5 Questions For Better Margins

Posted by Sean De Clercq on Thursday 11 Dec 14
 
 
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I’ve been working in the supply chain industry for 7 years and I was running a merchandising business for the last two before starting Kickfurther. I’ve worked directly with buyers from large retailers, small business owners, sourcing offices, and factories and a recurring theme is that whoever holds the pen, holds the power. So before you write your next purchase order make sure you ask some combination of these 5 questions for better margins!

1) I can place the order today if you can bring the cost down to X. Can you see what you can do for me?

Before you make the commitment to purchase goods, there is no reason why you shouldn’t ask this question. Most merchandisers or importers work on a margin 20-30%, and most businesses would prefer to take a bit of a haircut as opposed to losing an order. Phrasing the question this way, especially if you’re working direct with factories, gives the representative a chance to save face and position himself as your advocate, which is where every salesman wants to be (wink winknudge nudge). In the end, if they don’t budge on the price at all, they will still accept a purchase order placed the next day at their originally quoted price.

 

2) I like this product and want to purchase 2x-5x the minimum order quantity. Can I get a quantity price break? If not, how many pieces do I need to purchase to get a reduced price?

Having run a merchandising company, I can tell you that the work is all in securing the purchase order. Once I get the purchase order, I give it to factory and then monitor production to make sure the order is delivered. All the work after securing the order is the same whether I get an order for 100 pieces or 1,000 pieces.

Example: I am a vendor who quotes you $1 for a 500pc MOQ. My margin is 25% so I’m making $125.

You tell me you can purchase 1000pc at $.95. Even if I absorb that cost reduction in its entirety (down to 20% margin), I would still be making $200 on the purchase order, and my work would essentially be the same. Moreover, I can probably pass on some of that cost reduction to the factory.

Ask this question early on in the negotiations so you have an idea of what their costs are and how much wiggle room is possible. That knowledge can also inform what your ask should be in regards to (1).

 

3) Do you have a preferred business discount?

Many vendors will have special rates for preferred customers. Asking about this is a good idea not just to try and reduce your price, but also to gauge how serious a company is about customer care.

 

4) [If it’s your first interaction] Do you have an introductory rate that we can take advantage of?

Even if a business doesn’t have an institutionalized introductory rate, most salesmen will press hard to get you something if they think it will secure the first order for them. I know some businesses that have sold product at a loss, just to begin the relationship.

 

5) Can we get a discount if we pay for the entire order up front?

A major pain for importers is that factories require down payments before they will even begin production, and often the entire balance before they will ship the goods to port. Considering production and shipping times, this means they often have to float the cost of goods for 30-60 days before ever collecting revenue. This creates a significant cashflow pinch, and businesses often resort to factoring services to fill the gap. Those services can cost 5-20% of the value of the purchase order, and practically demolish their profit margin. By offering to pay up front for the goods, you can alleviate that pain for them, and secure a better up front cost for yourself.

If you could use financing for your purchase orders, I'm gonna plug my platform here. Check us out to learn how you can finance entire purchase orders on the Kickfurther platform.

 Learn How to Scale and Market Your Brand with Crowd Financing

 

Topics: Educational, Startups, Growth

Posted by Sean De Clercq on Thursday 11 Dec 14
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