First off, remember that negotiation is about specifics. So when you order samples, you need to provide the manufacturer with all the right information for your product specification – length, weight, appearance, packaging, and so on. You want to be comparing apples and apples, not apples, oranges and bananas, when you get responses from the different factories.
When you get your responses back, you need to set them out in a spreadsheet that clearly sets out the prices for each supplier, including
• minimum order size in units and in dollars,
• total cost EXW (or FOB, if that is offered – ie including the shipping costs),
• total shipping cost,
• total cost, and cost per item,
• ease of communication and responsiveness, ranked out of ten,
• manufacturing lead time.
Only if you do this can you see exactly how the different potential suppliers compare. You don’t want to get the cheapest product available and then find you lose all your profit on high shipping costs.
The comparison should also show you the range of prices, and whether there’s much ‘give’ in the price your preferred supplier quoted you. You can probably rule out any outlying extra-low prices as being ‘desperate for the work’ and unusually high prices as ‘don’t need the business’ – but most prices will fall into a relatively narrow range. That gives you a feel for what might be an acceptable initial negotiating position.
Secondly, remember to negotiate! Don’t be afraid of offending your supplier – they will be used to negotiating on the basis of their quotes – and don’t think you’ll lose the deal. If you don’t at least make an attempt to negotiate you are leaving money on the table.
(Just an example of how much good negotiation skills can save; I went to a couple of yard sales with a friend. By the end of the day I worked out that just by politely suggesting she thought a lower price might be appropriate, she’d saved $15 – and she only spent $20 total!)
Know who makes and authorizes decisions at your supplier. It usually isn’t the sales rep you deal with, but the sales rep is your route to the boss, who is the decision-maker. On the other hand, the sales rep may have a certain amount of discretion, so it’s worth finding out if there are things that he or she can do for you without having to get a sign-off.
Make sure you promote yourself as a good customer. Emphasize your long term plans, tell your story, and say how you can benefit your supplier’s business. This gives you a better chance of getting a good deal.
Don’t just negotiate on price. Often, negotiating a bit more for the same price is the most effective way of getting what you want. For instance, you could negotiate better payment terms, which means you pay less upfront and improve your cash flow. Negotiate on the packaging – getting a higher level of packaging for the same price can be a smart move as it makes your product look better compared to the competition, for instance.
Negotiate shipping fees too, whether that’s with the company or with a separate freight forwarder. Without playing too much ding-dong, do get two quotes and if the higher of the two is the supplier you’d prefer, ask if they can match it.
Remember that negotiating your first order isn’t the end of the story. Once you can make a bigger order, renegotiating is more likely to succeed and will have a much bigger effect on your business. If you’ve doubled (or more) the amount you’re ordering, go back and see if you can get a better deal.
Don’t nickel and dime your supplier. Their margins are probably pretty tight. If you end up with a price below their cost input, they’ll have to make up the slack somewhere else – perhaps by giving you cheaper packaging – and since you won’t be their favorite client, you’ll probably find they’re not very responsive to special requests or rush orders.
Finally, remember that negotiation begins the moment you make a sample order. Ask if the cost can be credited against your first order if you choose that supplier. If they say yes – then you’ve got your sample for free.