by Gary Huang
As small business importers, you may think that the best way to grow your business is to sell MORE or RAISE your prices. Think again. While often overlooked, sourcing professionals know that the real money is made in PURCHASING. In other words buying low.
In this article I will show you how to negotiate up to a 5% price cut with your Chinese suppliers in one email.
Long story short or the “80/20” as I like to call it, from August 2015 until the end of 2015 the RMB has depreciated 3-4% against the USD (this is a moving target so check your exchange rate). So if you haven't already, now is the time to renegotiate pricing with your suppliers to take advantage of the depreciation and get a price cut. You can see this depreciation in the image below.
USD to CNY Exchange Rate Depreciation from June to Nov 2015 - Yahoo Finance
Some background information: the exchange rate between RMB (aka CNY) and USD is controlled by the Chinese government. They depreciated the RMB to boost the sluggish Chinese economy and export manufacturing sector. Depending on the severity of the slowdown this depreciation may continue and you can renegotiate if there is another major drop.
BEST PRACTICE: The big players like Walmart have already requested up to a 5.5% price cut with all their suppliers across the board. Now is your chance to do the same to increase your margins and stay ahead of your competition.
Note: this works under the following conditions:
1) The supplier's previous price quotation was made before the devaluation in August 2015.
2) You already have an existing relationship with this supplier so they are motivated to do this. This does not work if it’s a new supplier and this is your first quotation.
3) How much you can get depends on your relationship with the supplier as well as your negotiation skills. I was able to negotiate 2-3% with our suppliers in one email.
My advice is to ask your suppliers for 5% price reduction and see what they offer. I'm curious to hear your results so let me know in your comments below how much you're able to get. Good luck!
Gary Huang is an American based in Shanghai, China and working in sourcing since 2008. He is the creator of 80/20 Sourcing which helps small business importers quickly and efficiently source from China. Gary also serves as the Co-Chair of the American Chamber of Commerce in Shanghai's Supply Chain Committee. You may contact him at http://www.8020sourcing.com/contact/.