Negotiating a competitive price with Alibaba suppliers

Before you approach a supplier on Alibaba, you should have a baseline price in mind
so you can set a reasonable price goal for your negotiation. Having a solid baseline price will
make the negotiations much easier.

Successful price negotiation is about finding the right equilibrium, where you pay
the right price for the right quality
 This is covered
Going too hard on the price negotiation can result in terrible quality issues and unanswered
calls.

• Set your target price

• Price negotiation is expected in China
• Accept that the supplier must also make a decent profit
• Be clear about your quality requirements before you
start negotiating
• Price negotiations must be done at the right time
• Be ready to walk away at any time
• Stay up to date on raw material costs
• Other ways to get a better price
 Set a realistic target price

Before you can engage in meaningful price negotiation, you need to set your target price. If
you don’t already have one, you’ll need to contact suppliers to request quotations, and thereby
find a price baseline.
Your supplier will ask you for both your specifications and target price when asking for a lower
price. Sometimes they even ask before sending an initial quotation.
 Price negotiation is expected in China

Chinese suppliers don’t expect you to accept the first price offer. Price negotiation is even
expected, and you’ll surprise your supplier if you don’t even bother to raise the question.
While there are limits to how far you should push the price, it’s alright to send them your target
price and ask them to go down to match it.
Some may lower a bit while others walk away.
If the supplier quotes a price that’s way above your target price then ask why, and also share
prices offered by other suppliers.
Further, I recommend that you request a price reduction shortly after having received the
initial price quotation from the supplier.
 Accept that the supplier must also make a decent profit

Rather few AMZ SELLERS are aware of the (very) low-profit margins that most Chinese suppliers
struggle with. It’s simply not possible for them to offer a 10 to 20% price reduction unless the
price was way off, to begin with.
Asking them to lower the price more than 3 to 5% is the same as asking the supplier not to lose
money on your order.
Yet, many AMZ SELLERS are obsessed with price haggling and try to force the supplier to
make a loss.
If you’re lucky, the supplier will simply tell you to go somewhere else. If you are not as lucky,
they may actually give in and lower themselves to your (unrealistic) target price – and adjust
product quality accordingly, something that may come as a nasty surprise further down the line.
A product can be made using various different quality standards, materials, and components.
 Be clear about your quality requirements before you start negotiating

A product can, as I mentioned, be made using different materials and components.

You need to have a ‘fixed’ product specification and understanding of what makes or breaks
the quality of your product.
Otherwise, you can’t say if a price is good, or bad.
 Price negotiations must be done at the right time

You can’t start negotiating after a supplier has made the prototypes for you. At this
stage, they already know that they got you. They already know that you will place an order.
Hence, they have no incentive to reduce the price.
What else will you do at this stage? You have spent months, and dollars, on samples and
molds. Negotiate the price before you make any commitments to the supplier, not when you are
stuck.
 Be ready to walk away at any time

Let’s look at price negotiation from the opposite side.

What if the supplier decides the raise the price, just when you are about to place the order?
This happens, and the suppliers tend to have all sorts of reasons. Labor costs went up. Taxes
went up. Material costs go up. It’s their ‘most busy season’.
It doesn’t matter. They got you, or at least they think they do.
If a supplier tries to rip you off at this stage, you must be ready to walk away.
Yes, even if that means you have to start over from scratch. Or well, at least go back to the
product sampling process.
If you let the supplier bully you even before you have placed an order, you are safe to assume
that they will continue such behavior in the future.
 Stay up to date on raw material costs

When you engage a supplier, you should mention that you have read up on current

commodity and raw material prices.

This will weaken the case for the supplier to offer a higher price, or raise the price between
orders. However, labor costs increases have panned out in recent years, and
the Chinese government has been
 Other ways to get a better price from a factory

Methods that will likely reduce your price far more.

• Buy larger volumes

• Use standard materials and components
• Avoid unnecessary product customization
• Book sea freight instead of air freight