Every $1 you save is $1 extra profit. In the short term, this does not seem like a lot. But what if you sell 30,000 units a year?
The cheaper your product is – the higher your profit margin will be and the less you need to invest in inventory. Your cash flow improves too.
We will cover some of our top strategies for reducing your costs.
Finding a Supplier
If you only ask 3 factories for a quote – it is unlikely you will get the best item for the best price. It is super important to make sure that you have contacted every available supplier for the item. Go through Thomas Net, Alibaba, Global Sources and any other platforms that may have suppliers making your type of item.
Request quotes from all the suppliers that can make your product. This way, you can be sure to have the best initial pricing. You will also get the best quality product this way too!
Even if you have an existing product already selling on Amazon – you can reduce the price by negotiating with your existing supplier or changing suppliers.
Give your top 10 suppliers a competitive target price to hit. E.g. If all the suppliers quote you $4 to $8 for your item – ask them all if they can do it for $3.20 and see what they say. If they say – no – and come back at $3.50 you still just saved over 10%!
If your target product sells for around $30 on Amazon, you want to buy it for under $6 to maximize margins. Start with giving suppliers a target price lower than your optimal buy price.
Suppliers usually have a very large margin built into the product. They expect to negotiate and might have 10 to 30% added into the product just to give away as a discount. By giving them a low target price, a few of the suppliers will come back with much better pricing.
Stick With It
Of course – most suppliers will not suddenly offer you a big discount. Some factories will tell you they cannot lower the price because of the cost of staff, the currency exchange rate, freight costs, material costs or 100 other reasons. You have to be willing to hold firm on a lower price target and keep finding ways to get the supplier to reduce costs. Most sellers give up negotiation after 1 or 2 emails – or they never even challenge the factory’s price.
Most suppliers will tell you they are that price as their product is better quality. Get samples and compare suppliers. That way you can see which product is the best price and quality and use that to compare every offer you get.
Your factory is most likely an expert on the product. You can ask your suppliers for other ways to reduce the cost of the item. A lower cost item does not have to mean lower quality. Some products have many steps in the manufacturing process or they might have some unnecessary parts.
You can work with the factory to choose better value materials to use in order to reduce the costs. Sometimes asking them to quote the different costs of the components can help highlight what is making the item too expensive. Maybe removing 1 small non essential feature can reduce the price a lot.
Locals nearly always get better pricing than foreigners. Partly because they can negotiate with the factory face to face and also because they might be more familiar with the product too. If you are buying from China, it makes sense to get a local agent who speaks Chinese.
Once you are ready to order – and you have your shortlist of 3 suppliers – you can use this strategy.
Tell them you have the order in your hand and can give it to them that day – IF they hit a lower target price. They will be more aggressive in lowering the price if they know that you have the order ready and can go forward fast. Every sales person wants to make a sale.
Other Ways A big component of the price of the item is the packaging – both the material and the method it is packed. There are lots of ways to reduce the price of your item by using simpler materials without lowering the standard. Check your quotes also as sometimes the factory includes their standard gift box in the quote they send you too.