Part 2: Alibaba Unofficial Guide, Contacting and Negotiating with Suppliers
Contacting Suppliers on Alibaba: The Dating Game
Possibly the biggest mistake I see new importers making when contacting Chinese Suppliers, especially on Alibaba, is to believe every Chinese Supplier is dying to do business with them. This isn’t always true.
Approach initial communication with Suppliers like you would internet dating
The truth is, for a lot of Chinese Suppliers, Alibaba is a lot like using an internet dating website. A Supplier with a great profile page and selling high demand products, a.k.a. the proverbial hot girl, may get dozens or hundreds of inquiries a day. And just like internet dating, not all of these inquiries lead to dates, or in our case, orders. Therefore, Chinese Suppliers are selective in who they respond to and even more selective in who they give their best prices to. Therefore, you have to come across as a ‘good catch’. What are some things Chinese Suppliers look for?
- Do you know exactly what products you’re looking for? Or are you fishing for an entire catalog and price list?
- Are you clear, concise, and to the point? Or does your Supplier have to put a lot of thought into answering your email, which is especially hard for a non-native English speaker?
- What country are you from? Certain countries are more desirable for a Supplier to do business in such as countries the Supplier doesn’t currently do business in. Your Supplier can see what country you are emailing from via Alibaba.
- Are you a big buyer with brick and mortar stores?
Your First Email
Therefore, I recommend importers first contact to be straight forward and to the point, such as:
I am from Chinese Importing Products Inc. We are based in Vancouver, Canada and we are a retailer/wholesaler of Horse Saddles. We are very interested in the Horse Saddles your company offers.
Can you please tell me the price on your Adjustable Leather English Horse Saddles, Mode SA138, as shown here: http://shanghaisaddlery.en.alibaba.com/product/736255569-214759027/adjustable_gullet_english_leather_saddle.html
Our goal is just to get a response. I avoid mentioning MOQs which may scare off a Supplier. It’s easy for a Supplier to simply ignore an initial email. But once a Supplier has actually responded to you, it’s difficult to ignore future emails.
Doing Price Anaylsis
Unless you know your product extremely well and the cost to manufacture it (VERY few people know this) your absolute only way to know the fair price of your product is to receiving competing offers which is why we’ve contacted several Suppliers.
You should at this point start to receive prices from your Suppliers. If they ask you how much you will be importing let them know your ideal annual order amount (be an optimist but don’t promise the moon) rather than individual order amount.
Tabulate the prices of at least five Suppliers into a spreadsheet
The chances are you will receive very comparable prices, i.e. ranging from $28.40-$36.40. Chinese Suppliers are very good at knowing how much their competitors are charging and therefore will price themselves competitively, especially if they want to do business with you. Record each Supplier’s price, MOQ, and shipment terms either in a spreadsheet or other simple word processing document. It might seem trivial, but it forces you to compare each Supplier equally.
Beware Suppliers that are very low comparable to others. Normally there is a catch. Typical catches include:
- Shipment terms are EXW opposed to FOB (much more expensive)
- The material is of a much lower quality, i.e. 150denier fabric instead of 600 denier Fabric
- They only accept extremely large orders
Once you are comparing apples to apples, i.e. you know each Supplier is quoting a product constructed of similar materials and with similar shipment terms, then ask the other Suppliers if they can match the price of the lowest offer. There’s a temptation to lie and say “Your competitor Ningbo Saddles offered me these saddles for $24” when in fact they offered them to you for $34. Your Supplier will smell you out and you’ll lose credibility.
At this point you will likely have 2-3 Suppliers with comparable prices and comparable products. At this point, you want to find a Supplier that can accommodate your smaller order size.
Dealing with MOQs
MOQs are one of the most important issue you’re going to face when first dealing with Suppliers. I’ll give you some general tips here on how to get low MOQs and I go into even more detail in my Importing Course. Every Supplier wants you to order like Walmart but at the same time, you don’t want to import 50 Horse Saddles if you’ve never sold one and risk getting stuck with a bedroom full of unsellable inventory.
You have to ask yourself, why does you Supplier have a MOQ?
- They mass produce the product, and keep stock of it, but it’s not worth their expense to ship a small number of products
- They only produce the product on demand therefore they need a big enough order to warrant a production run
If an item is customized or a very niche product that your Supplier does not keep stock of, then MOQs are tricky. It’s very difficult to negotiate as quite simply your Supplier will lose money (not just time) for small orders.
If your product requires any custom moulds or other customization, MOQs are much less flexible than if you’re importing an off-the-shelf product
If you’re dealing with a popular product and/or dealing with a trading company, the chances are their MOQ falls into the first category. In these cases, small orders are just not worth their time. Maybe they can sell me 10 horse saddles and still make $100 profit, but they have higher priorities.
In these cases, all you need to do is decrease their cost of time. Assume you have narrowed down your selection process to 1 or 2 Suppliers and both insist their MOQ is 50 units but you only want 10 units. The following email will get your Supplier to accept your order more often than not:
I understand your MOQ requirements but we would like to purchase 10 saddles initially to introduce to our customers and proceed with a larger shipment on the next order.
If you can understand our needs, please see the attached PO for 1o units of SA138. Please confirm with a copy of your invoice which includes FedEx shipping charges to Vancouver, Canada. Also please include your banking information and I will wire 100% payment to you tomorrow.
Thank you and I look forward to working with you on many future orders,
Very few Suppliers can say no to having money wired to them in full.Note that when you do this strategy, you have very little room for negotiation. The second you start to try to negotiate price, payment terms, etc. you’re imposing a money cost and time cost on your Supplier.
If you have access to a tool like Import Genius, you can get a good feel for how amicable your Supplier is going to be to smaller orders by seeing the Supplier’s export history.
We can see from Import Genius that Shanghai Saddlery company has done an order in the past for just 41 units.
For example, by searching for Shanghai Saddlery company, we can see that in the past, they did an order to Blocker Ranch Inc. for just 41 units. This is a good indication they would likely accept an order from us for around 41 units (or much less). Contrast this to the search we did in Part 1 for Jackson Carpet (Qingdao) who we could see was selling multiple containers to Costco each year.
Sample Trial Order
Many books and websites say that you should always order a single sample from a Supplier and inspect it for quality et al. There’s some problems with doing it this way:
- Your first sample is guaranteed to be of good quality. i.e. you will get the “Golden Sample”
- The freight costs to get a single sample is outrageously high
- One sample gives you no chance to try and sell the item on eBay, Amazon, etc.
Therefore, I always recommend people to order at least 10 of an item if possible at first. At the very least, this gives you a chance to sell the items on eBay or Amazon. If you import one sample and sell it the very first day on Amazon you may have simply lucked out. Selling ten is a far better sample size.
Your first sample will normally be the best quality product you will receive.
Making Your First Order: How to Pay For It
Once you’ve picked a Supplier and they’ve agreed to send your desired quantity you’re ready to pay for and ship your order.
Keep in mind that some Suppliers may not charge you for the cost of one sample but they will almost certainly get you to pay the cost of freight. They will almost certainly charge you for any samples beyond 1 and freight. Do not try to negotiate this- it makes you look really small.
Most Suppliers will send you something called a pro-forma invoice which is just a fancy word for an invoice. Most Suppliers prefer wire transfer but some will accept PayPal if you pay their fees (anywhere from 2.5-4%). Remember, everything in China is in USD as the Yuan is pegged to the Dollar.
If you’ve never done an overseas wire transfer, take the banking information into your bank and they will be happy to help you make the transfer, normally for $20-40. Paying via Wire Transfer gives some very revealing information about your Supplier, mostly in regards to whoever the beneficiary is. If the beneficiary is a the company name that you’re familiar with, i.e. “Shanghai Saddlery Co. Ltd.” then everything is hunky dorey. If the beneficiary is a personal name, i.e. “Deng Xiaoping” then you know you’re most likely dealing with a very small middle man. Fraud is also a lot more prevalent if going to a personal name (although still very rare) so make sure there’s no other red flags. If you’re being asked to send money to an African bank, run.
Making Your First Order: How to Ship It
If this is your first time ordering from China (or even if you’re experienced) it’s often best just to ask your Supplier to arrange for shipping and to add the charges to the invoice. If everything is being shipped via air, then there’s really no surprises. Simply tell your Supplier your address. They will likely ship it via DHL, FedEx, or UPS. The chances are they will also declare the products to be of very low value (whether you asked them to or not) so you will pay very little duty, but expect to pay some duty.
If your shipment is so large it needs to be shipped via air, read the article on Sea Freight here.
Keep in mind, shipping air from China is expensive. To ship 20 lbs is going to cost you no less than $100 and may exceed $300. Will Williams from Freighteo gives some great advice on shipping items via air here.
Special Requests? Forget It (on this order)
If you have any special requests, like certain packaging requirements, forget it on this order. Wait until you’ve received a few samples, and then give feedback accordingly. Again, you’re trying to come across as a maintenance free Buyer, albeit a small one.
Receiving and Reviewing Your Shipment
If you’ve had your order shipped via air, then it should arrive in anywhere from 3-10 business days. If via sea, this will be more like 30-45 days. When your shipment arrives, here are some things to inspect, which may be talking points for future orders:
- Quality. Is the product the quality you expect? Use and abuse the product for a bit of time. Does it hold up how it should? If not, remember that you’ve likely received their best quality samples and quality is only expected to be the same or decrease on future orders.
- Packaging: Is the packaging sufficient to ship to your customer? Or was everything lumped into one box and you need to purchase all new shipping boxes? (if so, request your items to be boxed on future orders)
- Instructions. Did it come with instructions (if applicable)? If not, does your supplier have instructions? If not, you should start creating or borrowing some and include them with your product.
- Made in China? Does your item have “Made in China” marked somewhere on the box? If not, you should request this on the next order
Once you’ve received your order, you should email your Supplier to let them know that you received everything but you have not had a chance to review the products yet and let them know that you will contact them shortly to discuss things and to hopefully make another order. There’s no rush to do the above- just like in dating, playing hard to get sometimes makes the person want you even more
Making Future Orders
After 2 or 3 weeks of having your product listed on various channels, you should have hopefully received at least a couple of sales and you’ll be prepared to make a larger order. If you’re prepared to make an order big enough to meet your Supplier’s MOQ, great. If not, your Supplier will now likely be willing to accept any order 25-50% of their stated MOQ. The temptation of an order from a real, serious Buyer, no matter what size, is too strong for most Suppliers to resist.
At this point, you can also start negotiating with your Supplier. Getting a 5-20% cost concession should be reasonable, assuming your Supplier was competitive with the other Suppliers you received price quoted from. Start at a 10-20%. Keep in mind that asking for a shipping concession is often more appetizing for your Supplier than asking for a cost concession. For example, if you are ordering $3000 worth of saddles that will cost $300 in sea freight, it is better to ask for your Supplier to pay for the cost of freight rather than ask for a 10% discount.