Jack Sparks – Negotiating with a Manufacturer for Your Private Label Business Like a Boss!
Jack Sparks is back with some great advice and insight into his Private Label journey. Private Label is something to consider when trying to maximise the money you make from Amazon. I’ll leave you in Jack’s more than capable hands…
Jack is an incredibly valuable member of the Life Success Accelerator program and my other Facebook masterminds – Online Arbitrage Mastery and Life Success Engineer Mastery. If you missed it, check out Jack’s first article!
Negotiating – with Jack Sparks
Negotiating with a manufacturer/supplier is a very important aspect of Private Label. How well you handle this will impact your bottom line tremendously. Profit and losses can sometimes come down to pennies (not advised!) So, you need to ensure you get the best prices first time. When starting off, we also must deal with trying to order smaller quantities than the MOQ (Minimum Order Quantity) too. This can make negotiating even tougher! In this article, I will share how I managed to reduce the cost per unit by a large margin and reduce the MOQ of 1000 to 100.
Getting below the MOQ
1 tactic that is crucial for getting the best price and fewer units initially is to leverage the future! You must remember that these manufacturers want to be your Private Label business supplier! They will be happy to reduce the cost per unit as this deal you are making may (and hopefully will) lead to 10+ more orders down the line at much higher quantities! The factory’s negotiator is thinking about this, not about the $0.20 or $0.30 saved today! You must understand that you are not screwing the manufacturer over, you are trying to reach a mutually beneficial consensus that works for everyone.
Therefore, it is vital to put heavy emphasis on the future in your communications to the manufacturer and your intent to order much more later on. For instance, you may say “If all goes well and we are satisfied that the standards have been met, we will be looking to order larger quantities (500+)”.It is important to come across as a big company that is ready to spend, therefore it can at first seem like a contradiction that you also are trying to order just 100 units or so initially. However, there is a way around this. You should say that you are wanting to place a trial order initially for your customers to test out. This is a perfectly reasonable thing to request and most manufacturers will allow you to place a trial order in a smaller quantity. It is also true! You want to test the products with on the Amazon marketplace before you go all in. You should avoid saying things such as “we cannot afford more” or “we won’t be ordering that many” but this is common sense. You want to come across as big! A trial order will show that you mean business and allow you to order quantities in a more reasonable range.
So, make sure to 1. Emphasise building future trade relationships by mentioning future orders and 2. Place a Trial order.
It is highly likely that for whatever you are selling there are multiple options on the platforms such as Alibaba. Therefore, it is pivotal to study all viable options! This is relevant to negotiating as if you are able to quote a better price from one manufacturer to another which will not budge, they may start to chase you up with a better deal.
I was stuck between two manufacturers for my product. One was adamant at $4.50 a unit, the other went all the way down to $3.70. The $4.50 one was higher quality, I was sure of that, but the margins did not make sense at their price! In a last-ditch effort, I told them I got a quote for $3.70 and if they could match it, full well knowing this was a HUGE drop! They did not go for it, but they did slash their price to $4.15 with the promise of going down further to $4.00 when I ordered their MOQ! This offer was good enough and we went ahead.
Remember, the more prices you have, the better. If there is one that is the cheapest, and all others will not go as low and you are sure they are legitimate, don’t push it, as they are likely giving you a very good price already! There is a fine line between mutually successful deals and deals that are unfair on one party. Your job is to lower the price so that prices are mutually beneficial!
The conclusion here is to get as many viable quotes as possible and use these quotes as a way to accurately gauge what a good price is, and use these prices as a way to create leverage in negotiation.
Negotiating the future deals NOW
Throughout the entire negotiation which I got a reduced price, I was never negotiating for the 100 units I wanted to purchase. Stay with me on this!
I was negotiating for the purchase of 500 units I would make in the future, as well as the purchase of 1000 units I would also place in the future! By doing this, I showed that I was the real deal. To do what I did you will immediately capture their attention and they want to do business with you. This makes them think long term gain for short-term sacrifice vs you being the person wanting to buy 100 today who will not likely be back in their mind.
With long-term in mind, the manufacturer will be flexible to the idea of negotiating. So, negotiate for larger orders then make it clear first that you want to place a trial order for say 100 units that you are happy to pay $0.10 extra on top of the would be cost for 500 units. They will be unlikely to penny pinch this extra $10 on such an order and you have a much-improved price!
The conclusion here is to make the focus of the deal about the long-term gain of future orders, not about the 1 small order today in the short term.
Negotiating is a skill and what you must understand is that you are not being rude asking for a discount! What you want to do is lower the price to the best price of all the manufacturers, allowing them to make profit and allowing you to increase your margins.
It is also vital to place yourself as a big business and to emphasise future orders to change the mindset of the deal. This will allow you to get the best prices and place orders under the MOQ.
- Place a ‘trial order’ if they have high MOQ’s
- Get as many price quotes as possible
- Negotiate the future to change the focus of the deal
Before I go…
It is important to mention here that the goal of every deal should be to make them win-win deals!
“But I want the best price!”
By getting the best price today and pushing a supplier to the absolute edge, you may cause them to resent negotiating with you, the deal to them becomes about trying to get the most from you, because they do not respect you in business.
In the long term, you will come out on top by being firm but fair. Because if you can build a friendly relationship with the supplier, you will find they will present opportunities to you before anyone else. You will also get random discounts in return for your loyalty to them. Win-Win business always pays in the long term! So be firm, but fair!
Thanks for reading and good luck on your Private Label journey!
I hope you enjoyed Jack’s first contribution! Leave a comment for us if there’s anything you’d like Jack to discuss!
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