In part 3 of the 2019 Case Study, I showed you how I selected the 3 best suppliers. And how I managed to negotiate the price down to $4,70 – $4,85
Just to quickly recap:
- The average product sales price is around $29,99.
- I have estimated that my landed cost ( production cost + shipping ) will be around $6 per unit.
- After FBA fee’s I will have $12,79 leftover in profit.
So with a unit cost of $4,70 I am right on track! This will leave me with $1,30 to ship the product!
Unit cost: $4,70
Shipping cost: $1,30
Landed cost: $6,00
Testing the samples!
I have received the 3 samples from the suppliers and I’d say that all over them are high quality. So it is time to test the samples!
I decided to do a lot of stress testing with them. I have used the samples as rough as possible. Throw them around, put them in water, let my dog have a go at them. Just to find the breaking point of each sample.
Get other peoples opinion
I spend about a week evaluating the samples. I had everybody who came over to my house test out the samples as well. I think this is very important as I am already pretty biased to go for the supplier with the cheapest price.
Picking a supplier
So now that we have done our testing it is time to pick our final supplier. I have added the sample info in my Excel sheet to get a clear overview of all the pros & cons of each supplier.
$0,10 per unit
+ $0,3 per unit
No extra charge
+ $0,50 per unit
$0,20 per unit
+ $0,40 per unit
All suppliers will ship from Ningbo. Unfortunately, I don’t have any other shipments leaving from this port this month. Else I could combine the shipment to fill a container, as this will greatly reduce my shipping cost. If one of the suppliers would be based in Shenzhen for example and I had another shipment leaving from Shenzhen, that would seriously impact my decision.
Here is my thought process when picking a supplier:
Total unit cost will be: $5,10. Normal lead time & great sample quality.
Total unit cost will be: $5,10. High lead time & great sample quality.
Total unit cost will be: $5,45. Normal lead time & average sample quality.
Mr. E total unit cost is simply too high & his samples wasn’t that great. So I have to choose between Mr. A & D. Both offer a great product for a low price. The only advantage Mr. A has that his lead time ( production time ) is 10 days less. I don’t really care about this too much so it’s time to negotiate again. I send both of them another message:
Thank you for the sample. I think your quality is very high quality and I appreciate that you always have great communication. However, there is another supplier who also send me very high quality sample but his price is $4,60 per unit.
Is there anything you can do about the price?
Mr. A was willing to work with me and dropped his price to $4,60. While Mr. kept his price at $4.70.
For that reason, I will go with supplier Mr. A.
To start the production, the supplier will need some kind of down payment. Normally this is 30% of the total order. If you are having doubts about trusting your supplier you can ask him if it’s possible to pay with Alibaba Trade Assurance. However, I have only used this option once in the past 4 years.
I have wired the 30% to the supplier. My bank takes a couple of days to process international wire transfers. So I always take a screenshot from the transaction and send that the supplier while my bank is still processing it. After a while, I will hopefully have build up a relationship with my supplier and there is mutual trust. They will then start the production as soon as I send them the wire transfer screenshot. This will reduce the production time by a couple of days.