July 16, 2024 • 48 mins
Can you tell the difference between a manufacturer and a trade company? Join us for Tactics Tuesday as we uncover the surprising tactics trade companies employ to appear as manufacturers, based on a revealing story from Mike's colleague's visit to China. We'll guide you through essential strategies to verify your suppliers' true identities and the benefits of dealing directly with manufacturers to secure more competitive pricing. This isn't just about saving a few bucks; it's about optimizing your costs for better profitability and sustainable business growth.
Ready to rethink your approach to product pricing and Minimum Order Quantities (MOQs)? We'll share actionable tips on negotiating with suppliers to ensure product profitability, not just the lowest price. Discover why starting with lower MOQs can be a game-changer for new product launches and how to balance inventory to avoid costly stockouts. Our focus is on fostering long-term, trusted relationships with your suppliers that support your business's success.
Launching a product on Amazon? Don't miss our insights on why minimizing discounts can be more beneficial than you think. Learn the value of a solid email list or community in supporting your launch, and why targeting long-tail keywords might be the smarter move. Plus, we explore negotiating better payment terms and improving cash flow through smarter logistics, featuring a nod to services like Skewdrop. This episode is jam-packed with strategies to enhance your supplier relationships, manage inventory, and boost your business's bottom line.
🚀 Transform your brand on Amazon by building a powerful customer list with the After Purchase Funnel Blueprint course. Click here to get the full course for free.
➡️ Ready to go deeper into your Amazon FBA journey to accelerate your success? Get your hands on ALL of the Brand Fortress HQ resources, mentorship, and knowledge base by visiting us at BrandFortressHQ.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
We are officially live for this Tactics Tuesday,
and today what we're going to betalking about is mastering
manufacturing, how to maximizediscounts and manage suppliers.
So for this Tactics Tuesday,this is something we've been
talking about for a little bitinternally, but we're happy to
share here as well as part ofthe Brand Fortress HQ podcast.
So with that, mike, I'mactually going to turn it over
(00:22):
to you, because I know that thisis something that you have some
experience with, in kind of howto navigate working with your
manufacturers.
Speaker 2 (00:31):
Yeah.
So the first thing that I thinkit's valuable for Amazon
sellers to recognize andsometimes it's not easy to make
the distinction because thecompanies don't exactly
advertise it a lot of times andthat is that, especially if
you're sourcing out of China butthis could be true if you're
(00:54):
sourcing someplace else as wellbut you have manufacturers and
then you have trade companiesand oftentimes, especially if
you're searching on, say, olive,oval or something like that,
looking for a manufacturer of aparticular product that you're
looking for, a lot of thecompanies that are listed are
(01:14):
not actually manufacturers.
They're trade companies.
And the idea there, behind atrade company, is simply that
they are selling product for themanufacturer.
They're a middleman, so theywork with a number of different
manufacturers and then you findthem on Alibaba.
They quote you a price andobviously their price is marked
(01:34):
up over whatever price it isthat they're getting from the
manufacturer.
Now, it's not necessarily thecase that you don't want to work
with the trade company.
Sometimes they're good to workwith, sometimes they can add
some actual value to therelationship, but the reality is
that you are always going to bepaying a premium by working
(01:55):
with a trade company versusworking directly with the
manufacturer.
So any research that you can doon the front end to verify
whether the company that you'relooking at is a trade company or
a manufacturer is helpful,because if you find that it's a
trade company, then at least youknow whatever prices they're
quoting you.
You can do better.
Now you might not be able to dobetter from that trade company,
(02:16):
although you probably cannegotiate a better price, but
you certainly would be able todo better if you can actually
find the manufacturer thatthey're dealing with.
Sometimes those manufacturerswill deal with you directly.
Sometimes they have anarrangement with the trade
company and so they will funnelyou back through that trade
company, but most of the timeyou can get an arrangement with
the manufacturer.
The interesting thing is is thelinks that they will go to to
(02:37):
make you believe that they're anactual manufacturer.
So, as an example, I have abuddy of mine who went to China
just recently and he went thereto meet with his manufacturers.
Well, one of his manufacturersis an actual trade company,
which, fortunately for him, hehad figured that out before he
went to China, so he knew thatthey were a trade company.
(02:58):
Well, he asked to meet withthem to see their operation and
whatnot.
He asked to meet with them tosee their operation and whatnot.
So they brought him to theactual manufacturing plant where
his product was being produced,but it's not their
manufacturing plant.
So they had the owner of themanufacturing plant put their
(03:22):
brand, the trade company's brandor company name, on the back of
the building and then so theybrought him in through the back
of the building.
So it was only their sign thathe saw.
So he sees the name of the tradecompany as he walks into this
manufacturing plant and then allof the employees at the plant
(03:43):
are wearing jerseys that havethe trade company's name on them
, as if they work for the tradecompany.
But what he noticed was, ofcourse, all these jerseys were
brand new, like they're notdirty at all, they haven't, it's
clearly they've never done aday of work in these jerseys.
So it was just very comical tohim, because he already knew it
was a trade company, right, butthey're trying to make it.
(04:03):
Because he already knew it wasa trade company, right, but
they're trying to make it.
But it ended up.
He ended up getting anarrangement with the
manufacturer because the tradecompany was doing all these
presentations at themanufacturing plant and they
were saying all these thingsthat the manufacturer wasn't
particularly happy with, and sohe could see the manufacturer in
the back, you know, gettingreally pretty perturbed over the
whole situation.
So they ended up having aconversation, so he ended up
(04:23):
going straight to themanufacturer and he got a much
better deal.
So but the point is you don'talways know, it's not always
easy to differentiate betweenthe trade companies and the
manufacturer.
But the more research that youcan do whether that's actually
going to China and actuallytrying to gauge for yourself
whether this is actually a tradecompany or a manufacturer, that
sort of thing the better offyou are, because it gives you
(04:44):
some leverage and it gives youopportunities to negotiate price
.
So I guess that would be thingone is, you know, I would
definitely try to make sure thatyou know whether you're dealing
with the manufacturer orwhether you're dealing with a
trade company, and make sureyou're actually getting the best
price that you can get, becausethat's the first stage, right.
I mean like that's you knowproduct cost is where you know
that conversation begins.
Speaker 1 (05:06):
Well, and two things that I want to just touch on
that you mentioned.
There is one so if you'resourcing, you know, starting
with Alibaba, which still is nota bad place to start, if you
know, you kind of have an ideaof what you want to manufacture.
Now, of course, the days ofjust sourcing products off of
Alibaba and flipping them onAmazon are pretty much dead, so
we're not suggesting that.
(05:26):
But, with that said, it soundslike based on what you said is
that most of the companies thatare on Alibaba that are offering
these types of services, mostof them are actually a trade
company rather than the actualmanufacturer.
Speaker 2 (05:43):
I would say that's probably a good assessment.
I would say the majority ofthem are likely trade companies.
How much more than that it is,you know, is it 60-40?
, is it 70-30?
You know, I don't know, but mygut tells me that probably more
than 50% of the companies thatyou find on Alibaba are actually
trade companies and notmanufacturers.
And again, some of them arevery upfront about that, but
(06:04):
many of them are not.
And again, there's nothing wrongwith using Alibaba, you know,
as a tool for finding, you know,manufacturers and whatnot.
But just be careful that that'snot the only place that you're
doing your research and that youknow you're.
You're investigating outside ofthat, going to their website,
like the actual websites ofthese companies are trying to
see if they actually have one,you know, maybe looking at the
(06:25):
import records of companies thatmaybe aren't hiding their
import records, so you can seewhere are they getting their
products from and is it, youknow, one of these companies
that you're looking at?
You know?
So there, there are otherplaces to get information, but
just do your homework and beaware that, uh, that you might
be dealing with a tradingcompany and, again, that's not
necessarily the wrong idea.
Maybe it's fine, but you'reprobably paying at least a
(06:48):
slight premium to go with thattrade company.
Speaker 1 (06:51):
Well, the other thing that I want to touch base on I
know we've talked about this inother episodes, but I just think
it's so important is how muchof a difference that improvement
in your cost of goods makeswhen we're talking about making
your business more profitable.
So, just to make the math easy,let's say that you had a $100
product and you were able toreduce your cost of goods by 5%,
(07:15):
so $5 off of that product.
I think what's important forpeople to recognize is that that
$5 goes directly to your bottomline profit, so it can make a
dramatic difference in you knoweither how much money you're
able to put in your pocket on aregular basis from that product,
or you know use that towardsbeing, you know, more aggressive
(07:39):
on PPC, depending on what thestrategy is for that product, or
you know DPC, depending on whatthe strategy is for that
product, or you know fundingadditional products, or you know
other parts of your business.
So I just I want to make surethat we really highlight how
much of an impact that even youknow a 5% increase in your or
excuse me, you know decrease inyour cost of goods can have on
(08:03):
your bottom line and how healthyyour business is.
Speaker 2 (08:07):
Well, and to put that in perspective, I think it's
also valuable to recognize thatthat's different for every
company and every product.
Because whereas a 5% reductionin your cost of goods on a $100
item is a $5 savings and maybethat's significant If the bulk
of the cost of selling thatproduct to a customer, or if a
(08:29):
large portion of the cost ofthat product is the actual
product cost, manufacturing costof that product, then the more
you can reduce that value, thebetter off you are.
If, on the other hand, you'reselling a much smaller, much
less expensive product toproduce let's say the product
that you're producing is a $5product and in that situation
(08:54):
your fulfillment fees andstorage fees and things like
that end up being a very large.
You know, advertising costs endup being a very large portion
of the cost to your company ofputting that product in the
hands of a customer and theactual manufacturing cost is a
very small portion of that cost,then it becomes much less
(09:15):
significant.
You know, if the cost for me is$3 to produce that product and
I can save 5%, well, I didn'tsave very much, right?
I saved 15 cents or whatever itis that I'm saving, you know.
So, whereas my fulfillment feeon that might be $5 per shipment
, and then I've got my referralfee and things like that.
So put it in perspective.
(09:36):
I think it's valuable to payattention to where to put your
effort.
You know if you're trying tosave money on the front end of
that, you know of that product.
You know sale.
Sometimes the emphasis should beplaced on your cogs in
specifically manufacturing, butsometimes it shouldn't be.
Sometimes your cogs is alreadyvery low.
(09:58):
Most of your cost is infulfillment or is in, you know,
advertising or whatever it is.
In which case, then maybethat's where you need to place
your emphasis and that's not tosay that you shouldn't place
your emphasis in.
You know as many places as youcan that you can have a
significant impact, but don'tspend a lot of time trying to
squeeze pennies out of amanufacturer.
If, if that product, you knowif that's not a big part of your
(10:20):
cost.
But again, if it's a $50product, you know if you're
paying the manufacturer 50 bucksto produce it, or a hundred
bucks or even $40, well then youknow saving $3 might be
significant.
So just, you know, balance thatout.
Speaker 1 (10:36):
Yeah, I think there's a couple of things.
First of all, that's a greatpoint.
The other thing that I wascurious is where I think that
this can be challenging isespecially when you're looking
at, you know, developing newproducts.
So you know what is kind of.
What does your process looklike as far as you know, like,
how many quotes do you get frommanufacturers when you're trying
(10:57):
to price out a new product?
And then also, what does thatlook like from?
Or how do you calculate in kindof you know, your MOQs and that
type of stuff, when there's abig question mark around a new
product of you know what thatsales velocity is going to look
like in that.
First, you know 30, 60, 90 days.
Speaker 2 (11:15):
Well, I would say, probably one thing to be wary of
is spending way too much timetrying to get the best price on
the product.
You can always negotiate thatstuff after the fact, not only
with the supplier that you startwith, but also with other
potential suppliers, and usethat as leverage.
So I think the important thingon the front end is, if you
(11:38):
think that this is a first ofall, you should verify, like,
are you trying to launch aproduct that's actually going to
sell right, or at least thatyou have a fair assurance is
going to sell and that you cansell profitably?
You know, then I think thespecific amount that you're
paying the manufacturer becomesless critical.
Let's say, for instance, if Iknow I can sell the product for
(12:00):
twenty dollars and I can getthat product for $4 from one
manufacturer, but I think maybeI could get it from someplace
for three, but I don't know asmuch about that manufacturer.
Or you know, whatever it is.
Well, you know then, okay,maybe that dollar makes sense.
You know, maybe I really shouldbe looking to get that third
dollar.
But if I can sell the productfor, you know, $40 and I found a
(12:25):
manufacturer that will produceit for me for $4.
Well then, you know, if Icalculate out what my ad
expenses should be and what myfulfillment should be and
whatnot, and profitability wise,you know I'm getting, you know,
150% ROI on that $4, you know,product Pull the trigger like,
go for it at $4.
Like you already are in aposition where profitability
(12:47):
shouldn't be your primary issue.
You can prove out the product,see if it goes.
Does your launch go?
Well, you know, like all ofthose things.
Once that stuff moves and you'vegot sales volume, well then you
can go back to the manufacturerand say, look, we can buy this
many products over this amountof time.
I think you should be able togive us a $3 per unit price.
They're going to say yes or no.
(13:09):
If they say no, go look forother manufacturers in that
space and see if somebody willgive you $3.
And then you can eitherleverage that against the
original supplier, if youalready like what they're
producing and say, look,so-and-so will give it to me for
three bucks, what do you do?
Maybe they won't do three,maybe they'll do 350 or 325.
If you've already got asupplier you like and the
quality is good and they'll giveyou 350 or 325, I wouldn't be
(13:32):
dickering and trying to get that$3 and go to another
manufacturer that you don't know.
Stick with the 350.
You're already profitable.
You're making an extra 50 centsa unit.
I'm good with that.
There's a lot of people whowill nickel and dime that.
I don't think that's probablywhere your time is best spent.
But in terms of like a launchand starting a new product, in
my opinion, if you already knowthat you can buy it from
(13:53):
supplier A and you can be plentyprofitable on that product, all
you got to do now is just pullthe trigger and let's see how it
goes, see what kind of volumeyou get.
Does the launch go well?
You can negotiate that stuffafter the price.
Don't nickel and dime that onthe front end.
Speaker 1 (14:07):
Well, I think the other piece I'm curious about is
you know how do you comparethat to MOQs, in the sense of,
let's say, you have a newproduct and you know you have a
manufacturer that's like, hey,we can do this product for a
dollar, but we require you toorder, you know, 10,000 units,
versus another manufacturer thatsays, hey, our best price on
this is $2, but our MOQ is 1,000units.
Speaker 2 (14:31):
Right, I mean realistically, I would, if it
was me, as long as that $2 pricetag puts me in a position where
I'm still very profitable onthat product.
Like you know, if, if Icalculate out like, forget the
launch because, depending onyour launch strategy, you may
not be profitable.
(14:52):
You know, if you're doingpost-purchase stuff and you've
got a list, you could beprofitable on a launch.
But let's say you're not, let'ssay this is brand new.
You know you don't have a list,you don't have a community to
sell to, you're going to losemoney on the launch.
That's a given.
The question is, once you getthrough the launch, you've
projected out what you thinkyour sales numbers should be,
how your volume should look like, what are your costs going to
(15:12):
be?
If, based on that information,a $2 price tag still would leave
you with good profitability.
But you can start with that lowMOQ.
I would go for it.
Take the $2.
Don't go for that higher MOQsituation because you don't know
the launch might not go well.
Now, that being said, beingrealistic, if you're going to
(15:35):
launch a product, especially ifyou're launching it on Amazon,
if you go with a low MOQ productand you choose to do the one
that you could get a thousandunits on.
But a good launch means you'regoing to be out of those
thousand units.
Well, now you're kind of in aposition, right, like I mean you
got to weigh that out, becauseas soon as you go out of stock,
now you've got this.
Okay, now I got to wait forstock to come back in again and
(15:56):
then will I be able to actuallyrelaunch the product after the
stock out.
So you know it's it's adouble-edged sword there.
But there is value inconsidering the low MOQ option
if it's a profitable scenario.
And maybe it's not.
You know, like, maybe one is10,000 units for a buck and one
is 1,000 units for $2.
Well, just because their MOQ is1,000 doesn't mean you've got
(16:17):
to order 1,000.
Maybe you order 5,000 and maybethey'll give it to you for, you
know, I don't know $1.75 orsomething, right, right, it's
still not a buck, but at leastyou don't have to buy 10,000
units.
You know you can start with5,000 or 3,000 or whatever.
So be careful, you know, makesure that you order enough
products that you can actuallydo a launch and still have some
(16:38):
product left.
But I still think if it'sprofitable at the lower MOQ, you
know, use the lower MOQ option,and then you can always
negotiate later.
Speaker 1 (16:47):
Yeah, A couple of great points there, I mean.
The first is is that how muchyou need in order to do a launch
?
Now, typically, when we do this, what we look at is okay, what
are the you know, long tailkeywords that we think we can
win right away that are mostrelevant for this product?
How many of those sales do weneed to make in order to get
onto page one, you know, inthose first couple of weeks, and
then do some math based on that.
So that's what our processcurrently looks like.
(17:09):
I'm curious, you know, is thereanything else that you take
into account or into yourcalculations when you're looking
at hey, how much product shouldI have for this launch?
Speaker 2 (17:20):
Well.
I think again.
A lot of this depends on launchstrategy, right?
Because personally I believethat there is a certain amount
of value in being able to launcha product with minimal
discounting.
Those that would disagree withme that launching it at high
(17:46):
discounts is fine and it is fine, but I actually think that
Amazon will will give moreweight to a solid launch that's
not a heavily discounted launch.
I don't know that I have a tonof data to support that, except
to say that our launches havegone quite well and we don't
lose money on launches.
We always make money.
We have very low discounting inthe beginning, and so we don't
lose money on launches.
We always make money.
We have very low discounting inthe beginning, and so we don't.
(18:07):
Not that I don't pay attentionto long tail keywords, but when
we launch, we're looking at thebig keywords for our category,
like we're looking to launch, sothat we can actually secure
positioning on those.
I would say that's a tough roadto hoe if you don't have a
(18:28):
community or a large email listthat you can.
Speaker 1 (18:31):
I was going to say I want to make sure people who are
listening to this understandthat you have a very strong
email list and you've done a tonof groundwork to not only have
a list of buyers but also peoplethat really trust your brand,
which gives you a huge leg upover compared to a lot of Amazon
sellers that, like you said,have to rely on discounts or off
(18:53):
Amazon traffic in order toreally kickstart that process,
and so discounting is probablynot the only way to accomplish
that, but probably the moststraightforward and the easiest
way to get that sales velocity.
Speaker 2 (19:08):
If you don't have a list of some sort of community.
Exactly, and in that situation,in that situation I agree with
you that I think you you take ona lot of risk in a launch.
If your strategy, if you'regoing to have to heavily
discount and you don't have alist or a community, if your
strategy is to go after the bigdog keywords in that category
(19:31):
from day one, that's that'sdifficult, you know, and that's
going to be very costly.
You're going to need muchhigher, you know like you're
going to have to order a muchlarger you know inventory on the
front end to do that, becauseyou got to sell a whole lot more
units on this short keywordthan you do on long keyword to
get ranking for that keyword.
(19:51):
So you need a lot more volumeon the front end.
So you get a lot of buy, a lotmore inventory.
So it's just a lot riskier.
So in that situation, if you'regoing to have to discount, you
don't have a list, you don'thave a community.
I would absolutely focus on themost valuable long tail
keywords you can that you thinkyou've got a really good chance
of ranking for that.
Don't require massive volume todo it and let your launch be an
(20:13):
extended process where successon this launch is we're going to
nail these six long tailkeywords and then from there
that's going to allow us tobranch off, you know, into these
other other additional keywordsover time and it gives you that
opportunity to be able toproject out inventory and
forecast sales volume and thingslike that.
(20:34):
It's a lot less stressful, youknow, to go that route, 100%.
Speaker 1 (20:39):
Yeah, and I just want to, you know, kind of double
click on that in the sense of,essentially, what you end up
doing is turning that launchprocess into two steps, or at
least two steps, and that firstis hey, we're going to go after
these most relevant long tailkeywords in order to start
driving sales.
You know, get those, like yousaid, those six, seven keywords
(20:59):
whatever it happens to be kindof depends on category and
volume, et cetera, et cetera,and really get a foundation for
that product and have somehistory to make sure that we do
have product market fit.
And then go after, you know,the big dog keywords once we've
got a foundation built underthat.
Because I think the other thingthat gets lost in this
conversation is it's not onlyabout sales velocity but it's
(21:22):
also about reviews.
So you know you could generatethe same amount of sales
velocity as another competitorbut it's going to be a lot more
expensive if you have a hundredreviews and they have 10,000
reviews, Right.
Speaker 2 (21:37):
Yeah for sure.
I mean it's just you, you gotto calculate.
I mean it always comes down tohow much risk are you willing to
take on.
I mean it's that's, that's theyou know.
At the end of the day, if you,if you want to go after the big
dog keywords and you don't havea list, then I mean that's big
risk.
But you know, OK, swing for thefence if you like.
I mean, if you've got thecapital but don't spend money
(21:58):
you can't afford to lose.
Because I think going thatroute you have a much better
chance of not having asuccessful launch and holding
those keywords right.
Holding those keywords right,the chance of you holding those
keywords is much, much lower.
Against a really strongcompetitor and a strong field of
competitors with lots ofreviews and things like that and
(22:21):
a really high volume keywords,you know chances of you keeping
that ranking there is probablyslim.
Whereas if you go after thoselong tail keywords, then holding
those rankings after launch ismuch more likely and much less
costly.
And then you know expandingslowly into those other keywords
is is probably a much betterlong-term strategy.
Speaker 1 (22:42):
Yeah, well, and I think the other you know piece
that I want to make sure thatgets highlighted in this, this
process, is you know what is theopportunity cost of holding
essentially too much inventory?
Because I remember, you know,one of the situations that I had
when I started my brand or whenI was running my brand, was we
ordered, you know, a productthat we thought was gonna, you
(23:03):
know, go really well and itactually, you know, did for a
while until we ran out of stock.
And you know, we had like 20,000units of packaging and I think
it took us a total of like twoyears to get through all that
packaging and really the onlyreason that we kept with it was
because I was just too stubbornin order to throw any of the
packaging away.
(23:24):
I'm like we are going to useall of this, and we did.
It took us two years, but weused all of it.
And I just think that that Ikeep that memory as far as like
why it's so important to findthat balance of, hey, we don't
want to run out of stock rightaway, but at the same time, you
know, we want to make sure thatwe don't have way too much
inventory, because there's notonly the cost of you know right
away of tying up your capital,but then you know your, your
(23:48):
storage fees and everything elsethat's involved in having way
too much inventory for a productthat's just not selling at the
velocity that you need it to.
Speaker 2 (23:58):
Yeah for sure, storage fees rack up, man.
You know, I mean, there's noquestion.
You know, we had a scenariowhere we ended up, you know, in
that boat.
There wasn't a whole lot thatwe could have done about it, but
we still ended up there and itwas basically COVID related.
Because, you know, we, wethought we were ready for the
season.
Then the season spiked superhard, you know, for COVID.
(24:21):
Everybody was putting inswimming pools and all this
stuff, and so all this inventorygot purchased.
Well then, not only didinventory spike, so we ran
through the inventory we had,but then, because of all the
shutdowns and everything inChina, everything got backed up.
Well, we had lined up a bunchof, you know, container loads of
shipments that were supposed tocome in, you know, over the
course of the season, so that wewould be ready for the influx
(24:42):
for this season.
We really thought we were ready.
Well then, so we sold throughall the inventory, we ran out of
stock, and then we had thiswait for inventory to get
produced.
Well then, they just producedthem like mad, and so all this
inventory came in like bang,bang, bang, bang bang, and we
had been out of stock.
So then it took us a littlewhile to ramp back up again.
We have over 20,000 unitssitting here in the US and it
(25:05):
took us forever to go throughthat inventory because it took
us so long to get back up to oursales volume before that.
We literally just sold throughthe remaining inventory not too
long ago, to be honest, and wepaid storage on that for a long
time.
We were lucky because we have astaging warehouse in California
that really does really good byus in terms of storage fees.
So we got lucky on that.
(25:25):
But it does add up.
And when you talk about theopportunity costs, that's a huge
thing.
If you have cash tied up ininventory that's just sitting
there that you think is going tosell, but you don't know for
sure and you don't know alwaysfor sure how fast then what are
the other things in yourbusiness that you can't do
(25:47):
because that money is tied upand sitting there waiting for
that inventory to sell?
What PPC ads can't you run?
What offsite advertising can'tyou do?
What other product launchesmaybe are you not yet ready for
because you don't have the cashflow to supply the inventory for
it?
What kind of partnerships?
There's so many opportunitiesthat come along.
(26:08):
If you're looking for them.
Most of them require financialinputs that you have less of
because you have this tied up,and so then you end up having to
take out loans, you know, sothat you can actually take
advantage of that, which now hasyou leveraged further because
you still don't know if thatinventory is going to sell,
right?
So, and now you've got thisloan sitting out there, and if
(26:28):
this inventory doesn't sell,then where's the money going to
come from to pay off the loan?
Because you're taking advantageof this new opportunity and,
again, most opportunities asentrepreneurs that we take
advantage of, we don't alwaysknow for sure they're going to
work out.
You know you end up leveragingyourself really badly.
So, managing your cash flow andmaking sure that you've got
(26:49):
good ROI, not overbuying, youknow like those are some pretty
important things If you want tobe in business long term.
You might be able to get awaywith it short term, but
eventually it's going to burnyou.
Speaker 1 (26:58):
Well, kind of along that lines.
I think that's a greattransition into talking about
with manufacturers, negotiatingterms.
So we talked about price, wetalked a little bit about MOQ.
I feel like one of the otherareas that maybe doesn't get as
much attention but can be justas important, if not more
important, is negotiating.
You know, whether it's 60, 90days, whatever that looks like
as far as terms For the folksthat are, you know, either
(27:20):
watching or listening.
What advice do you have fornegotiating terms with
manufacturers?
Speaker 2 (27:27):
Well, I think, first of all recognizing that most
manufacturers that you deal withcan probably offer you terms of
some sort, right and andthey'll tell you they can't,
they'll tell you it's notpossible, like they're never
going to just give in to that,you're going to have to fight
them on it.
There is a company,governmental organization, like
(27:50):
in China it's hard to separatethe two necessarily, quite
frankly, sometimes in the USit's getting hard to separate
the two necessarily, quitefrankly, sometimes in the US
it's getting hard to separatethe two also.
But we'll focus on China.
So.
But there's, there's a companycalled, how you pronounce it,
sinosure or Sinosure orsomething like that, I believe
it is.
But essentially it's aninsurance company and they
insure manufacturers againstdefault by a brand.
(28:14):
So I place an order, it'sinsured, or at least a portion
of it is insured, by thesign-off-sure company, so that
if I renege and I don't pay,then the manufacturer doesn't
get stuck with the entire billof having produced that and
they're not stuck with all that.
It's not 100 percent insuredbut it does insure it to a
(28:35):
degree and so it gives them acertain level of of ability to
to write that off a little bitif something were to happen.
So a few things is true.
First of all, if you have alongstanding relationship with
your manufacturer and you havealways paid your bills on time
(28:59):
you've never not paid then theyalready have sufficient reason
to believe that you're going topay, whether you have terms or
not, you know whatever likeyou're going to pay, so you know
them.
Providing you product withoutgetting paid upfront should not
be that difficult of aproposition for them to accept,
because you've always paid.
Now add to that the fact thatthey can be insured against a
certain amount of loss.
If you don't, there's really noreason for them not to take
(29:21):
that.
Now there's a process, there'ssome paperwork that you have to
go through, and sometimes theydon't like having to do it, but
I would push for it.
And, generally speaking, if youcan't get so terms is a funny
thing because you can negotiateit a lot of different ways.
You know it can be.
You don't pay any depositupfront and then you pay a
(29:41):
certain amount when the productis when manufacturing is
complete, and then a certainamount when it ships from the
port, or maybe whenmanufacturing is complete and
then when it arrives at port inthe U S like.
You can negotiate your terms ina lot of different ways with a
manufacturer.
You could have a small depositupfront and then a certain
(30:01):
amount of additional money paidwhen manufacturing is complete,
and then another amount of moneypaid when it comes into the
States or when manufacturing iscomplete, and then 30 days after
or 60 days after manufacturingis complete.
That's where your net 30, net60, that sort of thing comes
into play.
So just recognize that there'snot really a set way to
(30:22):
negotiate that Just what'sbetter than what you have now.
If what you're doing now ispaying 50% upfront and the other
50% when it's manufactured,well then anything better than
that is going to help your cashflow.
So if you can change that to 25%deposit or 15% deposit or even
(30:44):
no deposit like that's possible,like you can get no deposit but
even 25% deposit and maybe 30%when manufacturing is complete
and then or let's say, 2030,right, and then 50% after 30
days or after 60 days, that is amassive improvement to your
cash flow in terms of where youcan use that money, because it's
(31:04):
not tied up so early in theprocess, because, again,
remember, it's shipping overseasIf you're using, you know,
container shipping so that youcan get better rates, like it
can be 30 days before thatproduct that even shows up at
port.
It could be another two weeksor more before it ends up in
Amazon's inventory and isactually ready to sell.
So if you can get 30 or 60 daysafter manufacturing, that's
(31:27):
massive.
But again, any improvement overwhat you're doing now is going
to improve your cash flow.
So even if your negotiationdoesn't get you to where you
want to be, if it's better thanwhere you are, then it was worth
it.
Speaker 1 (31:40):
Yeah, and I think for people that want some more
ideas on how to negotiate thatand what those options look like
, I know our episode with BenLeonard.
We discussed that as well.
So Ben's Ben had some greattips on kind of negotiating
terms with suppliers and kind ofchunking those out, not only in
you know number of days 30, 60,90 days, whatever it happens to
(32:01):
be but then how much you knowpay upfront and those other
things.
The other thing that I wouldadd to that is you know, just
based on you know, my priorexperience.
Now I was sourcing ingredientsand working with US
manufacturers.
So the two things that Ilearned out of that was one
manufacturers don't have thebest customer support, so don't
be surprised if it takesmultiple phone calls in order to
(32:23):
get the right person on thephone and that negotiation takes
time.
The other thing that I would addis that know kind of where you
are in that pecking order.
So if you are one of theirsmallest buyers, where you're
doing $10,000, $100,000,whatever it happens to be even a
(32:46):
million dollars a year withthem, where their average buyer
is doing $ million or 20 or 50million, know that you're going
to have less negotiating powerand that might be okay if
they're the ones that are ableto provide the capability you
need at the MOQ and some of theother things that we talked
about.
But just understand that whenyou're negotiating, of kind of
(33:08):
where you are in that peckingorder, because that'll give you
a much better indication of howyou know how much you can push
with that manufacturer to getbetter terms.
And then I would also, you know, think about any way that you
can frame that as a win-win,because at the end of the day, I
mean most of thesemanufacturers, they want you to
do well, because the better youdo, the better they do.
(33:31):
So use that as your frameworkwhen you're discussing these
terms.
And 10% payment up front, 25,whatever it happens to be, know,
(33:53):
get more inventory into thesystem which allows us to sell
more, which allows us to ordermore and to continue to grow and
order more from you, themanufacturer.
Speaker 2 (33:58):
So and I would say discuss.
You know, first of all, Iwholeheartedly agree with that.
You know you always want toframe it as a win-win for sure
and recognize that manufactureris no manufacturer.
Manufacturing they don't knowmarketing, they don't know
necessary, you're like they'renot good at that.
Manufacturers are not good atthose things.
(34:19):
That's why they'remanufacturers and not brands
Like that's.
So you know, framing thatconversation is a win-win.
You actually should go intodetail about what that looks
like.
So when you're talking aboutyou know, if, if you can free up
that capital for me by givingme those terms, that means now I
can advertise more.
That means I can bring on maybemore team members.
(34:42):
That means I can.
You know all of all of thethings that you could tell them,
and I mean true things, don'tlie to them, you know.
But I mean if it's actuallytrue that if you had that money
you would invest more inmarketing or you would invest
more in team members, or youwould invest more in whatever,
that is, anything that wouldmove the needle forward so that
you could sell more volume ofproduct, means you're going to
(35:03):
buy more volume of product fromthem, which means they win.
So frame it that way, if yougive me terms, I can do these
things and by doing those I willsell more product, which means
I will buy more product.
That is the best way to framethat conversation.
I think it's absolutely truethat you need to frame it that
way.
I think it's also true goingback to the question of where
(35:26):
are you in the pecking order?
A perfect example.
We went to China to visit ourmanufacturers.
We have two, and one of them weare probably one of their
smallest clients, or at least afairly small client in
comparison to what they have.
They service Walmart, lowe's,target.
They're selling hundreds ofmillions of dollars in product
(35:48):
every year.
We are one of their smallestbuyers, so we are not high in
the pecking order.
Now.
We have a good relationshipwith them and we did manage to
negotiate some terms with them.
So it's not as if just becauseyou're low in the pecking order
that you can't negotiate terms.
You can just know where youstand.
We had to push.
It wasn't?
(36:08):
You know they didn't just giveit to us.
We did have to push on that andmaybe we wouldn't have gotten
it had we not visited the actualfactory and form that
relationship.
So it's a thought you know, youmay spend a few thousand dollars
traveling over to China to meetwith your manufacturer.
But think about how much moneyyou might save if you can get
better product costs or you canget better, you know terms, so
(36:28):
that you've got more cash flow.
It might be worth that fewthousand dollars to go visit
your manufacturer.
But then, secondarily to that,if this manufacturer won't give
you terms, well, there are othermanufacturers that produce that
product or that could producethat product.
Maybe you go to a somewhatsmaller manufacturer for whom
(36:49):
you won't be so low in thepecking order and you could
negotiate terms, because in thissituation you already have a
manufacturer.
There's no reason for you toleave that manufacturer and go
somewhere else unless they canoffer you better terms or a
better price, or both, than themanufacturer that you're with,
that you're fairly happy with.
So you have a lot of leveragethere.
(37:11):
If they want your business andyou would be a fairly large
client for them they might bevery willing to offer you those
terms or offer you betterpricing, or even both, to get
your business.
You know, because they know theonly way they're going to get
you is if they offer you thosebetter terms and whatnot.
Speaker 1 (37:29):
Yeah, absolutely Well .
And I think the other thingthat we have on here that maybe
we haven't talked about too much, but you know, let's say that
you, you know you do launch thatproduct, it's going well, and
now, instead of you knowordering 10,000 units at a time,
you're ordering 20 or 30 or50,000 units at a time.
You know I think that's theother thing to keep in mind as
well as what are those scenarioswhere you should renegotiate
(37:52):
and recognizing you know, onceyou've got you're able to order
in larger batches, that you knowyou should look at
renegotiating or at least askingabout price discounts from that
manufacturer that may not fallneatly into you know kind of the
categories that they give you.
Speaker 2 (38:12):
Yeah, yeah for sure.
Just just because they've givenyou pricing tiers, you know
kind of the categories that theygive you.
Yeah, yeah for sure.
Just just because they've givenyou pricing tiers, you know, in
terms of volume, that doesn'tmean that you can't negotiate
something different.
Almost always you can.
And again, you know, if youoriginally went with
manufacturer A because you canget a thousand unit MOQ and you
didn't go with manufacturer Bbecause it was a 10,000 MOQ, but
(38:32):
you're now selling enough thatyou could buy, you know, let's
say even 8,000, right, that'spretty close to 10,000.
You could connect with thatother company.
Just because they said theirMOQ is 10,000 doesn't mean it
actually is.
Most cases they would go lessthan that if they thought you
would be a good customer forthem.
So don't be afraid to connectwith a.
(38:53):
You know a company that maybeyou're not quite ready for their
, their MOQ, but maybe you'reclose, they might go for it.
But the reality of thesituation is again you know we
were talking earlier if the, ifthe one was two bucks a unit and
but they had a thousand MOQ,but the other one's a dollar a
unit, you know, at 10,000 MOQthat's a pretty significant drop
in pricing for the product.
You should be negotiating forthat if you're anywhere close to
(39:15):
being able to order that 10,000MOQ.
Reality is, if it's a dollar aunit and you're paying $2 a unit
to the other company and you'rebuying 8,000 units now, well,
you could easily afford 10,000units at a dollar a unit versus,
you know, $2 a unit.
So you know, don't be afraid torevisit that.
You know, on a semi-regularbasis, you know if your volume's
(39:36):
increasing you should berevisiting that.
Speaker 1 (39:39):
Yeah, absolutely.
Well, the last item that I haveon here before I wrap up is
talking about shipping.
I know we've talked a littlebit about skew drop before, but
when we talk about manufacturingand kind of that cashflow
situation, how do you thinkabout factoring shipping into
that process?
Speaker 2 (39:59):
Well, I'll tell you right now the thing for us that
is actually most critical withthat, and, from the sounds of
things, a lot of other Amazonsellers are running into the
same problem, and it may be itmay be a temporary blip, but the
problem is it comes up, youknow up.
We've had this blip come up onmultiple occasions, and that is
Amazon struggling with gettinginventory actually brought into
(40:19):
the warehouse.
The number of shipments that wehave sent in over the last two
months or more that have beendelayed, rescheduled, canceled,
or Amazon brought the inventoryinto their system but then it
just sits in purgatory anddoesn't actually end up in our
sellable inventory for two,three, four weeks.
That's a problem, and thatwraps up your cash right Again.
(40:42):
You have money tied up in thatproduct but you can't sell it.
So any of those bottlenecksthat you run into along the way
are problems with your cash flow, and so accounting for those
and making up for those is animportant piece and one of the
things that we are recognizingat this point, for whatever
reason, is the shipments thatare coming directly from China
(41:03):
straight into Amazon FBA aregoing in much easier than
shipments that are coming fromsomeplace in the US and shipping
into Amazon's warehouses.
I don't know why they'recourting Chinese sellers.
I don't know, but it's true.
And so Skewdrop is a service,again that we've discussed
before, but they havewarehousing that you can utilize
(41:26):
in China.
They will store, they will beyour staging warehouse in China
and they will ship directly fromSkewDrop into Amazon FBA.
They are also setting up newsystems where they will ship
directly into other 3PLs andtheir shipping costs are
exceptionally good, evensometimes shipping in smaller
quantities at a time, so youdon't tie up so much inventory
(41:48):
on the water at any given time.
You could have weekly shipments,or every two weeks you could
have a shipment going, so thatif one of them gets tied up in
the port or one of them goesdown in the water or whatever it
is, you're hedging your bets.
You know you have more shipmentsrunning through and it's just a
continuous cycle.
But again, they're goingstraight into Amazon FBA and
(42:08):
they're not getting held up.
And so, even though you'rebringing it in from China and
there's something in your headthat says I should just have
this stuff sitting in awarehouse in the US, yes, you
should probably have that youshould have some inventory at a
staging warehouse in the US justin case.
But I would be reallyinvestigating Skewdrop as an
(42:28):
option of getting your productinto Amazon's warehouses much
faster than trying to get it infrom domestic locations.
For whatever reason it's notgetting held up.
And again, if you can send inthose smaller shipments then
you're not tying up as much ofyour money at a time, you know
in shipping and product costsbecause you don't necessarily
have to order in as largequantities, even from the
(42:50):
manufacturer you could.
You know a lot of manufacturerslike, let's say, their MOQ is
10,000 units, right, they inreality what they really want is
just, they want a steady streamof orders, they want a certain
number of orders coming in froma customer right, and they're
(43:10):
expecting, like, okay, you order10,000, but maybe we're not
going to get another order for amonth or two months, you know,
or three months.
Well, what if you tell them well, I don't want to order 10,000
units at a time, I'd like toorder 3,000 units at a time, but
I will order every week orevery two weeks, you know, or
whatever it is right, I'll orderthis, you make it, we bring it
in, you know to, to skew dropinto their warehouse.
It doesn't cost you much todomestically ship that product
(43:31):
from the manufacturer to skewdrop, and skew drop doesn't
charge that much for storage.
And then you can ship in inthese smaller quantities.
So then again you don't have asmuch money tied up in one big
10,000 unit order.
You can buy 2000 units, 2000units, 2000 units.
So again, it just helps withthat cashflow.
Speaker 1 (43:49):
Yeah, and I just want to emphasize and I know we've
talked about this before is isthat we don't have any
connection with skew drop.
It's just a service that we'vehad a good experience with.
There are other services outthere that do similar things.
It's just a skew drop is theone that I know, mike, you've
had some you have had experiencewith and then we've talked
about here because they'veworked well.
(44:10):
So, yeah, for sure I don't havethe only solution out there for
this, but it is a you know, atleast based on, you know, our
discussions a good solution forwhat we're talking about.
Speaker 2 (44:21):
And the only one that I have experience with.
So, yeah, I'm going to mentionthem, but yeah.
Speaker 1 (44:25):
Okay, well, as we kind of wrap up this episode,
you know what is, maybe you knowone action item that you would
leave for listeners as theythink about.
You know kind of masteringtheir manufacturing and
maximizing you know their costof goods from manufacturers and
managing their supply terms.
Speaker 2 (44:44):
Well, I think again, just like with anything else,
when it comes to the idea ofsolving, let's say, problems
within your business, you needto figure out what the biggest
problems are, and if expenses iswhere you're focusing, then the
question is where are yourlargest expenses by percentage
and which of those expenses arethe ones that would be easiest
(45:06):
for you to dial in?
If your COGS, and specificallyyour manufacturing costs, are a
large portion of the cost ofgetting that product into the
hands of a customer, then that'sprobably an area where you want
to place some significant focusand try to see if you can get
that cost of goods down.
Cost of manufacturing.
If the shipping costs are whatyou're eating, then focus there
(45:28):
and maybe skew drop is an optionor something like that.
You know so I don't.
You know, I don't want to makeit sound like the first thing
you should do is focus on yourcogs today because we did this
episode right.
That's not necessarily true.
Maybe cogs isn't where yourproblem is.
Maybe your cogs are great andmaybe other expenses are where
you really need to dial thingsin.
(45:53):
But if cogs is a problem, then Ithink then the question becomes
okay is it the manufacturingcost?
Is it a matter of how much I'mpaying for the product or is it
a matter of how much I have topay at one time and then I'm
tying up in terms of my cashflow?
Because those are two differentthings.
Maybe I'm willing to pay alittle bit more for the product
per unit if I don't have to tieup as much of my money at one
(46:15):
time.
So again, differential betweentwo manufacturers.
Maybe one of them is going tocharge you $2 per unit but they
won't give you terms.
Maybe another one is going tocharge you $2.25 a unit but they
will give you 60-day terms.
Well, maybe the cash flow ismore important than that.
You know small differential inprice.
So don't get yourself lockedinto one perspective on how you
(46:38):
need to save money.
Maybe it's not a matter ofsaving money.
Maybe it's a matter of savingon cash flow so that you have
that money you know available todo other things.
So just don't get yourselfpigeonholed into one way of
looking at this.
Speaker 1 (46:51):
Yeah, yeah.
I think that's a great pointand I mean I would leave
listeners with just kind ofreemphasizing that and looking
at if you've never renegotiatedwith your supplier, thinking
about those different levers youcan pull.
It's not just about price, it'salso about what are your terms
and what are your MOQs, and whatdoes that process look like,
(47:12):
whether it's 60-day terms orchunking out those payments.
There's a number of differentlevers that we've talked about
here that you can use in orderto put more money into your
pocket at the end of the day,but also to free up cash flow,
which just gives you moreopportunities that you can take
with your business as you workon building your brand.
Speaker 2 (47:35):
And especially if you're working toward an exit.
Cash flow is a big deal.
Anybody who's looking to buyyour business cash flow is going
to be huge.
So make sure you've got thatdialed in for sure.
Perfect.
Speaker 1 (47:46):
Well, I think that's a great place to wrap for today
and we'll be back next Tuesdayfor anybody who's interested.
If you want to get yourquestions answered live, we are
on LinkedIn next Tuesday wherewe'll have some Q and a in order
to answer your questions live.
We are officially live for this Tactics Tuesday,
and today what we're going to betalking about is mastering
manufacturing, how to maximizediscounts and manage suppliers.
So for this Tactics Tuesday,this is something we've been
talking about for a little bitinternally, but we're happy to
share here as well as part ofthe Brand Fortress HQ podcast.
So with that, mike, I'mactually going to turn it over
(00:22):
to you, because I know that thisis something that you have some
experience with, in kind of howto navigate working with your
manufacturers.
Speaker 2 (00:31):
Yeah.
So the first thing that I thinkit's valuable for Amazon
sellers to recognize andsometimes it's not easy to make
the distinction because thecompanies don't exactly
advertise it a lot of times andthat is that, especially if
you're sourcing out of China butthis could be true if you're
(00:54):
sourcing someplace else as wellbut you have manufacturers and
then you have trade companiesand oftentimes, especially if
you're searching on, say, olive,oval or something like that,
looking for a manufacturer of aparticular product that you're
looking for, a lot of thecompanies that are listed are
(01:14):
not actually manufacturers.
They're trade companies.
And the idea there, behind atrade company, is simply that
they are selling product for themanufacturer.
They're a middleman, so theywork with a number of different
manufacturers and then you findthem on Alibaba.
They quote you a price andobviously their price is marked
(01:34):
up over whatever price it isthat they're getting from the
manufacturer.
Now, it's not necessarily thecase that you don't want to work
with the trade company.
Sometimes they're good to workwith, sometimes they can add
some actual value to therelationship, but the reality is
that you are always going to bepaying a premium by working
(01:55):
with a trade company versusworking directly with the
manufacturer.
So any research that you can doon the front end to verify
whether the company that you'relooking at is a trade company or
a manufacturer is helpful,because if you find that it's a
trade company, then at least youknow whatever prices they're
quoting you.
You can do better.
Now you might not be able to dobetter from that trade company,
(02:16):
although you probably cannegotiate a better price, but
you certainly would be able todo better if you can actually
find the manufacturer thatthey're dealing with.
Sometimes those manufacturerswill deal with you directly.
Sometimes they have anarrangement with the trade
company and so they will funnelyou back through that trade
company, but most of the timeyou can get an arrangement with
the manufacturer.
The interesting thing is is thelinks that they will go to to
(02:37):
make you believe that they're anactual manufacturer.
So, as an example, I have abuddy of mine who went to China
just recently and he went thereto meet with his manufacturers.
Well, one of his manufacturersis an actual trade company,
which, fortunately for him, hehad figured that out before he
went to China, so he knew thatthey were a trade company.
(02:58):
Well, he asked to meet withthem to see their operation and
whatnot.
He asked to meet with them tosee their operation and whatnot.
So they brought him to theactual manufacturing plant where
his product was being produced,but it's not their
manufacturing plant.
So they had the owner of themanufacturing plant put their
(03:22):
brand, the trade company's brandor company name, on the back of
the building and then so theybrought him in through the back
of the building.
So it was only their sign thathe saw.
So he sees the name of the tradecompany as he walks into this
manufacturing plant and then allof the employees at the plant
(03:43):
are wearing jerseys that havethe trade company's name on them
, as if they work for the tradecompany.
But what he noticed was, ofcourse, all these jerseys were
brand new, like they're notdirty at all, they haven't, it's
clearly they've never done aday of work in these jerseys.
So it was just very comical tohim, because he already knew it
was a trade company, right, butthey're trying to make it.
(04:03):
Because he already knew it wasa trade company, right, but
they're trying to make it.
But it ended up.
He ended up getting anarrangement with the
manufacturer because the tradecompany was doing all these
presentations at themanufacturing plant and they
were saying all these thingsthat the manufacturer wasn't
particularly happy with, and sohe could see the manufacturer in
the back, you know, gettingreally pretty perturbed over the
whole situation.
So they ended up having aconversation, so he ended up
(04:23):
going straight to themanufacturer and he got a much
better deal.
So but the point is you don'talways know, it's not always
easy to differentiate betweenthe trade companies and the
manufacturer.
But the more research that youcan do whether that's actually
going to China and actuallytrying to gauge for yourself
whether this is actually a tradecompany or a manufacturer, that
sort of thing the better offyou are, because it gives you
(04:44):
some leverage and it gives youopportunities to negotiate price
.
So I guess that would be thingone is, you know, I would
definitely try to make sure thatyou know whether you're dealing
with the manufacturer orwhether you're dealing with a
trade company, and make sureyou're actually getting the best
price that you can get, becausethat's the first stage, right.
I mean like that's you knowproduct cost is where you know
that conversation begins.
Speaker 1 (05:06):
Well, and two things that I want to just touch on
that you mentioned.
There is one so if you'resourcing, you know, starting
with Alibaba, which still is nota bad place to start, if you
know, you kind of have an ideaof what you want to manufacture.
Now, of course, the days ofjust sourcing products off of
Alibaba and flipping them onAmazon are pretty much dead, so
we're not suggesting that.
(05:26):
But, with that said, it soundslike based on what you said is
that most of the companies thatare on Alibaba that are offering
these types of services, mostof them are actually a trade
company rather than the actualmanufacturer.
Speaker 2 (05:43):
I would say that's probably a good assessment.
I would say the majority ofthem are likely trade companies.
How much more than that it is,you know, is it 60-40?
, is it 70-30?
You know, I don't know, but mygut tells me that probably more
than 50% of the companies thatyou find on Alibaba are actually
trade companies and notmanufacturers.
And again, some of them arevery upfront about that, but
(06:04):
many of them are not.
And again, there's nothing wrongwith using Alibaba, you know,
as a tool for finding, you know,manufacturers and whatnot.
But just be careful that that'snot the only place that you're
doing your research and that youknow you're.
You're investigating outside ofthat, going to their website,
like the actual websites ofthese companies are trying to
see if they actually have one,you know, maybe looking at the
(06:25):
import records of companies thatmaybe aren't hiding their
import records, so you can seewhere are they getting their
products from and is it, youknow, one of these companies
that you're looking at?
You know?
So there, there are otherplaces to get information, but
just do your homework and beaware that, uh, that you might
be dealing with a tradingcompany and, again, that's not
necessarily the wrong idea.
Maybe it's fine, but you'reprobably paying at least a
(06:48):
slight premium to go with thattrade company.
Speaker 1 (06:51):
Well, the other thing that I want to touch base on I
know we've talked about this inother episodes, but I just think
it's so important is how muchof a difference that improvement
in your cost of goods makeswhen we're talking about making
your business more profitable.
So, just to make the math easy,let's say that you had a $100
product and you were able toreduce your cost of goods by 5%,
(07:15):
so $5 off of that product.
I think what's important forpeople to recognize is that that
$5 goes directly to your bottomline profit, so it can make a
dramatic difference in you knoweither how much money you're
able to put in your pocket on aregular basis from that product,
or you know use that towardsbeing, you know, more aggressive
(07:39):
on PPC, depending on what thestrategy is for that product, or
you know DPC, depending on whatthe strategy is for that
product, or you know fundingadditional products, or you know
other parts of your business.
So I just I want to make surethat we really highlight how
much of an impact that even youknow a 5% increase in your or
excuse me, you know decrease inyour cost of goods can have on
(08:03):
your bottom line and how healthyyour business is.
Speaker 2 (08:07):
Well, and to put that in perspective, I think it's
also valuable to recognize thatthat's different for every
company and every product.
Because whereas a 5% reductionin your cost of goods on a $100
item is a $5 savings and maybethat's significant If the bulk
of the cost of selling thatproduct to a customer, or if a
(08:29):
large portion of the cost ofthat product is the actual
product cost, manufacturing costof that product, then the more
you can reduce that value, thebetter off you are.
If, on the other hand, you'reselling a much smaller, much
less expensive product toproduce let's say the product
that you're producing is a $5product and in that situation
(08:54):
your fulfillment fees andstorage fees and things like
that end up being a very large.
You know, advertising costs endup being a very large portion
of the cost to your company ofputting that product in the
hands of a customer and theactual manufacturing cost is a
very small portion of that cost,then it becomes much less
(09:15):
significant.
You know, if the cost for me is$3 to produce that product and
I can save 5%, well, I didn'tsave very much, right?
I saved 15 cents or whatever itis that I'm saving, you know.
So, whereas my fulfillment feeon that might be $5 per shipment
, and then I've got my referralfee and things like that.
So put it in perspective.
(09:36):
I think it's valuable to payattention to where to put your
effort.
You know if you're trying tosave money on the front end of
that, you know of that product.
You know sale.
Sometimes the emphasis should beplaced on your cogs in
specifically manufacturing, butsometimes it shouldn't be.
Sometimes your cogs is alreadyvery low.
(09:58):
Most of your cost is infulfillment or is in, you know,
advertising or whatever it is.
In which case, then maybethat's where you need to place
your emphasis and that's not tosay that you shouldn't place
your emphasis in.
You know as many places as youcan that you can have a
significant impact, but don'tspend a lot of time trying to
squeeze pennies out of amanufacturer.
If, if that product, you knowif that's not a big part of your
(10:20):
cost.
But again, if it's a $50product, you know if you're
paying the manufacturer 50 bucksto produce it, or a hundred
bucks or even $40, well then youknow saving $3 might be
significant.
So just, you know, balance thatout.
Speaker 1 (10:36):
Yeah, I think there's a couple of things.
First of all, that's a greatpoint.
The other thing that I wascurious is where I think that
this can be challenging isespecially when you're looking
at, you know, developing newproducts.
So you know what is kind of.
What does your process looklike as far as you know, like,
how many quotes do you get frommanufacturers when you're trying
(10:57):
to price out a new product?
And then also, what does thatlook like from?
Or how do you calculate in kindof you know, your MOQs and that
type of stuff, when there's abig question mark around a new
product of you know what thatsales velocity is going to look
like in that.
First, you know 30, 60, 90 days.
Speaker 2 (11:15):
Well, I would say, probably one thing to be wary of
is spending way too much timetrying to get the best price on
the product.
You can always negotiate thatstuff after the fact, not only
with the supplier that you startwith, but also with other
potential suppliers, and usethat as leverage.
So I think the important thingon the front end is, if you
(11:38):
think that this is a first ofall, you should verify, like,
are you trying to launch aproduct that's actually going to
sell right, or at least thatyou have a fair assurance is
going to sell and that you cansell profitably?
You know, then I think thespecific amount that you're
paying the manufacturer becomesless critical.
Let's say, for instance, if Iknow I can sell the product for
(12:00):
twenty dollars and I can getthat product for $4 from one
manufacturer, but I think maybeI could get it from someplace
for three, but I don't know asmuch about that manufacturer.
Or you know, whatever it is.
Well, you know then, okay,maybe that dollar makes sense.
You know, maybe I really shouldbe looking to get that third
dollar.
But if I can sell the productfor, you know, $40 and I found a
(12:25):
manufacturer that will produceit for me for $4.
Well then, you know, if Icalculate out what my ad
expenses should be and what myfulfillment should be and
whatnot, and profitability wise,you know I'm getting, you know,
150% ROI on that $4, you know,product Pull the trigger like,
go for it at $4.
Like you already are in aposition where profitability
(12:47):
shouldn't be your primary issue.
You can prove out the product,see if it goes.
Does your launch go?
Well, you know, like all ofthose things.
Once that stuff moves and you'vegot sales volume, well then you
can go back to the manufacturerand say, look, we can buy this
many products over this amountof time.
I think you should be able togive us a $3 per unit price.
They're going to say yes or no.
(13:09):
If they say no, go look forother manufacturers in that
space and see if somebody willgive you $3.
And then you can eitherleverage that against the
original supplier, if youalready like what they're
producing and say, look,so-and-so will give it to me for
three bucks, what do you do?
Maybe they won't do three,maybe they'll do 350 or 325.
If you've already got asupplier you like and the
quality is good and they'll giveyou 350 or 325, I wouldn't be
(13:32):
dickering and trying to get that$3 and go to another
manufacturer that you don't know.
Stick with the 350.
You're already profitable.
You're making an extra 50 centsa unit.
I'm good with that.
There's a lot of people whowill nickel and dime that.
I don't think that's probablywhere your time is best spent.
But in terms of like a launchand starting a new product, in
my opinion, if you already knowthat you can buy it from
(13:53):
supplier A and you can be plentyprofitable on that product, all
you got to do now is just pullthe trigger and let's see how it
goes, see what kind of volumeyou get.
Does the launch go well?
You can negotiate that stuffafter the price.
Don't nickel and dime that onthe front end.
Speaker 1 (14:07):
Well, I think the other piece I'm curious about is
you know how do you comparethat to MOQs, in the sense of,
let's say, you have a newproduct and you know you have a
manufacturer that's like, hey,we can do this product for a
dollar, but we require you toorder, you know, 10,000 units,
versus another manufacturer thatsays, hey, our best price on
this is $2, but our MOQ is 1,000units.
Speaker 2 (14:31):
Right, I mean realistically, I would, if it
was me, as long as that $2 pricetag puts me in a position where
I'm still very profitable onthat product.
Like you know, if, if Icalculate out like, forget the
launch because, depending onyour launch strategy, you may
not be profitable.
(14:52):
You know, if you're doingpost-purchase stuff and you've
got a list, you could beprofitable on a launch.
But let's say you're not, let'ssay this is brand new.
You know you don't have a list,you don't have a community to
sell to, you're going to losemoney on the launch.
That's a given.
The question is, once you getthrough the launch, you've
projected out what you thinkyour sales numbers should be,
how your volume should look like, what are your costs going to
(15:12):
be?
If, based on that information,a $2 price tag still would leave
you with good profitability.
But you can start with that lowMOQ.
I would go for it.
Take the $2.
Don't go for that higher MOQsituation because you don't know
the launch might not go well.
Now, that being said, beingrealistic, if you're going to
(15:35):
launch a product, especially ifyou're launching it on Amazon,
if you go with a low MOQ productand you choose to do the one
that you could get a thousandunits on.
But a good launch means you'regoing to be out of those
thousand units.
Well, now you're kind of in aposition, right, like I mean you
got to weigh that out, becauseas soon as you go out of stock,
now you've got this.
Okay, now I got to wait forstock to come back in again and
(15:56):
then will I be able to actuallyrelaunch the product after the
stock out.
So you know it's it's adouble-edged sword there.
But there is value inconsidering the low MOQ option
if it's a profitable scenario.
And maybe it's not.
You know, like, maybe one is10,000 units for a buck and one
is 1,000 units for $2.
Well, just because their MOQ is1,000 doesn't mean you've got
(16:17):
to order 1,000.
Maybe you order 5,000 and maybethey'll give it to you for, you
know, I don't know $1.75 orsomething, right, right, it's
still not a buck, but at leastyou don't have to buy 10,000
units.
You know you can start with5,000 or 3,000 or whatever.
So be careful, you know, makesure that you order enough
products that you can actuallydo a launch and still have some
(16:38):
product left.
But I still think if it'sprofitable at the lower MOQ, you
know, use the lower MOQ option,and then you can always
negotiate later.
Speaker 1 (16:47):
Yeah, A couple of great points there, I mean.
The first is is that how muchyou need in order to do a launch
?
Now, typically, when we do this, what we look at is okay, what
are the you know, long tailkeywords that we think we can
win right away that are mostrelevant for this product?
How many of those sales do weneed to make in order to get
onto page one, you know, inthose first couple of weeks, and
then do some math based on that.
So that's what our processcurrently looks like.
(17:09):
I'm curious, you know, is thereanything else that you take
into account or into yourcalculations when you're looking
at hey, how much product shouldI have for this launch?
Speaker 2 (17:20):
Well.
I think again.
A lot of this depends on launchstrategy, right?
Because personally I believethat there is a certain amount
of value in being able to launcha product with minimal
discounting.
Those that would disagree withme that launching it at high
(17:46):
discounts is fine and it is fine, but I actually think that
Amazon will will give moreweight to a solid launch that's
not a heavily discounted launch.
I don't know that I have a tonof data to support that, except
to say that our launches havegone quite well and we don't
lose money on launches.
We always make money.
We have very low discounting inthe beginning, and so we don't
lose money on launches.
We always make money.
We have very low discounting inthe beginning, and so we don't.
(18:07):
Not that I don't pay attentionto long tail keywords, but when
we launch, we're looking at thebig keywords for our category,
like we're looking to launch, sothat we can actually secure
positioning on those.
I would say that's a tough roadto hoe if you don't have a
(18:28):
community or a large email listthat you can.
Speaker 1 (18:31):
I was going to say I want to make sure people who are
listening to this understandthat you have a very strong
email list and you've done a tonof groundwork to not only have
a list of buyers but also peoplethat really trust your brand,
which gives you a huge leg upover compared to a lot of Amazon
sellers that, like you said,have to rely on discounts or off
(18:53):
Amazon traffic in order toreally kickstart that process,
and so discounting is probablynot the only way to accomplish
that, but probably the moststraightforward and the easiest
way to get that sales velocity.
Speaker 2 (19:08):
If you don't have a list of some sort of community.
Exactly, and in that situation,in that situation I agree with
you that I think you you take ona lot of risk in a launch.
If your strategy, if you'regoing to have to heavily
discount and you don't have alist or a community, if your
strategy is to go after the bigdog keywords in that category
(19:31):
from day one, that's that'sdifficult, you know, and that's
going to be very costly.
You're going to need muchhigher, you know like you're
going to have to order a muchlarger you know inventory on the
front end to do that, becauseyou got to sell a whole lot more
units on this short keywordthan you do on long keyword to
get ranking for that keyword.
(19:51):
So you need a lot more volumeon the front end.
So you get a lot of buy, a lotmore inventory.
So it's just a lot riskier.
So in that situation, if you'regoing to have to discount, you
don't have a list, you don'thave a community.
I would absolutely focus on themost valuable long tail
keywords you can that you thinkyou've got a really good chance
of ranking for that.
Don't require massive volume todo it and let your launch be an
(20:13):
extended process where successon this launch is we're going to
nail these six long tailkeywords and then from there
that's going to allow us tobranch off, you know, into these
other other additional keywordsover time and it gives you that
opportunity to be able toproject out inventory and
forecast sales volume and thingslike that.
(20:34):
It's a lot less stressful, youknow, to go that route, 100%.
Speaker 1 (20:39):
Yeah, and I just want to, you know, kind of double
click on that in the sense of,essentially, what you end up
doing is turning that launchprocess into two steps, or at
least two steps, and that firstis hey, we're going to go after
these most relevant long tailkeywords in order to start
driving sales.
You know, get those, like yousaid, those six, seven keywords
(20:59):
whatever it happens to be kindof depends on category and
volume, et cetera, et cetera,and really get a foundation for
that product and have somehistory to make sure that we do
have product market fit.
And then go after, you know,the big dog keywords once we've
got a foundation built underthat.
Because I think the other thingthat gets lost in this
conversation is it's not onlyabout sales velocity but it's
(21:22):
also about reviews.
So you know you could generatethe same amount of sales
velocity as another competitorbut it's going to be a lot more
expensive if you have a hundredreviews and they have 10,000
reviews, Right.
Speaker 2 (21:37):
Yeah for sure.
I mean it's just you, you gotto calculate.
I mean it always comes down tohow much risk are you willing to
take on.
I mean it's that's, that's theyou know.
At the end of the day, if you,if you want to go after the big
dog keywords and you don't havea list, then I mean that's big
risk.
But you know, OK, swing for thefence if you like.
I mean, if you've got thecapital but don't spend money
(21:58):
you can't afford to lose.
Because I think going thatroute you have a much better
chance of not having asuccessful launch and holding
those keywords right.
Holding those keywords right,the chance of you holding those
keywords is much, much lower.
Against a really strongcompetitor and a strong field of
competitors with lots ofreviews and things like that and
(22:21):
a really high volume keywords,you know chances of you keeping
that ranking there is probablyslim.
Whereas if you go after thoselong tail keywords, then holding
those rankings after launch ismuch more likely and much less
costly.
And then you know expandingslowly into those other keywords
is is probably a much betterlong-term strategy.
Speaker 1 (22:42):
Yeah, well, and I think the other you know piece
that I want to make sure thatgets highlighted in this, this
process, is you know what is theopportunity cost of holding
essentially too much inventory?
Because I remember, you know,one of the situations that I had
when I started my brand or whenI was running my brand, was we
ordered, you know, a productthat we thought was gonna, you
(23:03):
know, go really well and itactually, you know, did for a
while until we ran out of stock.
And you know, we had like 20,000units of packaging and I think
it took us a total of like twoyears to get through all that
packaging and really the onlyreason that we kept with it was
because I was just too stubbornin order to throw any of the
packaging away.
(23:24):
I'm like we are going to useall of this, and we did.
It took us two years, but weused all of it.
And I just think that that Ikeep that memory as far as like
why it's so important to findthat balance of, hey, we don't
want to run out of stock rightaway, but at the same time, you
know, we want to make sure thatwe don't have way too much
inventory, because there's notonly the cost of you know right
away of tying up your capital,but then you know your, your
(23:48):
storage fees and everything elsethat's involved in having way
too much inventory for a productthat's just not selling at the
velocity that you need it to.
Speaker 2 (23:58):
Yeah for sure, storage fees rack up, man.
You know, I mean, there's noquestion.
You know, we had a scenariowhere we ended up, you know, in
that boat.
There wasn't a whole lot thatwe could have done about it, but
we still ended up there and itwas basically COVID related.
Because, you know, we, wethought we were ready for the
season.
Then the season spiked superhard, you know, for COVID.
(24:21):
Everybody was putting inswimming pools and all this
stuff, and so all this inventorygot purchased.
Well then, not only didinventory spike, so we ran
through the inventory we had,but then, because of all the
shutdowns and everything inChina, everything got backed up.
Well, we had lined up a bunchof, you know, container loads of
shipments that were supposed tocome in, you know, over the
course of the season, so that wewould be ready for the influx
(24:42):
for this season.
We really thought we were ready.
Well then, so we sold throughall the inventory, we ran out of
stock, and then we had thiswait for inventory to get
produced.
Well then, they just producedthem like mad, and so all this
inventory came in like bang,bang, bang, bang bang, and we
had been out of stock.
So then it took us a littlewhile to ramp back up again.
We have over 20,000 unitssitting here in the US and it
(25:05):
took us forever to go throughthat inventory because it took
us so long to get back up to oursales volume before that.
We literally just sold throughthe remaining inventory not too
long ago, to be honest, and wepaid storage on that for a long
time.
We were lucky because we have astaging warehouse in California
that really does really good byus in terms of storage fees.
So we got lucky on that.
(25:25):
But it does add up.
And when you talk about theopportunity costs, that's a huge
thing.
If you have cash tied up ininventory that's just sitting
there that you think is going tosell, but you don't know for
sure and you don't know alwaysfor sure how fast then what are
the other things in yourbusiness that you can't do
(25:47):
because that money is tied upand sitting there waiting for
that inventory to sell?
What PPC ads can't you run?
What offsite advertising can'tyou do?
What other product launchesmaybe are you not yet ready for
because you don't have the cashflow to supply the inventory for
it?
What kind of partnerships?
There's so many opportunitiesthat come along.
(26:08):
If you're looking for them.
Most of them require financialinputs that you have less of
because you have this tied up,and so then you end up having to
take out loans, you know, sothat you can actually take
advantage of that, which now hasyou leveraged further because
you still don't know if thatinventory is going to sell,
right?
So, and now you've got thisloan sitting out there, and if
(26:28):
this inventory doesn't sell,then where's the money going to
come from to pay off the loan?
Because you're taking advantageof this new opportunity and,
again, most opportunities asentrepreneurs that we take
advantage of, we don't alwaysknow for sure they're going to
work out.
You know you end up leveragingyourself really badly.
So, managing your cash flow andmaking sure that you've got
(26:49):
good ROI, not overbuying, youknow like those are some pretty
important things If you want tobe in business long term.
You might be able to get awaywith it short term, but
eventually it's going to burnyou.
Speaker 1 (26:58):
Well, kind of along that lines.
I think that's a greattransition into talking about
with manufacturers, negotiatingterms.
So we talked about price, wetalked a little bit about MOQ.
I feel like one of the otherareas that maybe doesn't get as
much attention but can be justas important, if not more
important, is negotiating.
You know, whether it's 60, 90days, whatever that looks like
as far as terms For the folksthat are, you know, either
(27:20):
watching or listening.
What advice do you have fornegotiating terms with
manufacturers?
Speaker 2 (27:27):
Well, I think, first of all recognizing that most
manufacturers that you deal withcan probably offer you terms of
some sort, right and andthey'll tell you they can't,
they'll tell you it's notpossible, like they're never
going to just give in to that,you're going to have to fight
them on it.
There is a company,governmental organization, like
(27:50):
in China it's hard to separatethe two necessarily, quite
frankly, sometimes in the USit's getting hard to separate
the two necessarily, quitefrankly, sometimes in the US
it's getting hard to separatethe two also.
But we'll focus on China.
So.
But there's, there's a companycalled, how you pronounce it,
sinosure or Sinosure orsomething like that, I believe
it is.
But essentially it's aninsurance company and they
insure manufacturers againstdefault by a brand.
(28:14):
So I place an order, it'sinsured, or at least a portion
of it is insured, by thesign-off-sure company, so that
if I renege and I don't pay,then the manufacturer doesn't
get stuck with the entire billof having produced that and
they're not stuck with all that.
It's not 100 percent insuredbut it does insure it to a
(28:35):
degree and so it gives them acertain level of of ability to
to write that off a little bitif something were to happen.
So a few things is true.
First of all, if you have alongstanding relationship with
your manufacturer and you havealways paid your bills on time
(28:59):
you've never not paid then theyalready have sufficient reason
to believe that you're going topay, whether you have terms or
not, you know whatever likeyou're going to pay, so you know
them.
Providing you product withoutgetting paid upfront should not
be that difficult of aproposition for them to accept,
because you've always paid.
Now add to that the fact thatthey can be insured against a
certain amount of loss.
If you don't, there's really noreason for them not to take
(29:21):
that.
Now there's a process, there'ssome paperwork that you have to
go through, and sometimes theydon't like having to do it, but
I would push for it.
And, generally speaking, if youcan't get so terms is a funny
thing because you can negotiateit a lot of different ways.
You know it can be.
You don't pay any depositupfront and then you pay a
(29:41):
certain amount when the productis when manufacturing is
complete, and then a certainamount when it ships from the
port, or maybe whenmanufacturing is complete and
then when it arrives at port inthe U S like.
You can negotiate your terms ina lot of different ways with a
manufacturer.
You could have a small depositupfront and then a certain
(30:01):
amount of additional money paidwhen manufacturing is complete,
and then another amount of moneypaid when it comes into the
States or when manufacturing iscomplete, and then 30 days after
or 60 days after manufacturingis complete.
That's where your net 30, net60, that sort of thing comes
into play.
So just recognize that there'snot really a set way to
(30:22):
negotiate that Just what'sbetter than what you have now.
If what you're doing now ispaying 50% upfront and the other
50% when it's manufactured,well then anything better than
that is going to help your cashflow.
So if you can change that to 25%deposit or 15% deposit or even
(30:44):
no deposit like that's possible,like you can get no deposit but
even 25% deposit and maybe 30%when manufacturing is complete
and then or let's say, 2030,right, and then 50% after 30
days or after 60 days, that is amassive improvement to your
cash flow in terms of where youcan use that money, because it's
(31:04):
not tied up so early in theprocess, because, again,
remember, it's shipping overseasIf you're using, you know,
container shipping so that youcan get better rates, like it
can be 30 days before thatproduct that even shows up at
port.
It could be another two weeksor more before it ends up in
Amazon's inventory and isactually ready to sell.
So if you can get 30 or 60 daysafter manufacturing, that's
(31:27):
massive.
But again, any improvement overwhat you're doing now is going
to improve your cash flow.
So even if your negotiationdoesn't get you to where you
want to be, if it's better thanwhere you are, then it was worth
it.
Speaker 1 (31:40):
Yeah, and I think for people that want some more
ideas on how to negotiate thatand what those options look like
, I know our episode with BenLeonard.
We discussed that as well.
So Ben's Ben had some greattips on kind of negotiating
terms with suppliers and kind ofchunking those out, not only in
you know number of days 30, 60,90 days, whatever it happens to
(32:01):
be but then how much you knowpay upfront and those other
things.
The other thing that I wouldadd to that is you know, just
based on you know, my priorexperience.
Now I was sourcing ingredientsand working with US
manufacturers.
So the two things that Ilearned out of that was one
manufacturers don't have thebest customer support, so don't
be surprised if it takesmultiple phone calls in order to
(32:23):
get the right person on thephone and that negotiation takes
time.
The other thing that I would addis that know kind of where you
are in that pecking order.
So if you are one of theirsmallest buyers, where you're
doing $10,000, $100,000,whatever it happens to be even a
(32:46):
million dollars a year withthem, where their average buyer
is doing $ million or 20 or 50million, know that you're going
to have less negotiating powerand that might be okay if
they're the ones that are ableto provide the capability you
need at the MOQ and some of theother things that we talked
about.
But just understand that whenyou're negotiating, of kind of
(33:08):
where you are in that peckingorder, because that'll give you
a much better indication of howyou know how much you can push
with that manufacturer to getbetter terms.
And then I would also, you know, think about any way that you
can frame that as a win-win,because at the end of the day, I
mean most of thesemanufacturers, they want you to
do well, because the better youdo, the better they do.
(33:31):
So use that as your frameworkwhen you're discussing these
terms.
And 10% payment up front, 25,whatever it happens to be, know,
(33:53):
get more inventory into thesystem which allows us to sell
more, which allows us to ordermore and to continue to grow and
order more from you, themanufacturer.
Speaker 2 (33:58):
So and I would say discuss.
You know, first of all, Iwholeheartedly agree with that.
You know you always want toframe it as a win-win for sure
and recognize that manufactureris no manufacturer.
Manufacturing they don't knowmarketing, they don't know
necessary, you're like they'renot good at that.
Manufacturers are not good atthose things.
(34:19):
That's why they'remanufacturers and not brands
Like that's.
So you know, framing thatconversation is a win-win.
You actually should go intodetail about what that looks
like.
So when you're talking aboutyou know, if, if you can free up
that capital for me by givingme those terms, that means now I
can advertise more.
That means I can bring on maybemore team members.
(34:42):
That means I can.
You know all of all of thethings that you could tell them,
and I mean true things, don'tlie to them, you know.
But I mean if it's actuallytrue that if you had that money
you would invest more inmarketing or you would invest
more in team members, or youwould invest more in whatever,
that is, anything that wouldmove the needle forward so that
you could sell more volume ofproduct, means you're going to
(35:03):
buy more volume of product fromthem, which means they win.
So frame it that way, if yougive me terms, I can do these
things and by doing those I willsell more product, which means
I will buy more product.
That is the best way to framethat conversation.
I think it's absolutely truethat you need to frame it that
way.
I think it's also true goingback to the question of where
(35:26):
are you in the pecking order?
A perfect example.
We went to China to visit ourmanufacturers.
We have two, and one of them weare probably one of their
smallest clients, or at least afairly small client in
comparison to what they have.
They service Walmart, lowe's,target.
They're selling hundreds ofmillions of dollars in product
(35:48):
every year.
We are one of their smallestbuyers, so we are not high in
the pecking order.
Now.
We have a good relationshipwith them and we did manage to
negotiate some terms with them.
So it's not as if just becauseyou're low in the pecking order
that you can't negotiate terms.
You can just know where youstand.
We had to push.
It wasn't?
(36:08):
You know they didn't just giveit to us.
We did have to push on that andmaybe we wouldn't have gotten
it had we not visited the actualfactory and form that
relationship.
So it's a thought you know, youmay spend a few thousand dollars
traveling over to China to meetwith your manufacturer.
But think about how much moneyyou might save if you can get
better product costs or you canget better, you know terms, so
(36:28):
that you've got more cash flow.
It might be worth that fewthousand dollars to go visit
your manufacturer.
But then, secondarily to that,if this manufacturer won't give
you terms, well, there are othermanufacturers that produce that
product or that could producethat product.
Maybe you go to a somewhatsmaller manufacturer for whom
(36:49):
you won't be so low in thepecking order and you could
negotiate terms, because in thissituation you already have a
manufacturer.
There's no reason for you toleave that manufacturer and go
somewhere else unless they canoffer you better terms or a
better price, or both, than themanufacturer that you're with,
that you're fairly happy with.
So you have a lot of leveragethere.
(37:11):
If they want your business andyou would be a fairly large
client for them they might bevery willing to offer you those
terms or offer you betterpricing, or even both, to get
your business.
You know, because they know theonly way they're going to get
you is if they offer you thosebetter terms and whatnot.
Speaker 1 (37:29):
Yeah, absolutely Well .
And I think the other thingthat we have on here that maybe
we haven't talked about too much, but you know, let's say that
you, you know you do launch thatproduct, it's going well, and
now, instead of you knowordering 10,000 units at a time,
you're ordering 20 or 30 or50,000 units at a time.
You know I think that's theother thing to keep in mind as
well as what are those scenarioswhere you should renegotiate
(37:52):
and recognizing you know, onceyou've got you're able to order
in larger batches, that you knowyou should look at
renegotiating or at least askingabout price discounts from that
manufacturer that may not fallneatly into you know kind of the
categories that they give you.
Speaker 2 (38:12):
Yeah, yeah for sure.
Just just because they've givenyou pricing tiers, you know
kind of the categories that theygive you.
Yeah, yeah for sure.
Just just because they've givenyou pricing tiers, you know, in
terms of volume, that doesn'tmean that you can't negotiate
something different.
Almost always you can.
And again, you know, if youoriginally went with
manufacturer A because you canget a thousand unit MOQ and you
didn't go with manufacturer Bbecause it was a 10,000 MOQ, but
(38:32):
you're now selling enough thatyou could buy, you know, let's
say even 8,000, right, that'spretty close to 10,000.
You could connect with thatother company.
Just because they said theirMOQ is 10,000 doesn't mean it
actually is.
Most cases they would go lessthan that if they thought you
would be a good customer forthem.
So don't be afraid to connectwith a.
(38:53):
You know a company that maybeyou're not quite ready for their
, their MOQ, but maybe you'reclose, they might go for it.
But the reality of thesituation is again you know we
were talking earlier if the, ifthe one was two bucks a unit and
but they had a thousand MOQ,but the other one's a dollar a
unit, you know, at 10,000 MOQthat's a pretty significant drop
in pricing for the product.
You should be negotiating forthat if you're anywhere close to
(39:15):
being able to order that 10,000MOQ.
Reality is, if it's a dollar aunit and you're paying $2 a unit
to the other company and you'rebuying 8,000 units now, well,
you could easily afford 10,000units at a dollar a unit versus,
you know, $2 a unit.
So you know, don't be afraid torevisit that.
You know, on a semi-regularbasis, you know if your volume's
(39:36):
increasing you should berevisiting that.
Speaker 1 (39:39):
Yeah, absolutely.
Well, the last item that I haveon here before I wrap up is
talking about shipping.
I know we've talked a littlebit about skew drop before, but
when we talk about manufacturingand kind of that cashflow
situation, how do you thinkabout factoring shipping into
that process?
Speaker 2 (39:59):
Well, I'll tell you right now the thing for us that
is actually most critical withthat, and, from the sounds of
things, a lot of other Amazonsellers are running into the
same problem, and it may be itmay be a temporary blip, but the
problem is it comes up, youknow up.
We've had this blip come up onmultiple occasions, and that is
Amazon struggling with gettinginventory actually brought into
(40:19):
the warehouse.
The number of shipments that wehave sent in over the last two
months or more that have beendelayed, rescheduled, canceled,
or Amazon brought the inventoryinto their system but then it
just sits in purgatory anddoesn't actually end up in our
sellable inventory for two,three, four weeks.
That's a problem, and thatwraps up your cash right Again.
(40:42):
You have money tied up in thatproduct but you can't sell it.
So any of those bottlenecksthat you run into along the way
are problems with your cash flow, and so accounting for those
and making up for those is animportant piece and one of the
things that we are recognizingat this point, for whatever
reason, is the shipments thatare coming directly from China
(41:03):
straight into Amazon FBA aregoing in much easier than
shipments that are coming fromsomeplace in the US and shipping
into Amazon's warehouses.
I don't know why they'recourting Chinese sellers.
I don't know, but it's true.
And so Skewdrop is a service,again that we've discussed
before, but they havewarehousing that you can utilize
(41:26):
in China.
They will store, they will beyour staging warehouse in China
and they will ship directly fromSkewDrop into Amazon FBA.
They are also setting up newsystems where they will ship
directly into other 3PLs andtheir shipping costs are
exceptionally good, evensometimes shipping in smaller
quantities at a time, so youdon't tie up so much inventory
(41:48):
on the water at any given time.
You could have weekly shipments,or every two weeks you could
have a shipment going, so thatif one of them gets tied up in
the port or one of them goesdown in the water or whatever it
is, you're hedging your bets.
You know you have more shipmentsrunning through and it's just a
continuous cycle.
But again, they're goingstraight into Amazon FBA and
(42:08):
they're not getting held up.
And so, even though you'rebringing it in from China and
there's something in your headthat says I should just have
this stuff sitting in awarehouse in the US, yes, you
should probably have that youshould have some inventory at a
staging warehouse in the US justin case.
But I would be reallyinvestigating Skewdrop as an
(42:28):
option of getting your productinto Amazon's warehouses much
faster than trying to get it infrom domestic locations.
For whatever reason it's notgetting held up.
And again, if you can send inthose smaller shipments then
you're not tying up as much ofyour money at a time, you know
in shipping and product costsbecause you don't necessarily
have to order in as largequantities, even from the
(42:50):
manufacturer you could.
You know a lot of manufacturerslike, let's say, their MOQ is
10,000 units, right, they inreality what they really want is
just, they want a steady streamof orders, they want a certain
number of orders coming in froma customer right, and they're
(43:10):
expecting, like, okay, you order10,000, but maybe we're not
going to get another order for amonth or two months, you know,
or three months.
Well, what if you tell them well, I don't want to order 10,000
units at a time, I'd like toorder 3,000 units at a time, but
I will order every week orevery two weeks, you know, or
whatever it is right, I'll orderthis, you make it, we bring it
in, you know to, to skew dropinto their warehouse.
It doesn't cost you much todomestically ship that product
(43:31):
from the manufacturer to skewdrop, and skew drop doesn't
charge that much for storage.
And then you can ship in inthese smaller quantities.
So then again you don't have asmuch money tied up in one big
10,000 unit order.
You can buy 2000 units, 2000units, 2000 units.
So again, it just helps withthat cashflow.
Speaker 1 (43:49):
Yeah, and I just want to emphasize and I know we've
talked about this before is isthat we don't have any
connection with skew drop.
It's just a service that we'vehad a good experience with.
There are other services outthere that do similar things.
It's just a skew drop is theone that I know, mike, you've
had some you have had experiencewith and then we've talked
about here because they'veworked well.
(44:10):
So, yeah, for sure I don't havethe only solution out there for
this, but it is a you know, atleast based on, you know, our
discussions a good solution forwhat we're talking about.
Speaker 2 (44:21):
And the only one that I have experience with.
So, yeah, I'm going to mentionthem, but yeah.
Speaker 1 (44:25):
Okay, well, as we kind of wrap up this episode,
you know what is, maybe you knowone action item that you would
leave for listeners as theythink about.
You know kind of masteringtheir manufacturing and
maximizing you know their costof goods from manufacturers and
managing their supply terms.
Speaker 2 (44:44):
Well, I think again, just like with anything else,
when it comes to the idea ofsolving, let's say, problems
within your business, you needto figure out what the biggest
problems are, and if expenses iswhere you're focusing, then the
question is where are yourlargest expenses by percentage
and which of those expenses arethe ones that would be easiest
(45:06):
for you to dial in?
If your COGS, and specificallyyour manufacturing costs, are a
large portion of the cost ofgetting that product into the
hands of a customer, then that'sprobably an area where you want
to place some significant focusand try to see if you can get
that cost of goods down.
Cost of manufacturing.
If the shipping costs are whatyou're eating, then focus there
(45:28):
and maybe skew drop is an optionor something like that.
You know so I don't.
You know, I don't want to makeit sound like the first thing
you should do is focus on yourcogs today because we did this
episode right.
That's not necessarily true.
Maybe cogs isn't where yourproblem is.
Maybe your cogs are great andmaybe other expenses are where
you really need to dial thingsin.
(45:53):
But if cogs is a problem, then Ithink then the question becomes
okay is it the manufacturingcost?
Is it a matter of how much I'mpaying for the product or is it
a matter of how much I have topay at one time and then I'm
tying up in terms of my cashflow?
Because those are two differentthings.
Maybe I'm willing to pay alittle bit more for the product
per unit if I don't have to tieup as much of my money at one
(46:15):
time.
So again, differential betweentwo manufacturers.
Maybe one of them is going tocharge you $2 per unit but they
won't give you terms.
Maybe another one is going tocharge you $2.25 a unit but they
will give you 60-day terms.
Well, maybe the cash flow ismore important than that.
You know small differential inprice.
So don't get yourself lockedinto one perspective on how you
(46:38):
need to save money.
Maybe it's not a matter ofsaving money.
Maybe it's a matter of savingon cash flow so that you have
that money you know available todo other things.
So just don't get yourselfpigeonholed into one way of
looking at this.
Speaker 1 (46:51):
Yeah, yeah.
I think that's a great pointand I mean I would leave
listeners with just kind ofreemphasizing that and looking
at if you've never renegotiatedwith your supplier, thinking
about those different levers youcan pull.
It's not just about price, it'salso about what are your terms
and what are your MOQs, and whatdoes that process look like,
(47:12):
whether it's 60-day terms orchunking out those payments.
There's a number of differentlevers that we've talked about
here that you can use in orderto put more money into your
pocket at the end of the day,but also to free up cash flow,
which just gives you moreopportunities that you can take
with your business as you workon building your brand.
Speaker 2 (47:35):
And especially if you're working toward an exit.
Cash flow is a big deal.
Anybody who's looking to buyyour business cash flow is going
to be huge.
So make sure you've got thatdialed in for sure.
Perfect.
Speaker 1 (47:46):
Well, I think that's a great place to wrap for today
and we'll be back next Tuesdayfor anybody who's interested.
If you want to get yourquestions answered live, we are
on LinkedIn next Tuesday wherewe'll have some Q and a in order
to answer your questions live.
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