Learning import negotiation skills might way down your ‘to learn list’ but it doesn’t need to be. Having the right skills and mindset from the beginning will pay dividends once you gain more experience over time.
This tutorial covers the seven core subjects to good import negotiation skills so next time you are communicating with Chinese suppliers you will better prepared to get the best possible deal.
Many sellers online, be it Amazon or eCommerce, will always go for the lowest price when communicating with suppliers. This is the obvious choice of negotiation as that is where the bulk of the money will be spent. But did you know there are many other things you can negotiate with Chinese suppliers? In fact, if done right, the other points that we will cover in this tutorial will have a much bigger impact on your bottom line than the price of the goods.
Many beginners get through the product research process, find the perfect product then strike a crappy deal with the factory. This I put down to two newbie seller fears.
The first is that they have just put their heart and soul into finding the product and are worried that by negotiating they will upset the factory and the deal will fall through.
The second is a fear of saying the wrong thing and the supplier being offended.
Both of these fears are natural. Supplier negotiation is something that most new and seasoned sellers will admit is not in their wheelhouse and they are far removed from their comfort zone.
In this Import negotiation guide you will learn the following:
- Avoid leaving money on the table by spotting common mistakes newbies and veterans make all the time.
- Learn six things you can negotiate besides price.
- Chinese mindset is completely different to the west. Learn to understand the mindset of Chinese suppliers to negotiate more effectively and get the best deal.
- Just because a price makes you profit does not make it correct. Quickly find the right price you should be negotiating for.
- Finding the boss. You will only get a small amount of leeway with sales staff. Learn how to find and communicate with the boss to get the outcomes you want.
- When negotiating you can either email, call or meet face to face. Learn which one of these you should do and when.
- You will have all of the tools and confidence needed to negotiate with suppliers
I live in London and nearly every day of the week there are markets in the streets where local people can sell the products and produce. Since I was a kid I used to buy all my food from market stalls.
Now when walking around markets you will see two types of stall.
The first are ones owned by Londoners who have grown up in the local area and have probably worked that stall all their lives. Their products will be clearly priced and that price has very little flexibility. You might be able to get a few pence off but not much and stall owner won’t be happy about it.
The second type of stalls…
are owned by immigrants from China, Africa and Eastern Europe. Their products are just as good and often better. They are all very friendly and welcoming as you walk by and look at what’s on display. But there are no price tags…
This can be quite off-putting if you are not familiar with it but the only way you can learn the price is to ask.
They will take a glance at you, maybe size you up and make a starting offer.
This first offer is always going to be high but what matters is your counter offer.
Too low and the stall owner will be offended, wave his hand and walk away.
Too high and he will accept and you have left money on the table.
There are very few places like the markets of London where these two mindsets are so starkly placed next to each other. It also perfectly illustrates how your mindset should be when negotiating with suppliers.
Forget Your Comfort Zone
It is human nature to stay in the warm, stick to the well-worn track. Only when you leave the track, start taking risks and developing a bit of thick skin does life become interesting.
Well, this is no different from import negotiation.
Your mindset is held in place by two things:
The first is the fear of failure or rejection. This is very common and something I struggle with a lot but learning to have people say “no” to you isn’t really that bad. A top Entrepreneur called Noah Kagan has many fun challenges that conquer this. One of which I did was to ask everyone on your Facebook for a $1 or £1 in my case. You wouldn’t believe how many people said no or didn’t reply and others who actually made the trip to my house and physically gave me the £1.
Noah also runs the Stranger Challenge which is another way to get you out there and break those fears. (https://appsumo.com/how-to-make-your-first-dollar/failure-olympics/stranger-challenge/)
The second is ANALYSIS PARALYSIS (put in capitals for dramatic effect). This is a disease that many sellers and entrepreneurs suffer from the world over. Once they have enough information, they keep going back and forth over the numbers. Or they keep trying to research for more information. They keep putting off making the call, or asking for a better price, or submitting the purchase order, or wiring the money.
It’s human nature but this will not move your business forward.
What to Negotiate Other Than Price to get the Best Deal
One of the golden rules when sourcing products from China is you get what you pay for.
Many sellers will always try to go for the lowest price and not for the best deal. If you order a cheap product then that product will be cheap quality. Do you think a factory is going to accept a low rock bottom price and then manufacture a high-quality product?? Not likely.
It is recommended you contact as many suppliers as possible and cast the net as wide as you can. Do not worry too much if they are trading companies for now as at this early stage you are doing research to get the market pricing.
Once you get a good amount of replies back, this should give you a “ballpark” figure and a rough idea of what the market price is and where to begin negotiating.
Please do not negotiate with all of the suppliers that have replied. This will take forever and there is really no need.
Go through the listing of the suppliers and cherry-pick out 2 or 3 of the best looking that fit the criteria you want and look the most reputable.
Take a look at the video below from our paid training courses if you are new to negotiating with suppliers or want to know what to look for on an Alibaba listing.
Quote price filtering
Some suppliers are going to quote you prices that will be high and some will be very low.
The high prices are probably marked up because of middlemen or trading companies and the low prices will either be false to get you in the door or terrible quality.
The high and low quotes should be removed from consideration and a good midpoint price should be considered.
NOTE: You will not get the best pricing on your first order.
When placing your first order with a factory, a trial order is commonplace. This will be a considerably lower amount than the factory is used to producing.
This will give you very little leverage to negotiate a better deal. Once you volumes go up, say on your trial order was 500 units and then on your second, it was 5000 you can then expect to negotiate better pricing.
So please remember not to nickel and dime your new supplier of the trial order, their margins can be tight too. If the price is good and in the ballpark then take the deal and you’ll be able to get a better deal as your volumes increase and the relationship with your supplier grows.
Getting Better Payment Terms
Cash flow is essential in any business and can be a very important negotiating tactic which is often overlooked when doing business with suppliers.
The earlier you pay your supplier the less cash you will have for other parts of your business and its expenses. Like shipping, rent, Amazon marketing.
Negotiating better payment terms means you can hold off paying your supplier until you have generated more sales and getting more cash flow to finally pay for the order.
It’s common to pay 30% up front as advanced payment and 70% before shipping or upon the bill of lading. This can get a lot better over time as your relationship and trust with the supplier develops.
Samples are an essential building block and will give you a lot of information about the product and the factory.
Remeber the sample a factory sends you is them trying to win your business and is their best representation. I had a sample a few years back show up 4 weeks later and it stunk of second-hand cigarette smoke. The factory then followed up asking if I would like to make an order…
When ordering the sample be sure to ask that the fees be credited when you place your first order. This will do two things:
First, you will, in essence, get that sample and the shipping for free.
Second, it shows the factory that you are interested in making a larger order in the future.
This is a very common practice, all you have to do is get out of your comfort zone and ASK.
Check out this video on samples and what to look when ordering your samples.
When arranging to ship your samples and trial order its standard practice to let the factory sort this out as they will probably get the best price anyway.
But after that, once your orders have increased you can negotiate the price with your freight forwarder. Shipping cost varies considerably between forwarders and it is worth shopping around and then playing them off against each other to get the best price.
The key here again is to ask!…. And sometimes be a little bit cocky. If a freight forwarder quotes you a good price go to another and ask if they can beat it. If they say yes get that quote and go back to the initial forwarder until you have the optimal price.
Be warned that shipping costs fluctuate dramatically throughout the year especially during peak season months and Chinese New Year. It’s also worth noting that most factories close during Chinese New Year and some even leading up to it.
Packaging and Labelling
Packaging options can range from a simple PP bag to a luxurious Apple-esque box. The pricing on the packaging is based on a sliding scale as well. Often times if you want a simple package or box that the factory has done before, they will be able to include it at little or no additional cost.
Note: They don’t manufacture this in-house and will outsource it to a packaging company which is normal business practice.
So it’s up to you to decide on your packaging quality that strikes a balance between the added value that the packaging brings to the customer and enhancing your brand image. Because this will come at a cost and also the time it takes to develop it.
Be careful about going with packaging that is too “cheap”. This will diminish the image of your brand and make a bad first impression when your customers receive your product. PP bags or plastic bags are an example of this.
Though you can cheaply and quickly get these made to package your products, it doesn’t do anything to help the customer experience and in fact, might even “cheapen” an otherwise quality product. This may even leave a NEGATIVE first impression in the eyes of your customers and make them more likely to look for problems and leave you a negative review.
For adding the Amazon FBA FNSKU stickers it is a no-brainer to have them printed on when arranging to package as that will save a lot of expense and time once the order has been shipped.
Make sure when you arrange to have the FNSKU printed or attached that you provide crystal clear guidelines and monitor the production process. Also, if possible, arrange a pre-shipment inspection so the risk will be reduced to pretty much zero.
Methods of Import Negotiation
There are multiple ways to communicate with your supplier during the import negotiation process both have their pros and cons. Let’s go through each of them and ill include some hints and tips.
Face to face Import Negotiation
There is a common phrase that you only get half the conversation on the phone. If that’s the case then you only get a quarter of the conversation with email or messaging.
When it comes to doing business, there is no better way to communicate with your suppliers than face to face. This not only shows a level of commitment to the relationship that cannot be beaten but you can also read their body language, facial expressions and mannerisms to gauge whether they are keen on the deal or if there is cause for concern.
There are however a few big cons with meeting your suppliers in China. The first being the time commitment. To make your trip worthwhile be prepared to spend at least 5 – 7 days in the country.
I suffer very badly with jet lag. This differs from person to person but normally I will take a few extra days if possible to compensate for this. If I don’t then I look like a zombie and productivity, let alone import negotiation is difficult.
One of the biggest advantages to meeting in China…
is being able to tour the factory. This will give you big insight into the legitimacy of the business, see any glaring problems, view their equipment, safety measures, cleanliness and certifications. You should also be able to judge if there is anything underhand going on. I have had friends who have been toured around a factory that didn’t belong to their suppliers and they had been doing business with a trading company the whole time.
Also sometimes the conditions of a factory can be terrible and to be in business with people who can’t look after their own staff speak dividends about their character.
Try to schedule a face to face meeting with a factory when trade shows or other events are taking place. One of the worlds biggest trade shows take place in China twice a year and is a must to visit. The Canton Fair has representation from all over China and if your supplier is established they will be there too. Be sure to meet them at the show and get a factory tour too if possible.
If time is a factor The Canton Fair or other trade shows are a great way to quickly size up the company you are dealing with and source new product lines too. This will get you an initial face to face meeting with the supplier which is invaluable.
Skype or Telephone Call
The next level down from a face to face meeting is a Skype or phone call and should be your go-to mode of communication with factories and suppliers. When
I started out importing and selling online I would only use email. This not only took longer but was extremely limited in the relationship that could be established. A year or two later when I finally went to meet a supplier he actually called me “The email man”…
Using Skype is extremely cost-effective and a long call to China will cost you only a small amount. The benefits, however, are huge. Not only can you get everything covered in a quick space of time but you also get a lot more information too.
For example, if you are asking a lot of questions you will be able to gauge how quickly and willingly they respond? Were they happy to answer all the questions and had good detailed answers? Or did it sound laboured? Was there irritation in his/her voice?
I had a call recently where it sounded like he was on a building site. He made no effort to go anywhere quieter and was having a conversation with someone else at the same time. This made me a little frustrated and I felt he wasn’t taking the business deal seriously.
Get To Know Your Supplier
When calling your supplier don’t just jump straight into business and start firing questions at them. You could be working with these people for many years so building some rapport and getting off on the right foot is essential. Talk about the weather over there and in your home country, sports, family or just how they’re doing. This will get you and the supplier more relaxed and settled into the call.
The main disadvantages of phone calls are language barriers. For nearly all Chinese people English is their second language and sometimes it’s easy to forget.
Try to keep the level of your English simple. Using jokes, quotes from films or metaphors can cause confusion or be misunderstood.
Speak slow simple English and ask if they understand what you have just said. After a few times of doing this with the same person, you will know their English skill and be able to adapt accordingly.
Email & Messaging
An email should really be used just for RFQ’s and initial communication. Once you have found a supplier that you like and want to move forward with than getting them on the end of a phone should be a priority.
Emails are great because you can send out loads to loads of different suppliers when enquiring about products or doing pricing research but once this is complete moving to Skype is very important.
The only other form of communication to add is a messaging service called WeChat. This is a messaging service in China that is massive and is used by everyone over there. WeChat is great for sending images or quick messages to your supplier. Send videos if there is a problem with the product or damage during shipping that needs to be addressed. It will also show that you are familiar and happy to use multiple forms of communication to build a better relationship with your supplier.
Who’s The Boss
If you are dealing with a Chinese factory then it’s important to know the key players involved. By recognizing the roles and more important the decision-making capabilities of the people involved, you can more astutely negotiate with the right people to get your desired outcome.
Sales representative — The messenger
The person that you deal with day to day from the factory during import negotiation is likely the sales representative. They handle inquiries from online platforms like Global Sources, and they normally make the rounds of trade shows like the Canton Fair. Normally this person is a millennial, has a basic if not good command of English, and is eager to do business with you.
You probably have a positive relationship with them as you are dealing with them day-to-day.
However, it’s important to know that THEY ARE NOT THE DECISION MAKER. There is a severe limit to their power and how much they can do.
Normally they don’t have the ability to decide lower pricing below what’s normally ordered, arrange extended payment terms, or agree to your modifications without permission from above. If you are negotiating one of these things, normally they will have to report this to their supervisor or to the owner directly. And he or she will then make the final call.
In fact within the organization that’s a Chinese factory, I consider it a DICTATORSHIP
The Factory Owner – The Emperor
The owner is the EMPEROR and they call the shots whether a deal can go through extended payment terms or any other decision that is to be made.
This is reinforced further and deeply ingrained in Chinese culture in terms of respect for authority figures and elders.
So the sales representative does not have the authority to make difficult decisions during import negotiation. However, they can be the messenger to the boss.
Your relationship with the sales rep can increase or decrease your chances of success. So make sure to clearly explain how your order can not only benefit you but also benefit the supplier’s business.
In cases of advanced import negotiations, if the owner is present, even if he doesn’t understand a word of English, he is giving you major “face” or respect. So this is a golden opportunity to explain your case, tell him your story if you haven’t already, and engage in negotiations.
If done properly this decision can be made during the meeting. Or at least to get the ball rolling and have the right people to follow up on finding out if they can meet your target price, x your quality problem, or make the modifications you need to stay ahead of your competition.
Remember the factory boss has ALL of the decision-making power.