This post is by Jae Jun, a seven-figure Amazon seller and founder of Gorilla ROI, software that connects Seller Central data to Google Sheets.
You’ve found a brilliant product on Amazon. The scouting methods and tools show you that this is the one.
You’ve gone through the initial steps of:
- Contacting multiple suppliers and requesting samples
- Rigorous sample testing
- Narrowing it down to two suppliers based on the initial samples and price
At this point you are going to enter the negotiation stage as you don’t want to take the quoted prices at face value.
I’m going to share six simple strategies to help you negotiate and get better prices from your suppliers, without sacrificing quality and workmanship.
What is the goal of negotiating?
The goal of your negotiations is to create a win-win scenario with your suppliers.
You want to find the best partner in terms of price and quality. You don’t want to choose a supplier simply because they offer the cheapest price. That could be a fatal mistake because you will likely get what you pay for.
If you are making widgets and supplier A quotes you $1.00 compared to $0.75 for supplier B, it is tempting to start negotiations with supplier B. But they could be using recycled materials for the widgets, taking shortcuts in manufacturing, and have no process for quality control (QC).
By the time you work to improve the quality of the widget and work through QC, your final cost could exceed $1.00.
Let’s take a look at these simple yet effective strategies we have taken to reduce our costs and build long term relationships.
All without making it seem like we were trying to win while the supplier loses.
1. Prepare data for negotiations
For this article, let’s assume you are looking to source yo-yos.
Ever been in a situation where you don’t want to buy something, but because the facts were all laid out on the table, you didn’t have any excuses to say no?
That’s what you need to use to your advantage with suppliers. One of the best practices for any negotiation process is to prepare data to share with the suppliers. This is as quick and easy as making a comparison table.
Here’s a blank template:
|Product:||Supplier A||Supplier B|
And a filled-in example for the yo-yo project:
|Product:||Supplier A||Supplier B|
|String type||Double braided nylon||Cotton threads|
|String length||1.5 meters||1.5 meters|
|Packaging offered||Blister, box, poly bag||Box|
|Lead time||6 weeks||4 weeks|
|QC process||ISO 9001||Internal|
The reason why you want to prepare a table like this is to show the difference between the suppliers very clearly. It puts you in the driving seat of the negotiations based on whether you are going for quality or cost.
You can choose not to disclose some rows from the table, if you feel it puts you into a weaker negotiating position.
However, sharing this type of table shows the two suppliers where they stand with each other. That allows them to “negotiate against themselves” instead of giving you broad statements, quotes and empty promises in order to secure a new customer.
You can adjust the table so that when you are sending it to Supplier A, you show them the data that makes them look weaker than Supplier B and vice versa. You don’t want to select a supplier and then find the cost continually going up in order to meet your final requirements.
In the example above, Supplier A offers better quality, customization and QC. The downsides are that they are more expensive and their lead time is longer.
Supplier B is cheaper and quicker, but their materials are definitely cheaper too. The overall tested quality is slightly lower than Supplier A.
2. Ask for pricing based on quantity tiers
You’ve probably heard that you don’t want to be the first to give out a target price. The initial price of $1.00 could be 20% higher than their existing customers.
No supplier will provide their best price in the first interaction. You are leaving a lot of money on the table if you don’t try to find out what their best pricing is. To get a better idea of the price range, always request three quantity price breaks.
My intention is to order 1,000 yo-yos but I don’t want to disclose this.
Here’s my script:
Dear Supplier A
Thank you for the samples. After rigorous testing we have narrowed our selection to two suppliers and you are one of the last two.
I feel like we are close to finding a good partner.
Please review the table of our comparisons between your factory and the other company. We like your quality, materials and QC process, but the price is very high. Even though the other company has cheaper materials, the difference is too big.
Our company has strict policies during the quote process.
To save time, please provide your best pricing based on:
- 1,000 units
- 5,000 units
- 10,000 units
We will choose our supplier this week and need to get your best pricing if you wish to become our supplier.
Requesting different quantities is to make them think you have bigger long term plans, and also to quickly discover what their true pricing is.
The request for best pricing, and giving them a timeline, will eliminate a lot of the pricing games.
Scenario A: No price change
If you get a response where the pricing does not change much, it’s going to be tougher. It could be that their pricing is already close to their best.
- 1,000 units = $1.00
- 5,000 units = $0.95
- 10,000 units = $0.90
Here’s the follow-up script for this scenario:
Thank you for the pricing.
We are interested in working with your company because you offer good quality product and QC. However, your pricing is far off from what we are comfortable with.
Please provide your best price as we have received very aggressive price from the other supplier who wants to win our business.
Scenario B: Price change
If the price comes down, there’s still probably more room for negotiations.
- 1,000 units = $0.95
- 5,000 units = $0.92
- 10,000 units = $0.90
Here’s the follow-up script:
Thank you for the pricing.
My boss would like to confirm if this is the final and best pricing. We have received very aggressive price from the other supplier. We would like to work with you but need better pricing. Please check again as we are planning to choose the supplier this week.
Most likely, the supplier will want to gain your business. Many sales associates in China earn commissions for sales they bring in. They are incentivized to get the sale, not to achieve the highest price, so use this to your advantage.
3. Make it seem like you are bigger than you are
People will judge you based on how you sound and come across. It sounds sad, but it’s true.
If the factory figures out that you are a very small business, they will be less likely to negotiate or bother to give you the best pricing.
To get around this:
- You can call yourself a team.
- Tell them your role is to source, find suppliers and communicate.
- Mention “the boss” has to get the information and make a decision. You have to get permission from them, or discuss the final pricing.
- Your boss may visit the factory the next time he/she visits China.
If you think this is unethical or not your cup of tea, here’s my counter to that:
- You haven’t lied about anything.
- You are simply referring to yourself in the third person.
- Unless you live in a vacuum, you will have some semblance of a team through using freelancers or VAs, even if you don’t think of it that way.
- You “may” visit China means you could visit next year or ten years later. There is no stated time.
Keep in mind that most big companies today started off small, and represented themselves like this at one point or another to land their breakthrough deal. It’s just part of the hustle. Make the suppliers believe they are working with people who know what they are doing. This will help you uncover the best prices.
Here’s another script you can use during the introductory phase:
Dear Supplier A,
I am responsible for sourcing yo-yos for our company in the UK.
This is a new category for us as our specialty is in healthcare products for the past 5 years. My boss has put me in charge because I have been able to find partners who offers good quality and price.
We have a strong sales history in our market and I would like information on your yo-yos.
4. Ask to purchase an initial test order
If you have a price that you like, a lot of the time the minimum order quantity (MOQ) being asked for by the supplier is too high.
Although you have a quote for 10,000 yo-yos, what if their true MOQ is really 20,000 units to offer the best price?
To offset this, one method is to request a test order of a lower quantity. For this, you may have to sacrifice a little on the price. However, if the product sells well, you’ll be able to back it up with a bigger order.
The second option, but only if you are financially capable, is to create a larger purchase order across multiple different products.
If the supplier wants you to buy 10,000 units, rather than anchoring all those units to one product, you can counter and suggest that you would prefer to buy four different products at 2,500 units each.
Although you are not meeting the 10,000 MOQ per product, you could diversify and limit both your financial risk and your product risk.
Who knows? The yo-yo may be a bust, but the Rubik’s cube you purchased as part of the order could be an unexpected winner. Or the little cheap freebie you planned to include in a bundle may be the differentiator that puts your product on the map.
Unless you are making OEM products where you are designing, creating the mold and defining every aspect of the product, the supplier should easily be able to meet small quantities.
Dear Supplier A,
Your MOQ at this time is too high as this is a new category for us. There is too much risk to buy 10,000 as the very first order.
The most we can do is 2,500 units to test the market for the initial order.
If the product sells well, then I am confident that we will be able to make a bigger order very soon.
5. Present yourself as their dream buyer
Throughout the negotiations, don’t forget to think like a supplier.
- The supplier has the product and wants to sell as much of it as possible.
- They are most likely on commission, so they want your business.
Always work to show that you have a proven track record of selling to the target industry.
It’s all business, so the supplier is eager to see the dollars come in.
They also want to have good partners. Not buyers that are trying to scrooge and pinch every penny at somebody else’s expense.
Suppliers are just like us and they want to work with people who they can trust, communicate and build long-term relationships with.
If your objective is to always lower your cost at the expense of others, the factory can easily cut you off one day and leave you stranded.
6. Change suppliers
If you are negotiating with a supplier you have bought from in the past, and everything you have tried has been is ineffective, say that you will have to find a new supplier. This is often what it takes for them to provide better prices or understand that you really are serious.
It’s happened to us where the supplier knew we relied on them for a certain product, and so they would not budge on anything we asked for or bother to offer better pricing. Quality became worse as they took our business for granted.
We found a new supplier and informed them of our plans to switch factories. Although we didn’t have anything formal with the new supplier, it was enough of a wake-up call for our current factory to provide better pricing and service.
This is only possible if you really are willing to change everything over to a new supplier. If your current factory thinks you are bluffing, you must be able to follow through, otherwise you have lost all current and future negotiations.
Dear Supplier A,
It seems like you are not interested in our business. We have decided to change suppliers as we are not on the same page.
It is a shame because we are confident we are able to sell a lot of the yo-yos in our market.
We are looking for suppliers to have a win-win relationship.
Work for a win-win relationship
There is no single way to negotiate with suppliers, and it’s an ongoing progress.
Today, I’ve taken you through six strategies you should consider.
- Prepare data for negotiations
- Ask for pricing based on quantity tiers
- Make it seem like you are bigger than you are
- Ask to purchase an initial test order
- Present yourself as their dream buyer
- Change suppliers
The goal of negotiating with suppliers for better pricing, quality or service is to ensure your standards are met while getting the best price possible.
You don’t want to offend the supplier or come across as a scrooge who is constantly trying to cut costs. Work for a win-win relationship and successful resolution.
If negotiations continue to fail or the supplier puts up a brick wall, go to your last resort and threaten to change suppliers. Just make sure you are willing to follow through.
Good luck in your negotiations!
This post was by Jae Jun, a seven-figure Amazon seller and founder of Gorilla ROI, software that connects Seller Central data to Google Sheets.