Volume Discounts

Vendors love it when you buy in volume. And you might just love them back, if they give you a volume discount.

This can be a win-win for both of you. From your perspective, inventory is less expensive on a per-unit basis. From the vendors’ perspective, they get to move a “block” of items at once. Remember the axiom: It costs less to sell to a current customer because there’s less marketing and sales-related burden. So when you buy big, it’s more profitable for them right off the bat. Don’t be shy about making this point in any negotiations you have.

Here’s a scenario that might help:

Let’s say you manufacture baby toys. Based on your experience with retailers last year, as well as macro industry trends, you’re very confident that orders will soar this year. You need a lot of plastic parts for your creations – 40 percent more than last year – so you can build the products you need and get them onto store shelves in time for the holidays.

This is a classic situation for you to negotiate a volume discount. Tell the supplier, “Not only am I going to order your plastic parts again for my holiday build, but I’ll order 40 percent more, and with current trends, I may continue to up quarter-over-quarter orders throughout the coming year.”

You’ve now set the table. Next for the price cut: “With all the new business I’m bringing you without any extra effort on your part, can we work out a volume discount on this and future orders?”

If wise, the vendor will be grateful for the extra business, and want to keep you happy and coming back.

Know Upcoming Products

The previous two tactics – establishing advantageous payment terms and negotiating volume discounts – are all about increasing your bottom-line. But there’s another reason to cozy up to vendors — an important one — and it can lead to a different form of revenue growth for your business: an improved top line.

Top-line revenue, the total amount that comes into your company, is very sensitive to the relevance of the product mix you offer. If your merchandise is very appealing, you’re likelier to sell more of it. If it’s just so-so, you can expect similarly so-so gross sales results.

It takes a great market sense to have the perfect product mix, and one way to hone it is by talking with your product vendors:

• Take them to lunch or make personal calls: Give them a little personal attention so that they remember you when it comes time to ask them for better payment terms or a discount.
• Discuss trends and sea changes looming in your industry: Discuss how these trends and changes might affect your respective businesses.
• Ask them point-blank where they think the most exciting opportunities are: They might have the next big idea for your business.
• Offer to test their newest products – those in development or soon to emerge:You might even be able to talk your way into exclusive opportunities for launches and limited time offers.
• Suggest creating joint press releases: Work cooperatively to publicize new products and the joint effort to bring them market. There’s no telling how valuable this kind of PR can be. It certainly isn’t expensive – and usually well worth your time.

This is all about tuning in to what’s ahead that’s likely to have maximum sizzle with your customers in the fast-moving marketplace.

Tip

Heads up when importing

When sourcing products manufactured in China or the Far East, be aware of the recent increase in the VAT tax which is added to the cost of your goods prior to delivery. VAT tax varies by product classification , Range is 5% to 14%.

If sourcing your product(s) in the far east is a motivated by your belief that the cost will be lower, be skeptical of the following phrases:

"No Problem.", "Delivery is not an issue.", "Payment is only by letter of credit or wire transfer.", "We are compliant with current USA compliance issues for foreign manufacturers.”

To navigate the sourcing of Far East-sourced products, it will save you time and money to work directly with a USA-based freight forwarding/custom clearance company as opposed to an agent. Make sure all samples/products are labeled with “Made in [the country of origin] otherwise customs will seize them.
- Tip submitted by FRANKFRYSTAK

StartupNation’s View: Thanks for the 411, FRANKFRYSTAK. Getting products made overseas seems to be all the rage these days, and there are definite complexities that come with the benefits. Like you advise, don’t be naïve in these situations – get a USA-based expert on your team to make sure this is executed correctly. Also, a tip if you’re making custom tooling for your Far East-sourced product: maintain ownership of the tooling so that if your manufacturer goes sour on you, you can get your tooling moved to a different factory and keep production going.