NEGOTIATING 101: How To Negotiate With Suppliers

[AgainstAllOdds]

I see too many threads where a deal falls through because the buyer doesn't know how to negotiate with his or her supplier.

So here's how I do it, and three simple steps to follow:


Step 1: Find 10 Different Suppliers

When you're going into production, your goal isn't to find just one factory that can make your product. It's to find ten of them.

Too many times I see people find one factory that can make their product and go: "Wow. Those are good prices. I can make a profit. So I'll go with them and stop looking for another factory."

BIG MISTAKE!

Your search doesn't stop at This factory can make my product, so I'm done. That's where your search starts. You have zero frame of reference, have no idea what the true market price is, and worst of all - YOU HAVE NO BUYER POWER.

If that one supplier decides to walk away, then what happens? Does the deal fall through? Because if it does, then you're screwed. And the fact that you know you're screwed will show up in negotiations.

So my tip: Find 10 suppliers. From there, you can whittle it down.


Step 2: Get Samples From 3 of Them

If you're buying in China, then here's a tip: get a freight forwarder NOW. The freight forwarder is mainly there to coordinate large sea shipments, however, they're also in the business of customer service. So after building a relationship with them, ask them: "Hey, can I have samples shipped to your office, and then have you ship them all to me together?"

If they trust you, then they'll say yes, and that will cut your sample costs by 2/3rds. Hell, if you want to get samples from 10 factories, then that will cut it by up to 90%.

But for simplicity, I recommend 3 samples.

3 Samples from the best priced factories that you trust can make your product.

So let's go through an example. Here are 10 example factories and their prices:

Factory 1: $5.73
Factory 2: $8.32
Factory 3: $6.83
Factory 4: $2.39
Factory 5: $10.82
Factory 6: $9.40
Factory 7: $6.00
Factory 8: $3.58
Factory 9: $6.50
Factory 10: $7.42

And here's how much you trust them to make you a quality product:

Factory 1: $5.73 -- TRUST
Factory 2: $8.32 -- TRUST
Factory 3: $6.83 -- TRUST
Factory 4: $2.39 -- NO
Factory 5: $10.82 -- TRUST
Factory 6: $9.40 -- NO
Factory 7: $6.00 -- TRUST
Factory 8: $4.58 -- TRUST
Factory 9: $6.50 -- TRUST
Factory 10: $7.42 -- TRUST

So from that list, you have two factories that are instantly eliminated from consideration. So you move on to the new list:

Factory 1: $5.73 -- TRUST
Factory 2: $8.32 -- TRUST
Factory 3: $6.83 -- TRUST
Factory 5: $10.82 -- TRUST
Factory 7: $6.00 -- TRUST
Factory 8: $4.58 -- TRUST
Factory 9: $6.50 -- TRUST
Factory 10: $7.42 -- TRUST

And you choose the three factories that are best priced:

Factory 8: $4.58 -- TRUST
Factory 1: $5.73 -- TRUST
Factory 7: $6.00 -- TRUST

Now that's your shortlist of who you want to buy from. You want to buy from those three factories in that order.

So you write to each one of them:

"Hey, we're getting samples from 3 different factories. We like your offer, so we'll take it into consideration. Can you send me a sample?"

For small products, they'll typically make the sample for free and ask you to pay freight. That's when you say - "We have a freight forwarder in [this city]. Can you mail it to them? They're shipping us the other factories' samples, so we'll have them all in the same package."

With that arrangement, they'll typically pay the shipping too since it's a small cost for domestic shipping.

Now you have three samples for free. Your freight forwarder ships them in one package. You pay them what you would have paid for 3 packages.

... and now your samples arrive:


Step 3: Get the Price Down!

So you have your samples in hand. And let's say that two of the three are good. From our example:

Factory 8: $4.58 -- NOT GOOD ENOUGH
Factory 1: $5.73 -- GOOD
Factory 7: $6.00 -- GOOD

Note that at this point, price is not that strongly correlated between quality. You already did a quality check in step 2, so here you can sometimes find a steal. It wouldn't be uncommon for the $6 sample to be the same quality as the $4.58 sample. But for our purposes, let's continue...

From this list, it looks like Factory 1 is who you want to buy from. And normally, you'd go to Factory 1 and place the order. However, we want to get the price as low as possible.

So you start by going to Factory 7. And here's what you write:

"Hey, we like your sample, but for us it's a matter of price. We have another factory that shipped us a sample and offered to make the product for $4.58. Their invoice is attached. Can you match that?"

Notice how even though Factory 8 can't make the same quality, you can still use them as leverage to get a better price. From our original list, Factory 4 was priced even better - but they didn't pass the eye test. Meaning that you can't use them in negotiations since the other factory will not take you seriously.

But because you got three samples, you have a couple key pieces of information upon which you can make assumptions.

You know that $4.58 gets you a bad product. And $5.73 gets you a good product. Therefore:

$4.58 < What you'll pay <= $5.73

At worst you should pay $5.73. And you assume you'll pay more that $4.58 since that price point did not get you a good product. However, if you're feeling extra aggressive, then you can lower the $4.58 price point by 20%, and get your target price to this: $3.66. You likely will not get that price, but you can aim for it.

But let's continue with $4.58.

So you emailed Factory 7 (your second choice), and you asked them to price match $4.58. Sometimes they'll match it right away. Often times they'll lower their prices. And very rarely they'll keep it the same.

They know that they can lose the sale. However, they don't know how real the invoice is, or don't know if their manager will accept that price. And so they typically reply with something like this:

"Really sorry. But $5.25 is best price we can give."

You then say thank you. And move onto the Factory #1. You repeat the process and see how low of a price they will give you.

Let's say they give you a new price of $5.31.

So your final list looks like this:

Factory 7: $5.25
Factory 1: $5.31

From that list, Factory #7 is obviously better priced. And quality is the same. So you go with them.

You place your first order with them, AND you keep Factory #1 in your pocket in case Factory #7 acts up.

From here, hopefully everything goes smoothly. But if it doesn't, then here's what you do:



Possible Step: Threaten to Walk Away

This will only happen if Factory 7 does something shady like change the terms, provide terrible customer service, or anything else.

If they do something to upset you, then WALK AWAY.

Place an order with Factory #1 at $5.31. Show Factory #7 that you will not reorder with them. And basically threaten to walk away.

They'll get back in line really fast.

If you fell into the trap of only finding one supplier, then you won't have this card. However, if you followed my steps, then you'll have this card, you'll have great prices, and you'll tremendous BUYER POWER.



Hopefully this post was easy to follow, and helps you with your negotiating. There's a lot more to negotiating than this, but this is a great start that should get you on the right path to favorable deals. If anyone has other tips, then please feel free to share.

 

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[Tom.V]

Hsiev qutv! Epz sidunnipfevoupt gus gsiohjv gusxesfist? Epz vu ewuof tqidogodemmz? Xjip muuloph gus gsiohjv gusxesfist, fu zua jewi epz tqidogod dsovisoe vjev zua piif niv?

 

[AgainstAllOdds]

Hsiev qutv! Epz sidunnipfevoupt gus gsiohjv gusxesfist? Epz vu ewuof tqidogodemmz? Xjip muuloph gus gsiohjv gusxesfist, fu zua jewi epz tqidogod dsovisoe vjev zua piif niv?

Gsiohjv gusxesfist zua tjuq esuapf katv moli taqqmoist.

Etl gus qsodit up e 20'HQ Dupveopis gsun Tjipbjip vu Muph Ciedj epf gus vji MDM qsodi qis TRN gsun Tjipbjip vu Muph Ciedj. Vjip veli vjuti qsodit, epf djuuti vji djieqitv qsodif upi vjev zua vsatv.

Zua jewi mitt pihuvoevoph quxis (topdi zua xomm puv ci cazoph 100't ug dupveopist xusvj ug tjoqqoph deqedovz), cav ov fuitp'v jasv vu dunqesi qsodit.

Emtu, muul ev sitquptowipitt. Nz gsiohjv gusxesfis ot iyvsinimz raodl ev sitqupfoph, epf hsiev ev jis kuc. Tu vsz vu gopf tuniupi vjev xomm ci iraemmz deqecmi ug qsuwofoph iydimmipv datvunis tiswodi.

 

[exclusives88]

Zua dep ati nz iyenqmi up puv xjev vu fu MUM :F