Looking for the Cheapest Chinese Manufacturer? Think Again! [Podcast Ep00, 01]
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Low prices, while on the surface are very attractive and appear to give you a big margin, need to be treated with caution.
You’re not looking for the lowest price.
You’re looking for the best product, at the best value, at a price that works for you.
Remember what matters is what will the customer pay for the product.
Not what you can buy the product for or how low you can buy it.
Of course, you want to maximize your margin and buy at the best possible prices, but not at the cost of quality.
You need to always ensure that the price you’re paying includes the specifications and the quality standards that you’re going to need for your product.
Omitting these issues from the discussion and only focusing on the price when you’re negotiating, will definitely lead to problems down the road.
Either you’ll end up with a substandard product or you’ll get hit with price increases at a later date when production has already started and re-negotiation is not possible.
This brings me to the real cost of low prices
It comes down to saving time and problem-solving.
You have to deal with these issues up-front.
Pulling them into the price negotiation at the beginning will save you hours, maybe weeks of time down the road as you will end up dealing with these issues at a later stage.
The only difference is a later stage, they’re sometimes harder to resolve or cannot be resolved.
You may end up forced to accept lower-quality products, losing your deposit or ending up in a dispute that creates delays on your shipment.
If you add up all these delays, problems and inconveniences, I’m sure you’ll find it almost always works out better to pay the right price for the right quality of product and front-load that information.
How to allow for product returns in your costing
Most people initially look at the price of a product from a manufacturer, calculate their landed cost, how much they can sell it for, and that gives them a margin.
What 90% or more of people forget is that products are going to be returned, and you have to cover your return percentage, otherwise you’re not going to make the money you think you’re going to make.
Budgeting a percentage in your margin for product returns is a very prudent and effective way to ensure you don’t have any hidden surprises in your costs.
You can work on a percentage, for example, 1% if it’s a very low risk product, 5% if it’s a very high risk product. That’s all ultimately up to you.
As you get more advanced you can have these discussions with your manufactures and suppliers, to see if there are ways they can support you.
For example, if you have high return rates:
- What are the conditions for product returns?
- how will they cover you?
- How much will they cover?
- and so on.
A good example of how manufacturers can facilitate this is by you sending the product returns back to them and replacing them on the next purchase order.
One thing that is very unrealistic is for people to expect a full credit from the manufacturer.
Don’t mistake the manufacturer for a supplier that is giving you all terms of return or a warranty.
As an importer, the warranty is your responsibility.
You have to ensure the manufacturing quality meets your standards, as the manufacturer will not do that.
These conditions are best agreed up front with your supplier or manufacturer.
It can never be an afterthought, and you should definitely budget for it because there will be returns that you will be responsible for, not your manufacturer.
Assume the worst and that you’re responsible. Then, whatever you recover from your manufacturer will just add to your bottom line.
Always remember to be prudent. This is where most importers of products fall short.
Before you go…
We’ve put together a handy guide for businesses who want to source their products from china – “China Sourcing for Startups.”
Even if you’ve been at it a while, you might find some useful tips to improve your experience overall.
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