, and you may end up receiving quite a few defective products in each batch.
Another downside is that the supplier may not give you their attention and prefer to focus on buyers who have negotiated a realistic price. They may not be able to meet urgent orders or give you volume discounts.
We can’t stress enough how important it is to be absolutely clear about your product specifications. Your supplier agreement should specify product dimensions, color, packaging, finishing, labeling and all other features that impact its quality. Be clear on the raw materials that are needed for the product. If the factory specializes in your product category, they will know how cheaper substitutes can affect overall product quality. But if you’ve negotiated a rock-bottom price, they won’t care.
On China supplier websites, you can see the images of the products that their factories make. But beware – it is not necessary that the images they advertise are representative of the product they sell. Make sure you order a sample (‘the golden sample’) or place a small order of 10-50 items first to gauge quality. Let's say you want to source plastic products, has the supplier used quality raw materials? Have your instructions on dimensions, colors, shape and packaging been followed? Test the product – does it work as expected, does its protective coating resist mechanical damage and so on.
Give your feedback and ensure that the supplier has understood it. Ideally, you should be sharing instructions and feedback with the factory manager, a worker or a decision-maker who makes your specifications clear to the manager/workers.
When you are negotiating with a supplier, you don’t want to give them the impression that you are naïve about raw material prices. Keeping yourself up to date about the latest commodity and raw material prices can make you seem well-informed and thwart any attempts of the supplier to quote a higher price. There are several resources available on the internet that you can use to do thorough research before getting down to the negotiation process.
A little research about labor costs and taxes can also help, as many suppliers cite these reasons for a higher rate when it is not justified. What do we mean by this? Chinese manufacturers do need to manage fluctuations in raw material prices, high taxes and other variables that put a downward pressure on production costs. So, the prices they quote apply to a specific period of time and are subject to change. This will be specified by suppliers and you should be aware too.
If you have any questions about time limits on quotes, make sure you clarify the same quickly with your China supplier online. By knowing how your supplier’s economic environment can affect their business, you can make the right judgment calls and avoid misunderstandings.
When you order in bulk, more often than not, you can negotiate a lower price per unit. This possibility encourages some importers to buy from several suppliers at a time and order small quantities from each of them. However, managing multiple Chinese suppliers can be a hassle!
To strengthen cost competitiveness, importers may obsess about finding new suppliers or switching suppliers often. Sure, there is no dearth of options on China product sourcing websites. But the most successful buyers are those who stick to their supplier(s) and have a balanced view of cost and quality.
We advise concentrating on one or a few suppliers and placing orders in large volumes. In the long run, this strategy can save you more money.
Chinese suppliers too are more amenable to giving discounts and better terms to clients that assure them repeat orders. When you’re starting out, it may not be possible to make such assurances. You can promise to return if all goes well with the first two or three orders. Your own sales and business circumstances will also factor into your decision.
As a rule, avoid overestimate your order volume only to lure the supplier into offering you low prices. You want to establish a long-term relationship with reliable Chinese suppliers online and offline, and deception is not the way to do it.
Chinese suppliers can be very hospitable and have many tactics up their sleeve when trying to secure your business. Just because they invite you out for lunch or dinner does not mean you have made a new friend. In a social setting, the talks can be informal and you can share your business goals and vision quite openly.
But you should remind yourself to remain objective and business-like. Don’t get carried away by such tactics or sweet talk and agree to terms you are unhappy about. The terms of the agreement should be acceptable to both parties and not just one.
You could also have a China sourcing agent to handle negotiations on your behalf. As they’re well-versed in the local language, they may be able to help you get competitive quotes and terms. Make sure you go through the sourcing agent’s website and gain a clear understanding of the services they provide.
If you sell a mass market product that fulfils a basic function rather than deliver value, you may not need to pay too much attention to quality. The consumers in your market may care mainly about price and make purchase choices based on how large a discount they get. Here, you don’t have to worry about product differentiators and aim for an acceptable quality. Your product may need standard materials and components only.
Costs are higher for products that require various materials and components. Chinese suppliers procure materials and components from their sub-contractors. The more purchases they need to make, the higher would be the manufacturing cost of your product. Reusing the same materials and components in different products can help bring down costs significantly.
Wherever possible, avoid unnecessary customizations as even a slight change in design may increase tooling costs. For items that need to be customized to clients’ needs, make sure you work with a supplier that specializes in that category and has some experience catering to western markets. You can make these inquiries with the China supplier online.
Chinese suppliers rely on accounts receivables to support their margins. By penny pinching on the down payment, you may be potentially hurting your chances of being seen as an important client.
Never pay the full order value upfront. This is too big a risk. Even if you’ve signed a contract with a reputed supplier, it is better to stick to payment splits. You could pay 30% down and 70% after you’ve received your order. Or 30% as down payment, 40% after the quality inspection at the factory, and the remaining 30% after taking possession of the items. Avoid small down payments, such as 10% first and the larger balance later. The supplier will be taking on the risk and not to be too happy about it. What if you don’t pay them or ask them to fix some products? You will have leverage and the supplier will be forced to meet your demands so that you release the payment.
If you have been sourcing small quantities of products from multiple suppliers, consider transferring your business to one supplier. On smaller orders, some suppliers may want a bigger down payment. Paying more than 30% to multiple suppliers may affect your cash flow. You also don’t want to deal with the hassle of managing multiple suppliers and requesting each for better payment terms, which you may have a hard time getting.
If, after all your efforts, you’re unable to get a fair deal, move on. There are many fish in the sea and you’ll find the right China supplier online eventually. A China procurement agent can speed up the process and provide valuable assistance throughout your relationship with the manufacturer.
Lowering the product price may not be the only way to cut costs. Think of other ways that can help you save money and improve margins. For instance, is there scope to lower shipping costs or increasing the warranty duration that can help you lower your costs. Does the supplier incentivize buyers with discounts if they pay their invoices early? Will choosing sea freight instead of air freight make a difference to overall costs?
Be open to possibilities. If the supplier refuses, you can’t do anything. If they agree, you’ve got what you want.
Chinese suppliers need your business, but you need them too! The whole point of a China sourcing strategy is to keep business costs low and profit margins high. With the right tactics and an eye on maintaining a cordial relationship with your China supplier online and in-person, you may become eligible for competitive prices and terms. In any case, committing to one supplier should help you save substantially in the long run.
Successful price negotiation is about striking the right balance, where you pay a reasonable price for the right quality, and your supplier is also able to support their margins. So, even as you find ways to get discounts, think about whether the supplier can afford it.