If this is your first time working with a factory and you production size is small (less than $50,000), then it is safe to assume you don’t hold a lot of negotiation power. Instead, your focus on a successful negotiation should be ensuring all parties understand the major points of the production requirements, and the small or minor points are discussed.
Factories are often working on razor thin margins, and one of the ideal ways to ensure product quality is to be confident the factory is making enough money off an order for them to demonstrate some degree of care.
When you beat a factory down on price, you’re the one who loses. Your quality virtually always goes down with the price, when you negotiate in this fashion. We can attempt to shave some percentage points off the price, we suggest your focus be placed on the long term, cost saving tactics for negotiating.
Below are half a dozen suggestions we would like to present to you, so you can begin to inform us of your negotiation goals.
- Additional Units: Sometimes the easiest way to avoid the uncertainty of what will happen when defective units are identified are to negotiate added pieces into the production, for no extra charge. We can ask the factory what their defect rate is, and then ask them to include that amount in the production to cover their mistakes.
- Included Label or Product Preparation: If you plan on shipping your goods to a fulfillment warehouse, or barcodes and warning label stickers need to be applied to your product, requesting the factory perform this for no additional cost can end up saving money. Since Amazon charges up to $1.00 per product for this service, this can not only save you money but bring your unit cost down without affecting the quoted price.
- Better Payment Terms in the Future: If you are confident you will be placing product reorders, paving the way for a prosperous future will give confidence to the factory. It is also easier for factories to agree to things that are not required of them immediately.
- Linking Final Payment to the Inspection: This one goes without saying. However, there are various ways of formatting it. The idea is to ensure the factory knows the final deposit will not be paid until the quality control inspection passes. On top of this, you can work to have the factory agree to pay for a second quality control inspection, in the event the first does not pass.
- Chargebacks for defective units at point of sale: This one is often rather difficult, as the factory has little way of determining how many defective units exist without having the goods shipped back to them, which is incredibly costly. However, the idea is as follows; the factory is responsible for defective units after the goods are sold to the end user. This can either be done by the factory refunding the cost of defective units, shipping additional units after defects are discovered, or including additional units in the following productions. Of the three scenarios, they are listed in most difficult to get factories to agree to, to easiest.
What Not to Expect:
In general, factories tend to be conservative when it comes to ideas; however, that does not mean creative or unique deals can’t be presented to the factory. Below are some things you should not expect to happen during your negotiation:
- Beating down the price: Just don’t.
- Negotiating some much that the production is no longer straightforward: Just as factories are a dime a dozen, so are importers. Do your best to be a pleasure to work with and don’t make an already difficult job, harder for factories. The whole process to get to this point took a lot of work because factories are inherently faulty, try not to confuse them and risk your deal flopping.
- Removing the ability for factories to profit: Factories are in business to manufacture goods. And while there are times they will make a deal to lose money in hopes of the bigger picture, it is a short term mindset if you are an importer who sets out to get a factory to do this. Do your part in an international business deal and accept another company's right to operate.
- Getting your way with everything: To negotiate adequately, you need to have something to offer. While we do our best to assist in that regard, if your requests are not being met, your reach may be too far. Profitable importing businesses take time to grow. Don’t expect to be treated like a king or queen on your first production with a new factory.