One of the topics and one of the questions I get quite often is how do I better deal with suppliers? What’s the process? What’s the magic formula to deal with suppliers? How can I make more money dealing with suppliers? Well, that’s a reasonable question. I’m going to see if I can try to address some of those things.
One, obviously there is no magic formula. No magic bullet in anything. It’s just a matter of a little bit of persistence, little bit of tenacity, little bit of style, little bit of gall, I might add, in going to do that and having the gall to ask for certain things, but let’s see if we can kind of go over some things and see if we can make that part of your business be a little bit easier.
As I’m recording this, I just got back from Canton Fair and I watched people negotiate as they’d walk into the booth.
Negotiating face to face, I think, is really very similar as if you were negotiating over Skype or if you were negotiating over email through someone you met on Alibaba, wherever that might be.
I think the process here and I think a lot of people … let me start out by saying what I don’t think you should do and let’s get into what you should do.
We all see people on TV negotiating over cars or things like that and they’ll point out, well, there’ s dent, there’s a scratch, I don’t like that, that’s not worth that, let me offer you this.
You know, if you think about that, that’s really designed for one shot negotiation, where you’re really not going to see anybody else again.
I’m a big believer here that you’re trying to build a relationship, a friendship almost, with your suppliers. I think that last thing you want to do is start the relationship off with pointing out the faults, the flaws and faults, and what’s going on. I think you can do some of those same things without being antagonistic.
If you look at really the Chinese culture, it is one of politeness. When you’re coming across and you’re saying well, I don’t like your product this, I don’t like this here, you got to do better on pricing, they really see almost in our vernacular as a jerk. Really, they don’t like you, they may tolerate you, but they’re not going to anything special for you down the road.
Ultimately, I think when you negotiate, you want to be polite. For those of you who have already tried to negotiate with them, you know you will get in the emails “Hello, kind sir” and the language is all flowery. Politeness is part of their culture and I think you should respond in kind. Now, as you’re going and doing this, one of things that everybody seems to be concerned about is prices and rightly so.
There’s no reason you shouldn’t; however, I’m one who believes that you want to have a situation where the supplier is making money off of you. I’ve been a manufacturer before and people come in and negotiate like that, it’s like they see you as the manufacturer that you owe them because they’re buying.
That you should be able to accommodate their every wish and their every whim. Again, as a manufacturer, you’re thinking neophyte, rube, whatever your colloquialism is to spill out the turnip truck if you’re in the south. Whatever it might be that you know it’s not a very professional person.
You want to act and be as professional as you can because you want them to perceive you to be that way. You also want to know what your cost and things are going in and you want to know what’s the lowest price you’re going to take to make that viable for you.
Ultimately, you want to try and let them ask or mention the first price because it may cheaper than what you were planning on paying and you can still negotiate down from there. One of the things in doing this is simply there’s no magic formula. It’s coming in and getting started.
What a lot of people have issue with is the first quantity or the minimum order quantity and the pricing and I understand that because these suppliers, they’re taking a chance on you and they have to make money.
Usually in the first order or two they are not making money until you are a regular, consistent customer, so I always encourage you to put yourself in the manufacturer shoes and see what it is that they want.
One of the things, if you want to a smaller quantity in the beginning, that they tend to respond to is the word “trial order”. We would say “sample order” here in the West, but their terminology is “trial order”.
You say, well I’d like to do a trial order of a smaller quantity and then I’ll come in and do bigger orders in re-orders. More times than not, they will agree to something like that.
Another thing is if you come in and right off the bat, if you’re negotiating something other than the initial price, you say, okay, I’ll pay you more for your initial order because you’re really just testing anyway.
It really doesn’t matter if you make money on your first order. You’re trying to get your brand and your product launched and established and you’re trying to do this for the long term.
Think obviously marathon, not sprint, but if you offer to pay them a higher price in the beginning, which is fair, then you come back and say, okay, if I come back and buy future orders, I’d like to do a lower price or when I get to a certain quantity, I’d like to do lower prices.
More times than not, they will agree to that because like all people, they’re just thinking that initial order and getting it in and hoping that you’re going to succeed.
If you do that and you’re also showing them that you believing enough in yourself that you’re willing to put some money in upfront, they’re going to look at you in a very, very different, different way. Other than somebody who’s just trying to get them to accept the lowest possible price.
Another thing that you can negotiate when you are dealing with suppliers. It doesn’t always have to be price.
You want to have obviously a reasonable price where you can make money, but the other thing that you can do is sometimes suppliers … let’s just say in this example it takes them 30 days to make a product.
Realistically, it takes them 15 days. What they’re doing is they’re building in a window to allow for their equipment to break or to have a product shortage or something to happen that inevitably happens in all production.
If you accept and agree on a certain price, you say I know that’s a bit higher price.
I’ll be glad to pay that, however, your normal delivery is 30 days or your normal production period is 30 days. Can you do that in 21 days?
More times than not, they’ll agree to that because that doesn’t cost them something and that’s something that they can be flexible on because in their minds, they’re still getting it done in two weeks, maybe 15, 18 days, whatever it is.
Things have to go well, however, that’s something they have some flexibility on because it’s very, very important to be able to keep your inventory numbers down when you are negotiating.
I much would rather have a faster turn around time so I can make more frequent orders, but be able to order less quantity, and keep less quantity in inventory.
I’ll use that extra money to buy another product or promotion or whatever and I’ll turn those dollars into significantly more, but often when you’re negotiating I think it comes down to just being courteous. Being polite. You want to present yourself as a professional business.
When you walk in and say something like, well, I’m just starting an e-commerce business in the United States and this is my first order, what they’re hearing is somebody who doesn’t know what they’re doing.
Somebody that’s going to be difficult to deal with. Somebody they’re going to have to educate to get going and most people are not willing to put that time and effort into it because they’re thinking your chances of success are not very much.
If you go in and I have a large e-commerce business. I’m looking to add this line to my business. Tell me about your product and then go on and talk to then when they see you as somebody who is confident and confident in what you’re doing, then you’re going to be fine.
Another thing I think I like too is that a lot of them are hesitant to get on Skype because even though most of them speak English pretty well, they don’t think that they do.
One of the things Skype has just introduced, as I am recording this, a week or so ago, two weeks or so, is they’ll have the translation, the written translation on the page. So, if I’m talking in English to the supplier on his page, he’ll see Chinese. If he’s speaking Chinese, I’ll see the English translation on my page. It won’t be 100% accurate, but it will be certainly good enough to communicate.
Between their broken English, which is still pretty good, and the translation on the page, communication shouldn’t be a issue. So, whereas a lot of time people were doing email in the past, you might want to consider doing Skype now if you haven’t ever before.
Ultimately, negotiation isn’t art. It’s not a science. It’s not a magic pill. It’s not a magic bullet. It’s something that you just have to keep asking on price until you get to where you want and then when you get to the lowest price you get, you feel that’s workable, then start asking for some of the other things. Whether it be a faster turn around time. Maybe some type of enhancement in the packaging.
You have to get creative and just keep going on all fronts until they say no, but regardless of what you are doing, be polite on all things because if you want this to be a long term relationship, they need to make some money too or eventually they’ll find a way to stop producing your product and you’re back at square one and that’s going to cost you ten times more money than paying that extra nickel.
Obviously when I say nickel, that’s a euphemism for lowest possible price to where it’s only a lose win scenario. Obviously, you want it to be win win.
I think if you do that, I think you will be fine and I think you’ll establish a good relationship that will last for years and years and be mutually beneficial. You’ll find that when … after a few orders, you tell them you’re coming to China, they’ll welcome you.
They’ll invite you to your factory and it’s rewarding for them and their culture to treat you like a king once you are an established customer, so that’s something to look forward to and again, when you get to that point, you know you have done everything well and you’re making money, they’re making money.
It’s a good situation, but just a quick couple overviews on dealing with suppliers, that I’ve found in my 25 years. Just realized that people treat them that way and everything can be fine. I hope that helps and I look forward to seeing you on the next podcast. Thanks.
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Mark Scott Adams is a serial entrepreneur who has started, built and sold six businesses. He has sold millions of dollars of physical products on and offline over the last two decades. He is currently a speaker, author and successful Amazon Seller. To take his free amazon sellers training click here. To Get his free product checklist list click here