We are going to cover different strategies on how you can lower your cost of goods. Every $1 you save is an extra $1 of profit margin.
The most important step in getting the best price for a product is to make sure that you have contacted every available supplier for the item. Go through Alibaba, Global Sources and any other platforms that may have suppliers making your type of item.
Request quotes from all the factories you find that can make the product. This way, you can be sure to have the best initial pricing.
#2 Target Price
For the best 3 to 5 suppliers, give them a low target price to hit. If your target product sells for around $30 on Amazon, you want to buy it for under $6 to maximize margins. Start with giving factories a target price lower than your optimal buy price.
Many factories have a large margin built into the product. They expect to negotiate. By giving them a low target price, a few of the suppliers will come back with much better pricing.
#3 Cost Engineering
Ask the supplier for other ways to reduce the cost of the item. A lower cost item does not have to mean lower quality. Some products have many steps in the manufacturing process or they may have unnecessary parts. You can work with the factory to choose the best value materials in order to reduce the costs. Sometimes asking them to quote the different costs of the components can help highlight what is making the item too expensive.
#4 Don’t Accept Excuses
Some factories will tell you they cannot lower the price because of the cost of labor, the currency exchange rate or 100 other reasons. You have to be willing to hold firm on a lower price target and keep finding ways to get the supplier to reduce costs. Most sellers give up negotiation after 1 or 2 emails – or they never even challenge the factory’s price.
#5 Use a local agent
I was living in China and visiting factories. My prices were 30% below my competition’s costs because I would negotiate with the factory face to face. But, I found when I used a local agent who spoke Chinese, my prices dropped even more. Factories charge you more simply because you are a foreigner and might not know the real cost of production.
#6 Confirmed Order
I found that once I had narrowed down to 2 or 3 suppliers, the best way to get the final price drop would be to tell them I had a confirmed order that I could place that day. What I mean is, once you are ready to order and everything is finalized, tell the factory you can give them the order today IF they can hit a lower price target. I was able to shave an extra few % of the cost of the product this way.
A big component of the price of the item is how it is packed and the packaging. There are lots of ways to reduce the price further by using more simple packaging such as a printed paper carton. Sometimes the factory includes their standard gift box in the quote they send you too.
#8 Visit the supplier
It is hard for the factory to feel that you are a serious buyer if you have never even visited their facility. I found that factories I had visited personally, spoken with and toured their facility usually gave me a better price. Build a relationship with your representative and this will help when it comes to asking for concessions on price or lead time.
Start with contacting as many factories as possible to get a wide range of prices. Don’t assume the first price they give you is the best price. Give them a lower target to hit and let them bring the costs down. Work with the factory to reduce the cost of the components. Sometimes handing over sourcing to a local can save you more than the 10% an agent usually charges.