Are you wondering how to negotiate price with Chinese suppliers? You are not alone. Negotiating price with suppliers in China, when done right, could offer significant cost reductions. That is why many businesspeople, from seasoned players to beginners, try to negotiate to the best of their ability. Also, negotiations are quite the norm in China, as no China supplier expects you to accept their very first offer.
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, 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.
However, importing small number of goods from China directly is never easy. You will run into a variety of issues, such as shipping expenses that are larger than the value of the product or your order falling well short of the minimum order quantity of the supplier. In some cases, you may have to abandon your brilliant concept to start a new firm.
Tips for negotiating price with Chinese suppliers
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 suppliers in China.
1. 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 the 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.
2. Get multiple quotes
Getting multiple quotes from different suppliers gives you leverage, which is usually 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.
Analyzing the various quotes will also help you set a baseline price if you don’t have 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.
3. 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, 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 workflows. Ask about how labor-intensive the product is and what materials can be substituted to make the product cheaper.
By negotiating with the supplier you are least interested in, you have nothing to lose. You are 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.
4. 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 mould for the product?
- Can you customize the product?
- Have you done customizations before?
5. Assert your quality expectations during 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.
6. 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, Chinese 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 suppliers and communicate with them. 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.
7. 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 suppliers are 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.
8. Ask to place an initial test order
If the price you are getting is a good one, the MOQ being asked may be too high. MOQ is the least number of units that a supplier is willing to sell.
Say the supplier has given you a quote for 1,000 (MOQ), but you only want to buy 500 units. 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 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 1,000 units, but you could counter it by buying two different products of 500 units each. It could be a good way to test the market to see which product does better. 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 if you pay a little higher price.
9. 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.
10. 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, product specifications, selling price range, material costs, and more. Your own research combined with what you learn from various suppliers will quickly make you a product expert. Having more knowledge about your product gives you more leverage during negotiations.
11. 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 from your order. How will they do that? They may cut corners, such as using low quality materials or cheaper parts to make your products. When you offer too low a price, your product quality often 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 fair profit.
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.