We persuaded our top-tier FBA supplier to give us Net 75 terms + scored a 4% discount on every invoice. The playbook:
We love our suppliers, but a lot of profit in this biz is made in the big purchase negotiations.
To systematize these negotiations, we built a calendar in google sheets with every supplier on the x axis, and every month on the y axis
To systematize these negotiations, we built a calendar in google sheets with every supplier on the x axis, and every month on the y axis
Every three months we ask suppliers to either:
- lower prices
- give better payment terms
- give a damage allowance in the form of an invoice deduction
- lower prices
- give better payment terms
- give a damage allowance in the form of an invoice deduction
We time these asks before POs, with the promise of a good size PO if we can come to terms.
How to decide which to go for?
Lower Prices:
- If the local currency vs. USD is weakening, we ask for lower prices and send them the graph of USD vs. local currency to paint the most compelling picture.
Lower Prices:
- If the local currency vs. USD is weakening, we ask for lower prices and send them the graph of USD vs. local currency to paint the most compelling picture.
We ask for a deduction = % the currency fell. Only use this one when its at least 5%.
Can realistically use this once a year.
Can realistically use this once a year.
Better Payment Terms:
- If the local currency vs. USD is not falling, we mention our shrinking margins and ask for a price decrease.
They will normally refuse and then we will ask for better payment terms to help with cashflow instead.
- If the local currency vs. USD is not falling, we mention our shrinking margins and ask for a price decrease.
They will normally refuse and then we will ask for better payment terms to help with cashflow instead.
Normal cycle of payment term improvement is:
30/70 -> 0/100 -> Net 30 -> Net 60 -> Net 75
30/70 -> 0/100 -> Net 30 -> Net 60 -> Net 75
Damage Allowance: (this takes some planning)
- Send them actual Amazon data each month of what customers are saying about the products and the return rates.
- Send them actual Amazon data each month of what customers are saying about the products and the return rates.
- After 6 months of requested plans to fix the issues (annoying for them), say you will move to a quarterly report and ask for a flat discount on all POs to cover the costs of these issues.
Say you will revisit if the issues go away.
Say you will revisit if the issues go away.
Note: Getting to know the ownership makes this process 10x easier. Treating the factory reps with respect is a MUST.
Other ways to drive down supplier costs? 👇
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