We are often asked how to improve price negotiation with Chinese suppliers in order to lower purchase costs. Indeed, negotiating a better price from suppliers helps cut costs and, therefore, increases your profits, so it’s a worthwhile activity.
Sofeast’s Top 7 Tips For Negotiating Better Prices From Your Chinese supplier
If you’re ready to drive a better bargain with a factory in China, we suggest that you begin with these 7 tips:
1. Do Your Due Diligence On The Supplier Before Negotiating A Price
First of all, we strongly advise our clients to start any cooperation with a chosen supplier by doing a business registration check and an initial factory evaluation.
Business Registration Check
A ‘BRC’ (we provide BRCs at US$99 with the report delivered in 2 working days) helps you assure that your supplier is not a scammer, but is a legitimate entity and a real manufacturer (you don’t want to end up being supplied by a trading company masquerading as a factory).
You will also be able to see their business scope, whether any legal cases against them were opened, and verify their investment capital. Altogether, this will help you to ensure that your future supplier is a well-established factory with a decent reputation.
Initial Factory Evaluation (IFE) Audit
Next, it’s wise to conduct an IFE (we provide IFE audits starting from 279 USD per man-day in major areas of China with extra travel expenses applying in other locations and countries) on your supplier before you start negotiating anything. This audit helps you to determine whether this is the supplier you want to use and spend energy on price negotiation with.
Checking their manufacturing capability should give you a hint about whether it’s going to be possible or even worth negotiating on cost. If the auditor reports a good level of factory management, quality systems in place, full load, and a sufficient number of machines in operation, this suggests that they’d be a good supplier for you. However, it also suggests that they have a good number of orders and so might not be interested in further negotiations.
On the other hand, if your auditor reports that many machines are not in operation, factory management is poor, and so on, this factory might be willing to decrease their price to win your business as they probably don’t have enough orders. Therefore, in this case, you need to weigh up the negatives and decide if you are willing to run the risk of poorer quality and go with them in order to get a lower price.
As a result of running these due diligence checks, you’ll understand how likely it is that your chosen supplier can do a great job and provide any flexibility on costs.
Sofeast’s initial supplier vetting program includes these checks and more in a consolidated program offering better value than purchasing individual solutions. It exists precisely to help importers who are starting out with a potential supplier understand the current situation before any money changes hands.
You’ll also enjoy this post about background checks on Chinese suppliers.
2. Monitor The Market By Getting 5 Quotes
Now, if the BRC and audit show that the factory you’re looking at is capable of producing your product in line with your expectations, you then need to get an understanding of reasonable price.
We suggest monitoring the market by getting quotes from around 5 different suppliers. This enables you to get an overview of the real market price and evaluate whether your given supplier’s price is too high or around the market’s average.
This pricing knowledge allows you to know roughly how far a Chinese supplier can be pushed on price before backing out.
In our experience, reasonable negotiation down is between 1-10% less than the given price, but you’ve got to be aware of the market price to make your supplier feel that you are confident about what you are saying, and are not just trying to get ‘cheap, but high quality’ like everyone else.
3. Play Around With MOQs To Influence Pricing
Your projected purchase quantity is often the first question your supplier will ask you once you ask for the discount.
If you only hit their MOQ, then winning a discount is harder.
Naturally, the greater the volume you plan to buy, the bigger discount you’ll get.
A smaller initial order makes sense to ‘test the water’ with a new supplier. But, even if you don’t plan on ordering a high volume to start with, it may still be possible to obtain a discount.
Instead of considering a single order’s MOQ, share your likely annual order quantity as well as the frequency of your orders as well. If your annual estimate is high enough, your supplier should take notice and believe in cooperating with you.
Interested in sourcing from China? Read our FREE ‘Ultimate Guide To Sourcing From China And Developing Your Suppliers‘ eBook
This 80+ page eBook starts from the beginning of your project examining whether or not you need to hire a sourcing agent and follows the manufacturing process right through to developing a trusted supplier. This results in superior quality and productivity which will return dividends for you in the future.
4. Build Your Supplier’s Trust In Your Business
Sharing some of your business and market information with your Chinese supplier helps them to take you seriously. If they can see that you’re well-established and have already put products on the market, you become a compelling proposition for them to consider. Helping them to understand your market and where you fit in better will also build bridges, as they may not be at all familiar with your niche.
They want a win-win relationship as much as you do, so if you’re able to show them some decent financials, solid growth, and ambitious, but realistic, plans for the future, then they’re more likely to prioritise your new relationship and provide better pricing, quality, and lead times you can rely on.
No need to give away the farm here, but some evidence to back up your requirements will go a long way.
5. Adjust Payment Terms To Snag Better Discounts
Another trick to getting a discount from your supplier in China is to play around with the initial deposit. The average payment terms are usually 30% when placing the order and 70% before shipment (for more competitive industries, it may be more like 30% before production / 50% just after shipment / 20% after delivery to your warehouse).
However, you can suggest more favourable payment terms for the supplier, such as 40/60, in return for a lower price negotiation.
Using letters of credit can also help you avoid the deposit. Here’s what I wrote about them on QualityInspection.org:
Similarly, if you plan to use letters of credit, you need to mention it the very first time you exchange with a potential supplier. If they refuse this payment mode, or if the amount of your orders is too low to justify a letter of credit, it is best to know about it right away.
The advantage of a letter of credit is that you don’t get “hooked” by a 30% down payment (which is never ever sent back by a supplier to a customer).
6. Be The Perfect Customer
Importing from China is a two-way street.
If you request endless samples without actually making a purchase, don’t have transparent communication, and change the payment terms and deadlines frequently, this will not make you a valued customer.
The same applies to trying to drive too hard a bargain. If you know the market price then it’s sensible not to push too hard. Even if you manage to push a factory into slashing prices beyond what they are comfortable with, don’t be surprised if your product quality comes back lower than expected, as they may well try to claw back the margin through other means…
If you have everything on track and in time and can agree on a mutually reasonable price, the supplier won’t want to lose your custom and most likely will try to cater to your needs in the future.
7. Manage Your Order And Project Locally
Currently, a number of B2B platforms, namely Alibaba, GlobalSources, and so on, offer an English interface which allows foreign importers to find and negotiate with Chinese suppliers by themselves.
Sourcing like this might seem like it could save you some cash, but in reality, often leads to more expensive deals compared to suppliers found by a Chinese local.
Alibaba, for instance, is quite expensive for suppliers to be featured in. Gold supplier status costs almost RMB 30,000 per year, and this will be clawed back via the pricing they give to customers.
It is usually hard for foreign buyers to negotiate the best price with a factory’s sales rep by email when they’re thousands of miles away, in a vastly different time zone, and probably only speak reasonable English at best.
Therefore, allocating a local project manager who can find suppliers outside the likes of Alibaba and Global Sources, as well as overcome the language barrier and bring you true clarity, will benefit your business in the long run.
To conclude, improving price negotiation to reach a mutually beneficial agreement with Chinese suppliers will help you:
- Decrease your purchase costs
- Improve quality
- Improve lead times
- Build a good, lasting relationship with trusted suppliers
Have you used any of the tips we’ve shared here to get these benefits? What other ideas or experiences can you share to help other importers with price negotiation and sourcing? Let us know by leaving a comment below.
Can Sofeast Help Me Find Chinese Suppliers And Get A Great Price?
Sofeast acts as your buying office where we handle your manufacturing project in China from start to finish.
We conduct price negotiation on your behalf, make payments in local currency (if needed), order and review samples, consolidate them for a bulk shipment to you (saving you shipment charges), place and follow up on your orders, provide compliance and quality assurance support, and more.
If you’ve got a project in the works that you need help with, let’s have a discussion. Just hit the button below to book a free consultation to talk through your requirements and learn if we’re a good fit for your business.
Excellent article. I’m going through a few of these
issues as well..