Most likely, your manufacturer/s raised their prices during the pandemic.
And with good cause: The cost of transportation, raw materials, and energy increased.
But we are no longer in a pandemic. And factory-gate prices (the price of goods quoted by manufacturers) in China have dropped significantly for over a year.
This is represented by the PPI (producer price index) in the chart above.
What does this mean for you?
It means an opportunity to renegotiate prices with your manufacturer.
If your PPUs (price per unit) increased between 2020 - 2022, a renegotiation to bring prices back down is overdue.
How To Renegotiate Prices Successfully:
It’s important to be mindful in these negotiations. Many factories are still struggling, and this can be a sensitive subject.
I would NOT approach this with an all-or-nothing attitude. If you tell your manufacturer that they must reduce their prices or you’re leaving — things can take a turn for the worse.
Instead, I would focus on your positive partnership with a long-term view of continuing to do mutually-beneficial business for years to come.
You can point to the fact that their prices went up during the pandemic due to higher costs, and factory-gate prices in China have fallen significantly since late 2021.
You can remind them that you shouldered your share of these costs to survive this period together. Ideally, you can provide data points on how much their PPUs increased.
(If you’ve been tracking your landed cost and margins properly, as I teach you in Apex Seller — you have this data.)
And now, since factory costs have decreased, you would like them to share some of the upside with you by lowering prices again. This will make you more competitive and able to grow your business (which means larger orders for them).
An effective strategy is to ask the supplier to bring PPUs back down, closer to where they were pre-pandemic (so the data on PPU increases for individual SKUs is invaluable).
As with all negotiations, this will be particularly effective if you’ve done good business with them for a few years because they will see the value in facilitating mutual success.
Are these renegotiations guaranteed to work?
This is more likely to work if one (and most likely to work if all) of the following applies:
A) You have ordered the SKUs in question from the factory since at least 2021.
B) The manufacturer raised their prices between 2020 - 2022.
C) The manufacturer justified the price hike with rising costs due to the pandemic.
So there you have it. I hope you find this information valuable and the above a helpful framework for renegotiating a better deal with your manufacturer/s.
This effort will lift your bottom line for years if successful.
- Daniel Audunsson & the team at Into Profits