Are you negotiating these 3 things with your factories?

Since cost of goods (COGs) typically make up about a 1/3 of most brands’ expenses, it pays to track and actively work on reducing them. 

Or you can also try to improve cash flow, which is another common pain point.

Here’s how to do so through negotiating these three things with your factory: 

1.) Price

A lot can happen between orders: currency fluctuations, changes in raw material costs, order volumes, product features, or packaging—the list goes on…

If conditions are favourable, then you may get cost savings on the per unit price. But sometimes the factors may not be on your side, in which case there are other levers to pull. Which brings me to point #2. 

2.) Payment terms

Ever have your business bank accounts go to zero? Most entrepreneurs have at some point. Managing cash flow can be tricky. One way to help is by improving your factory payment terms. If you are at 30/70 (30% deposit/70% on balance) payment terms then ask for 20/80 and see what happens. 

3.) Lead times 

Maybe your challenge is staying in stock or getting new products to market faster. If that’s the case, then you may want to ask your factory if they can “re-prioritize” or help decrease the overall production time. 

Overall, don’t be shy with your factories. They are used to negotiating. Expect to get some pushback, in which case it opens up a chance for you to ask questions about “why it’s not possible.” A lot of negotiating is understanding the other side’s position and troubleshooting to find positive mutual outcomes. 

For example, maybe they cannot decrease the lead time. But they might be open to holding some completed stock with only the deposit paid—with the balance being paid upon shipping. That could help ensure you still have ready-to-ship stock available without paying high storage rates. 

Try to see both sides when negotiating

Be mindful to balance your negotiations with reason—you want to negotiate but not squeeze them for everything they are worth. 

It’s these changes, resulting in decreased COGs, that can create more profit to help sustain and grow your brand. 

When’s the last time you negotiated with your factory? If it’s been a while then today might be a good day to reach out! 

And as always, happy sourcing!

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