The Fundamentals of Negotiating with Chinese Manufacturers

The fact that we still receive a substantial number of questions regarding order quantities from our customers tells me that some people will find this post helpful. For those e-commerce sellers that have been sourcing and importing private label products for years, negotiating with Chinese suppliers is likely “old-hat” for them. However, no matter what your level of experience dealing with suppliers, you may still be able to pick up some useful tips.

Hopefully after reading this, you’ll understand why buying larger quantities is almost always a better idea than trying to play it conservative and ordering the Minimum Order Quantity (MOQ). Not surprisingly, there is also a lot of bad advice suggestions out there from the so-called “experts” on trying to lower the MOQ’s in order to test the product without investing too much capital.

While this course of action has some merit when talking about brand new products not currently listed on Amazon, it has no place as a negotiation strategy for the vast majority of products.

Negotiating with Chinese Suppliers: A Lost Art

There’s definitely an ‘art’ to negotiating with Chinese suppliers. Your ultimate goal when searching for factories should be to find one that will not only manufacture your product to the desired quality specifications, but one that you can build a long-lasting relationship with who will go the “extra mile” for you once you’ve proven yourself a good client and built up the level of guanxi required before they consider you worthy of their attention and friendship.

You’ll want to make it your mission to convince your supplier to see you as a preferred customer that not only pays on time, but demonstrates an obvious desire to grow their business.

Benefits of building a close relationship with suppliers:

• Better payment terms – Increased cash flow allows you to place even larger orders, thus lowering your Cost of Goods (COG).
• Higher quality product – Many suppliers offer their best customers upgrades to better components and raw materials.
• New products – Developing a relationship can lead to them offering new products before other customers.
• Better pricing – Once they know you and have seen your orders grow, they will often be amenable to re-negotiating pricing.
• Better overall service – The level of guanxi, the all-important cultural concept ingrained in every aspect of Chinese society.

Negotiation Tips

The fastest way to lower pricing is to raise your order quantities. Example with a $7.00 product:

• Buy 100 units @ $7 = $700
• Buy 100 units @ $6.70 = $670 → Net Savings on COG: $30

When scaling:

• Buy 500 units @ $7 = $3,500
• Buy 500 units @ $6.70 = $3,350 → Net Savings on COG: $150

When established:

• Buy 1000 units @ $7 = $7,000
• Buy 1000 units @ $6.70 = $6,700 → Net Savings on COG: $300

At higher volumes:

• Buy 3000 units @ $7 = $21,000
• Buy 3000 units @ $6.70 = $20,100 → Net Savings on COG: $900

Experienced sellers know that freight charges represent one of their biggest costs. If you can cut down on the number of orders by bumping up quantities, you will ultimately be significantly more profitable.

The 5 Most Important ‘TO DO’s’ When Dealing with New Suppliers

1. DO show your suppliers that you’re a good customer by paying on time and communicating efficiently and effectively.
2. DO let your suppliers know that you have a solid plan to grow your business and thus, increase your orders with them.
3. DO show your suppliers that you are an expert when it comes to knowing your product.
4. DO convince your suppliers that you’re in it for the long term and not just looking for a “one and done” deal.
5. DO show your suppliers they are appreciated by maintaining, nurturing & growing your relationship with them (Guanxi).

Cut 1% to Save $1000’s On Business Services

When negotiating with Chinese suppliers, look for savings from your other vendors on a recurring basis. Services like shipping, fulfillment, and payment processing. A small 1% discount per transaction can amount to thousands of extra dollars in your pocket over the course of a year.

Key Advice

Study up and become familiar with Chinese business customs and culture. Once you have a handle on just how different it is, you’ll begin to make progress in your supplier relationships. Guaranteed.