051: Tactic Tuesdays: Manufacturing Mastery - Maximizing Discounts & Managing Supplier Terms

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We are officially live for this Tactics Tuesday, and today what we're going to be talking about is mastering manufacturing, how to maximize discounts and manage suppliers.

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So for this Tactics Tuesday, this is something we've been talking about for a little bit internally, but we're happy to share here as well as part of the Brand Fortress HQ podcast.

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So with that, mike, I'm actually going to turn it over to you, because I know that this is something that you have some experience with, in kind of how to navigate working with your manufacturers.

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Yeah.

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So the first thing that I think it's valuable for Amazon sellers to recognize and sometimes it's not easy to make the distinction because the companies don't exactly advertise it a lot of times and that is that, especially if you're sourcing out of China but this could be true if you're sourcing someplace else as well but you have manufacturers and then you have trade companies and oftentimes, especially if you're searching on, say, olive, oval or something like that, looking for a manufacturer of a particular product that you're looking for, a lot of the companies that are listed are not actually manufacturers.

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They're trade companies.

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And the idea there, behind a trade company, is simply that they are selling product for the manufacturer.

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They're a middleman, so they work with a number of different manufacturers and then you find them on Alibaba.

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They quote you a price and obviously their price is marked up over whatever price it is that they're getting from the manufacturer.

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Now, it's not necessarily the case that you don't want to work with the trade company.

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Sometimes they're good to work with, sometimes they can add some actual value to the relationship, but the reality is that you are always going to be paying a premium by working with a trade company versus working directly with the manufacturer.

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So any research that you can do on the front end to verify whether the company that you're looking at is a trade company or a manufacturer is helpful, because if you find that it's a trade company, then at least you know whatever prices they're quoting you.

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You can do better.

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Now you might not be able to do better from that trade company, although you probably can negotiate a better price, but you certainly would be able to do better if you can actually find the manufacturer that they're dealing with.

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Sometimes those manufacturers will deal with you directly.

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Sometimes they have an arrangement with the trade company and so they will funnel you back through that trade company, but most of the time you can get an arrangement with the manufacturer.

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The interesting thing is is the links that they will go to to make you believe that they're an actual manufacturer.

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So, as an example, I have a buddy of mine who went to China just recently and he went there to meet with his manufacturers.

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Well, one of his manufacturers is an actual trade company, which, fortunately for him, he had figured that out before he went to China, so he knew that they were a trade company.

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Well, he asked to meet with them to see their operation and whatnot.

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He asked to meet with them to see their operation and whatnot.

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So they brought him to the actual manufacturing plant where his product was being produced, but it's not their manufacturing plant.

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So they had the owner of the manufacturing plant put their brand, the trade company's brand or company name, on the back of the building and then so they brought him in through the back of the building.

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So it was only their sign that he saw.

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So he sees the name of the trade company as he walks into this manufacturing plant and then all of the employees at the plant are wearing jerseys that have the trade company's name on them, as if they work for the trade company.

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But what he noticed was, of course, all these jerseys were brand new, like they're not dirty at all, they haven't, it's clearly they've never done a day of work in these jerseys.

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So it was just very comical to him, because he already knew it was a trade company, right, but they're trying to make it.

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Because he already knew it was a trade company, right, but they're trying to make it.

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But it ended up.

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He ended up getting an arrangement with the manufacturer because the trade company was doing all these presentations at the manufacturing plant and they were saying all these things that the manufacturer wasn't particularly happy with, and so he could see the manufacturer in the back, you know, getting really pretty perturbed over the whole situation.

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So they ended up having a conversation, so he ended up going straight to the manufacturer and he got a much better deal.

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So but the point is you don't always know, it's not always easy to differentiate between the trade companies and the manufacturer.

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But the more research that you can do whether that's actually going to China and actually trying to gauge for yourself whether this is actually a trade company or a manufacturer, that sort of thing the better off you are, because it gives you some leverage and it gives you opportunities to negotiate price.

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So I guess that would be thing one is, you know, I would definitely try to make sure that you know whether you're dealing with the manufacturer or whether you're dealing with a trade company, and make sure you're actually getting the best price that you can get, because that's the first stage, right.

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I mean like that's you know product cost is where you know that conversation begins.

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Well, and two things that I want to just touch on that you mentioned.

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There is one so if you're sourcing, you know, starting with Alibaba, which still is not a bad place to start, if you know, you kind of have an idea of what you want to manufacture.

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Now, of course, the days of just sourcing products off of Alibaba and flipping them on Amazon are pretty much dead, so we're not suggesting that.

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But, with that said, it sounds like based on what you said is that most of the companies that are on Alibaba that are offering these types of services, most of them are actually a trade company rather than the actual manufacturer.

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I would say that's probably a good assessment.

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I would say the majority of them are likely trade companies.

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How much more than that it is, you know, is it 60-40?

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, is it 70-30?

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You know, I don't know, but my gut tells me that probably more than 50% of the companies that you find on Alibaba are actually trade companies and not manufacturers.

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And again, some of them are very upfront about that, but many of them are not.

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And again, there's nothing wrong with using Alibaba, you know, as a tool for finding, you know, manufacturers and whatnot.

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But just be careful that that's not the only place that you're doing your research and that you know you're.

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You're investigating outside of that, going to their website, like the actual websites of these companies are trying to see if they actually have one, you know, maybe looking at the import records of companies that maybe aren't hiding their import records, so you can see where are they getting their products from and is it, you know, one of these companies that you're looking at?

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You know?

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So there, there are other places to get information, but just do your homework and be aware that, uh, that you might be dealing with a trading company and, again, that's not necessarily the wrong idea.

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Maybe it's fine, but you're probably paying at least a slight premium to go with that trade company.

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Well, the other thing that I want to touch base on I know we've talked about this in other episodes, but I just think it's so important is how much of a difference that improvement in your cost of goods makes when we're talking about making your business more profitable.

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So, just to make the math easy, let's say that you had a $100 product and you were able to reduce your cost of goods by 5%, so $5 off of that product.

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I think what's important for people to recognize is that that $5 goes directly to your bottom line profit, so it can make a dramatic difference in you know either how much money you're able to put in your pocket on a regular basis from that product, or you know use that towards being, you know, more aggressive on PPC, depending on what the strategy is for that product, or you know DPC, depending on what the strategy is for that product, or you know funding additional products, or you know other parts of your business.

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So I just I want to make sure that we really highlight how much of an impact that even you know a 5% increase in your or excuse me, you know decrease in your cost of goods can have on your bottom line and how healthy your business is.

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Well, and to put that in perspective, I think it's also valuable to recognize that that's different for every company and every product.

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Because whereas a 5% reduction in your cost of goods on a $100 item is a $5 savings and maybe that's significant If the bulk of the cost of selling that product to a customer, or if a large portion of the cost of that product is the actual product cost, manufacturing cost of that product, then the more you can reduce that value, the better off you are.

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If, on the other hand, you're selling a much smaller, much less expensive product to produce let's say the product that you're producing is a $5 product and in that situation your fulfillment fees and storage fees and things like that end up being a very large.

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You know, advertising costs end up being a very large portion of the cost to your company of putting that product in the hands of a customer and the actual manufacturing cost is a very small portion of that cost, then it becomes much less significant.

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You know, if the cost for me is $3 to produce that product and I can save 5%, well, I didn't save very much, right?

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I saved 15 cents or whatever it is that I'm saving, you know.

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So, whereas my fulfillment fee on that might be $5 per shipment, and then I've got my referral fee and things like that.

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So put it in perspective.

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I think it's valuable to pay attention to where to put your effort.

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You know if you're trying to save money on the front end of that, you know of that product.

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You know sale.

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Sometimes the emphasis should be placed on your cogs in specifically manufacturing, but sometimes it shouldn't be.

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Sometimes your cogs is already very low.

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Most of your cost is in fulfillment or is in, you know, advertising or whatever it is.

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In which case, then maybe that's where you need to place your emphasis and that's not to say that you shouldn't place your emphasis in.

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You know as many places as you can that you can have a significant impact, but don't spend a lot of time trying to squeeze pennies out of a manufacturer.

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If, if that product, you know if that's not a big part of your cost.

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But again, if it's a $50 product, you know if you're paying the manufacturer 50 bucks to produce it, or a hundred bucks or even $40, well then you know saving $3 might be significant.

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So just, you know, balance that out.

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Yeah, I think there's a couple of things.

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First of all, that's a great point.

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The other thing that I was curious is where I think that this can be challenging is especially when you're looking at, you know, developing new products.

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So you know what is kind of.

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What does your process look like as far as you know, like, how many quotes do you get from manufacturers when you're trying to price out a new product?

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And then also, what does that look like from?

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Or how do you calculate in kind of you know, your MOQs and that type of stuff, when there's a big question mark around a new product of you know what that sales velocity is going to look like in that.

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First, you know 30, 60, 90 days.

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Well, I would say, probably one thing to be wary of is spending way too much time trying to get the best price on the product.

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You can always negotiate that stuff after the fact, not only with the supplier that you start with, but also with other potential suppliers, and use that as leverage.

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So I think the important thing on the front end is, if you think that this is a first of all, you should verify, like, are you trying to launch a product that's actually going to sell right, or at least that you have a fair assurance is going to sell and that you can sell profitably?

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You know, then I think the specific amount that you're paying the manufacturer becomes less critical.

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Let's say, for instance, if I know I can sell the product for twenty dollars and I can get that product for $4 from one manufacturer, but I think maybe I could get it from someplace for three, but I don't know as much about that manufacturer.

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Or you know, whatever it is.

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Well, you know then, okay, maybe that dollar makes sense.

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You know, maybe I really should be looking to get that third dollar.

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But if I can sell the product for, you know, $40 and I found a manufacturer that will produce it for me for $4.

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Well then, you know, if I calculate out what my ad expenses should be and what my fulfillment 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.

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Like you already are in a position where profitability shouldn't be your primary issue.

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You can prove out the product, see if it goes.

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Does your launch go?

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Well, you know, like all of those things.

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Once that stuff moves and you've got sales volume, well then you can go back to the manufacturer and say, look, we can buy this many products over this amount of time.

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I think you should be able to give us a $3 per unit price.

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They're going to say yes or no.

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If they say no, go look for other manufacturers in that space and see if somebody will give you $3.

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And then you can either leverage that against the original supplier, if you already like what they're producing and say, look, so-and-so will give it to me for three bucks, what do you do?

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Maybe they won't do three, maybe they'll do 350 or 325.

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If you've already got a supplier you like and the quality is good and they'll give you 350 or 325, I wouldn't be dickering and trying to get that $3 and go to another manufacturer that you don't know.

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Stick with the 350.

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You're already profitable.

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You're making an extra 50 cents a unit.

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I'm good with that.

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There's a lot of people who will nickel and dime that.

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I don't think that's probably where your time is best spent.

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But in terms of like a launch and starting a new product, in my opinion, if you already know that you can buy it from supplier A and you can be plenty profitable on that product, all you got to do now is just pull the trigger and let's see how it goes, see what kind of volume you get.

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Does the launch go well?

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You can negotiate that stuff after the price.

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Don't nickel and dime that on the front end.

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Well, I think the other piece I'm curious about is you know how do you compare that to MOQs, in the sense of, let's say, you have a new product and you know you have a manufacturer that's like, hey, we can do this product for a dollar, but we require you to order, you know, 10,000 units, versus another manufacturer that says, hey, our best price on this is $2, but our MOQ is 1,000 units.

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Right, I mean realistically, I would, if it was me, as long as that $2 price tag puts me in a position where I'm still very profitable on that product.

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Like you know, if, if I calculate out like, forget the launch because, depending on your launch strategy, you may not be profitable.

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You know, if you're doing post-purchase stuff and you've got a list, you could be profitable on a launch.

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But let's say you're not, let's say this is brand new.

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You know you don't have a list, you don't have a community to sell to, you're going to lose money on the launch.

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That's a given.

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The question is, once you get through the launch, you've projected out what you think your sales numbers should be, how your volume should look like, what are your costs going to be?

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If, based on that information, a $2 price tag still would leave you with good profitability.

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But you can start with that low MOQ.

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I would go for it.

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Take the $2.

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Don't go for that higher MOQ situation because you don't know the launch might not go well.

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Now, that being said, being realistic, if you're going to launch a product, especially if you're launching it on Amazon, if you go with a low MOQ product and you choose to do the one that you could get a thousand units on.

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But a good launch means you're going to be out of those thousand units.

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Well, now you're kind of in a position, right, like I mean you got to weigh that out, because as soon as you go out of stock, now you've got this.

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Okay, now I got to wait for stock to come back in again and then will I be able to actually relaunch the product after the stock out.

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So you know it's it's a double-edged sword there.

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But there is value in considering the low MOQ option if it's a profitable scenario.

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And maybe it's not.

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You know, like, maybe one is 10,000 units for a buck and one is 1,000 units for $2.

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Well, just because their MOQ is 1,000 doesn't mean you've got to order 1,000.

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Maybe you order 5,000 and maybe they'll give it to you for, you know, I don't know $1.75 or something, right, right, it's still not a buck, but at least you don't have to buy 10,000 units.

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You know you can start with 5,000 or 3,000 or whatever.

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So be careful, you know, make sure that you order enough products that you can actually do a launch and still have some product left.

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But I still think if it's profitable at the lower MOQ, you know, use the lower MOQ option, and then you can always negotiate later.

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Yeah, A couple of great points there, I mean.

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The first is is that how much you need in order to do a launch?

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Now, typically, when we do this, what we look at is okay, what are the you know, long tail keywords that we think we can win right away that are most relevant for this product?

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How many of those sales do we need to make in order to get onto page one, you know, in those first couple of weeks, and then do some math based on that.

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So that's what our process currently looks like.

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I'm curious, you know, is there anything else that you take into account or into your calculations when you're looking at hey, how much product should I have for this launch?

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Well.

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I think again.

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A lot of this depends on launch strategy, right?

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Because personally I believe that there is a certain amount of value in being able to launch a product with minimal discounting.

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Those that would disagree with me that launching it at high discounts is fine and it is fine, but I actually think that Amazon will will give more weight to a solid launch that's not a heavily discounted launch.

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I don't know that I have a ton of data to support that, except to say that our launches have gone quite well and we don't lose money on launches.

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We always make money.

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We have very low discounting in the beginning, and so we don't lose money on launches.

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We always make money.

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We have very low discounting in the beginning, and so we don't.

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Not that I don't pay attention to long tail keywords, but when we launch, we're looking at the big keywords for our category, like we're looking to launch, so that we can actually secure positioning on those.

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I would say that's a tough road to hoe if you don't have a community or a large email list that you can.

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I was going to say I want to make sure people who are listening to this understand that you have a very strong email list and you've done a ton of groundwork to not only have a list of buyers but also people that really trust your brand, which gives you a huge leg up over compared to a lot of Amazon sellers that, like you said, have to rely on discounts or off Amazon traffic in order to really kickstart that process, and so discounting is probably not the only way to accomplish that, but probably the most straightforward and the easiest way to get that sales velocity.

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If you don't have a list of some sort of community.

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Exactly, and in that situation, in that situation I agree with you that I think you you take on a lot of risk in a launch.

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If your strategy, if you're going to have to heavily discount and you don't have a list or a community, if your strategy is to go after the big dog keywords in that category from day one, that's that's difficult, you know, and that's going to be very costly.

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You're going to need much higher, you know like you're going to have to order a much larger you know inventory on the front end to do that, because you got to sell a whole lot more units on this short keyword than you do on long keyword to get ranking for that keyword.

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So you need a lot more volume on the front end.

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So you get a lot of buy, a lot more inventory.

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So it's just a lot riskier.

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So in that situation, if you're going to have to discount, you don't have a list, you don't have a community.

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I would absolutely focus on the most valuable long tail keywords you can that you think you've got a really good chance of ranking for that.

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Don't require massive volume to do it and let your launch be an extended process where success on this launch is we're going to nail these six long tail keywords and then from there that's going to allow us to branch off, you know, into these other other additional keywords over time and it gives you that opportunity to be able to project out inventory and forecast sales volume and things like that.

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It's a lot less stressful, you know, to go that route, 100%.

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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 launch process into two steps, or at least two steps, and that first is hey, we're going to go after these most relevant long tail keywords in order to start driving sales.

00:20:56.045 --> 00:21:09.576
You know, get those, like you said, those six, seven keywords whatever it happens to be kind of depends on category and volume, et cetera, et cetera, and really get a foundation for that product and have some history to make sure that we do have product market fit.

00:21:09.576 --> 00:21:15.432
And then go after, you know, the big dog keywords once we've got a foundation built under that.

00:21:15.432 --> 00:21:24.396
Because I think the other thing that gets lost in this conversation is it's not only about sales velocity but it's also about reviews.

00:21:24.396 --> 00:21:35.698
So you know you could generate the same amount of sales velocity as another competitor but it's going to be a lot more expensive if you have a hundred reviews and they have 10,000 reviews, Right.

00:21:37.039 --> 00:21:37.641
Yeah for sure.

00:21:37.641 --> 00:21:40.412
I mean it's just you, you got to calculate.

00:21:40.412 --> 00:21:44.101
I mean it always comes down to how much risk are you willing to take on.

00:21:44.101 --> 00:21:46.333
I mean it's that's, that's the you know.

00:21:46.333 --> 00:21:53.964
At the end of the day, if you, if you want to go after the big dog keywords and you don't have a list, then I mean that's big risk.

00:21:54.190 --> 00:21:56.377
But you know, OK, swing for the fence if you like.

00:21:56.377 --> 00:21:59.420
I mean, if you've got the capital but don't spend money you can't afford to lose.

00:21:59.420 --> 00:22:10.005
Because I think going that route you have a much better chance of not having a successful launch and holding those keywords right.

00:22:10.005 --> 00:22:16.155
Holding those keywords right, the chance of you holding those keywords is much, much lower.

00:22:16.155 --> 00:22:27.355
Against a really strong competitor and a strong field of competitors with lots of reviews and things like that and a really high volume keywords, you know chances of you keeping that ranking there is probably slim.

00:22:27.355 --> 00:22:35.019
Whereas if you go after those long tail keywords, then holding those rankings after launch is much more likely and much less costly.

00:22:35.019 --> 00:22:41.096
And then you know expanding slowly into those other keywords is is probably a much better long-term strategy.

00:22:42.179 --> 00:22:54.821
Yeah, well, and I think the other you know piece that I want to make sure that gets highlighted in this, this process, is you know what is the opportunity cost of holding essentially too much inventory?

00:22:54.829 --> 00:23:07.721
Because I remember, you know, one of the situations that I had when I started my brand or when I was running my brand, was we ordered, you know, a product that we thought was gonna, you know, go really well and it actually, you know, did for a while until we ran out of stock.

00:23:08.730 --> 00:23:24.057
And you know, we had like 20,000 units of packaging and I think it took us a total of like two years to get through all that packaging and really the only reason that we kept with it was because I was just too stubborn in order to throw any of the packaging away.

00:23:24.057 --> 00:23:26.278
I'm like we are going to use all of this, and we did.

00:23:26.278 --> 00:23:29.058
It took us two years, but we used all of it.

00:23:29.058 --> 00:23:57.538
And I just think that that I keep that memory as far as like why it's so important to find that balance of, hey, we don't want to run out of stock right away, but at the same time, you know, we want to make sure that we don't have way too much inventory, because there's not only the cost of you know right away of tying up your capital, but then you know your, your storage fees and everything else that's involved in having way too much inventory for a product that's just not selling at the velocity that you need it to.

00:23:58.160 --> 00:24:00.035
Yeah for sure, storage fees rack up, man.

00:24:00.035 --> 00:24:01.756
You know, I mean, there's no question.

00:24:01.756 --> 00:24:06.882
You know, we had a scenario where we ended up, you know, in that boat.

00:24:06.882 --> 00:24:13.012
There wasn't a whole lot that we could have done about it, but we still ended up there and it was basically COVID related.

00:24:13.012 --> 00:24:17.319
Because, you know, we, we thought we were ready for the season.

00:24:17.760 --> 00:24:21.133
Then the season spiked super hard, you know, for COVID.

00:24:21.133 --> 00:24:24.873
Everybody was putting in swimming pools and all this stuff, and so all this inventory got purchased.

00:24:24.873 --> 00:24:33.383
Well then, not only did inventory spike, so we ran through the inventory we had, but then, because of all the shutdowns and everything in China, everything got backed up.

00:24:33.383 --> 00:24:43.152
Well, we had lined up a bunch of, you know, container loads of shipments that were supposed to come in, you know, over the course of the season, so that we would be ready for the influx for this season.

00:24:43.152 --> 00:24:44.394
We really thought we were ready.

00:24:44.394 --> 00:24:52.816
Well then, so we sold through all the inventory, we ran out of stock, and then we had this wait for inventory to get produced.

00:24:52.816 --> 00:24:59.104
Well then, they just produced them like mad, and so all this inventory came in like bang, bang, bang, bang bang, and we had been out of stock.

00:24:59.104 --> 00:25:01.006
So then it took us a little while to ramp back up again.

00:25:01.006 --> 00:25:11.182
We have over 20,000 units sitting here in the US and it took us forever to go through that inventory because it took us so long to get back up to our sales volume before that.

00:25:11.182 --> 00:25:18.165
We literally just sold through the remaining inventory not too long ago, to be honest, and we paid storage on that for a long time.

00:25:18.165 --> 00:25:23.810
We were lucky because we have a staging warehouse in California that really does really good by us in terms of storage fees.

00:25:23.810 --> 00:25:25.272
So we got lucky on that.

00:25:25.272 --> 00:25:27.237
But it does add up.

00:25:27.798 --> 00:25:32.371
And when you talk about the opportunity costs, that's a huge thing.

00:25:32.371 --> 00:25:51.801
If you have cash tied up in inventory that's just sitting there that you think is going to sell, but you don't know for sure and you don't know always for sure how fast then what are the other things in your business that you can't do because that money is tied up and sitting there waiting for that inventory to sell?

00:25:51.801 --> 00:25:53.996
What PPC ads can't you run?

00:25:53.996 --> 00:25:56.964
What offsite advertising can't you do?

00:25:56.964 --> 00:26:03.832
What other product launches maybe are you not yet ready for because you don't have the cash flow to supply the inventory for it?

00:26:03.832 --> 00:26:05.876
What kind of partnerships?

00:26:06.498 --> 00:26:08.563
There's so many opportunities that come along.

00:26:08.563 --> 00:26:09.632
If you're looking for them.

00:26:09.632 --> 00:26:25.913
Most of them require financial inputs that you have less of because you have this tied up, and so then you end up having to take out loans, you know, so that you can actually take advantage of that, which now has you leveraged further because you still don't know if that inventory is going to sell, right?

00:26:25.913 --> 00:26:33.278
So, and now you've got this loan sitting out there, and if this inventory doesn't sell, then where's the money going to come from to pay off the loan?

00:26:33.278 --> 00:26:41.093
Because you're taking advantage of this new opportunity and, again, most opportunities as entrepreneurs that we take advantage of, we don't always know for sure they're going to work out.

00:26:41.093 --> 00:26:44.986
You know you end up leveraging yourself really badly.

00:26:44.986 --> 00:26:55.374
So, managing your cash flow and making sure that you've got good ROI, not overbuying, you know like those are some pretty important things If you want to be in business long term.

00:26:55.374 --> 00:26:57.922
You might be able to get away with it short term, but eventually it's going to burn you.

00:26:58.851 --> 00:27:00.053
Well, kind of along that lines.

00:27:00.053 --> 00:27:04.442
I think that's a great transition into talking about with manufacturers, negotiating terms.

00:27:04.442 --> 00:27:06.718
So we talked about price, we talked a little bit about MOQ.

00:27:06.718 --> 00:27:14.042
I feel like one of the other areas that maybe doesn't get as much attention but can be just as important, if not more important, is negotiating.

00:27:14.042 --> 00:27:21.788
You know, whether it's 60, 90 days, whatever that looks like as far as terms For the folks that are, you know, either watching or listening.

00:27:21.788 --> 00:27:26.481
What advice do you have for negotiating terms with manufacturers?

00:27:27.911 --> 00:27:43.181
Well, I think, first of all recognizing that most manufacturers that you deal with can probably offer you terms of some sort, right and and they'll tell you they can't, they'll tell you it's not possible, like they're never going to just give in to that, you're going to have to fight them on it.

00:27:43.181 --> 00:27:56.215
There is a company, governmental organization, like in China it's hard to separate the two necessarily, quite frankly, sometimes in the US it's getting hard to separate the two necessarily, quite frankly, sometimes in the US it's getting hard to separate the two also.

00:27:56.215 --> 00:27:58.141
But we'll focus on China.

00:27:58.141 --> 00:27:58.382
So.

00:27:58.382 --> 00:28:04.290
But there's, there's a company called, how you pronounce it, sinosure or Sinosure or something like that, I believe it is.

00:28:04.290 --> 00:28:14.609
But essentially it's an insurance company and they insure manufacturers against default by a brand.

00:28:14.609 --> 00:28:32.594
So I place an order, it's insured, or at least a portion of it is insured, by the sign-off-sure company, so that if I renege and I don't pay, then the manufacturer doesn't get stuck with the entire bill of having produced that and they're not stuck with all that.

00:28:32.594 --> 00:28:42.171
It's not 100 percent insured but it does insure it to a degree and so it gives them a certain level of of ability to to write that off a little bit if something were to happen.

00:28:42.171 --> 00:28:44.234
So a few things is true.

00:28:44.234 --> 00:29:05.510
First of all, if you have a longstanding relationship with your manufacturer and you have always paid your bills on time you've never not paid then they already have sufficient reason to believe that you're going to pay, whether you have terms or not, you know whatever like you're going to pay, so you know them.

00:29:05.510 --> 00:29:13.392
Providing you product without getting paid upfront should not be that difficult of a proposition for them to accept, because you've always paid.

00:29:13.392 --> 00:29:18.303
Now add to that the fact that they can be insured against a certain amount of loss.

00:29:18.303 --> 00:29:21.742
If you don't, there's really no reason for them not to take that.

00:29:21.742 --> 00:29:28.030
Now there's a process, there's some paperwork that you have to go through, and sometimes they don't like having to do it, but I would push for it.

00:29:28.853 --> 00:29:35.934
And, generally speaking, if you can't get so terms is a funny thing because you can negotiate it a lot of different ways.

00:29:35.934 --> 00:29:37.381
You know it can be.

00:29:37.381 --> 00:29:54.476
You don't pay any deposit upfront and then you pay a certain amount when the product is when manufacturing is complete, and then a certain amount when it ships from the port, or maybe when manufacturing is complete and then when it arrives at port in the U S like.

00:29:54.476 --> 00:29:57.992
You can negotiate your terms in a lot of different ways with a manufacturer.

00:29:57.992 --> 00:30:15.230
You could have a small deposit upfront and then a certain amount of additional money paid when manufacturing is complete, and then another amount of money paid when it comes into the States or when manufacturing is complete, and then 30 days after or 60 days after manufacturing is complete.

00:30:15.230 --> 00:30:18.079
That's where your net 30, net 60, that sort of thing comes into play.

00:30:18.079 --> 00:30:26.171
So just recognize that there's not really a set way to negotiate that Just what's better than what you have now.

00:30:26.491 --> 00:30:37.193
If what you're doing now is paying 50% upfront and the other 50% when it's manufactured, well then anything better than that is going to help your cash flow.

00:30:37.535 --> 00:31:17.484
So if you can change that to 25% deposit or 15% deposit or even 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 a massive improvement to your cash flow in terms of where you can use that money, because it's not tied up so early in the process, because, again, remember, it's shipping overseas If you're using, you know, container shipping so that you can get better rates, like it can be 30 days before that product that even shows up at port.

00:31:17.484 --> 00:31:22.991
It could be another two weeks or more before it ends up in Amazon's inventory and is actually ready to sell.

00:31:22.991 --> 00:31:28.041
So if you can get 30 or 60 days after manufacturing, that's massive.

00:31:28.041 --> 00:31:33.431
But again, any improvement over what you're doing now is going to improve your cash flow.

00:31:33.431 --> 00:31:39.593
So even if your negotiation doesn't get you to where you want to be, if it's better than where you are, then it was worth it.

00:31:40.776 --> 00:31:48.626
Yeah, and I think for people that want some more ideas on how to negotiate that and what those options look like, I know our episode with Ben Leonard.

00:31:48.626 --> 00:31:50.994
We discussed that as well.

00:31:50.994 --> 00:32:04.476
So Ben's Ben had some great tips on kind of negotiating terms with suppliers and kind of chunking those out, not only in you know number of days 30, 60, 90 days, whatever it happens to be but then how much you know pay upfront and those other things.

00:32:04.476 --> 00:32:08.835
The other thing that I would add to that is you know, just based on you know, my prior experience.

00:32:08.835 --> 00:32:12.784
Now I was sourcing ingredients and working with US manufacturers.

00:32:12.784 --> 00:32:27.719
So the two things that I learned out of that was one manufacturers don't have the best customer support, so don't be surprised if it takes multiple phone calls in order to get the right person on the phone and that negotiation takes time.

00:32:28.510 --> 00:32:33.973
The other thing that I would add is that know kind of where you are in that pecking order.

00:32:34.335 --> 00:33:05.109
So if you are one of their smallest buyers, where you're doing $10,000, $100,000, whatever it happens to be even a million dollars a year with them, where their average buyer is doing $ million or 20 or 50 million, know that you're going to have less negotiating power and that might be okay if they're the ones that are able to provide the capability you need at the MOQ and some of the other things that we talked about.

00:33:05.170 --> 00:33:18.462
But just understand that when you're negotiating, of kind of where you are in that pecking order, because that'll give you a much better indication of how you know how much you can push with that manufacturer to get better terms.

00:33:18.462 --> 00:33:31.492
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 these manufacturers, they want you to do well, because the better you do, the better they do.

00:33:31.492 --> 00:33:37.339
So use that as your framework when you're discussing these terms.

00:33:37.339 --> 00:33:57.719
And 10% payment up front, 25, whatever it happens to be, know, get more inventory into the system which allows us to sell more, which allows us to order more and to continue to grow and order more from you, the manufacturer.

00:33:58.259 --> 00:33:59.943
So and I would say discuss.

00:33:59.943 --> 00:34:02.820
You know, first of all, I wholeheartedly agree with that.

00:34:02.820 --> 00:34:11.900
You know you always want to frame it as a win-win for sure and recognize that manufacturer is no manufacturer.

00:34:11.900 --> 00:34:17.695
Manufacturing they don't know marketing, they don't know necessary, you're like they're not good at that.

00:34:17.695 --> 00:34:19.320
Manufacturers are not good at those things.

00:34:19.320 --> 00:34:22.159
That's why they're manufacturers and not brands Like that's.

00:34:22.661 --> 00:34:26.353
So you know, framing that conversation is a win-win.

00:34:26.353 --> 00:34:29.465
You actually should go into detail about what that looks like.

00:34:29.465 --> 00:34:39.190
So when you're talking about you know, if, if you can free up that capital for me by giving me those terms, that means now I can advertise more.

00:34:39.190 --> 00:34:42.297
That means I can bring on maybe more team members.

00:34:42.297 --> 00:34:43.280
That means I can.

00:34:43.280 --> 00:34:49.342
You know all of all of the things that you could tell them, and I mean true things, don't lie to them, you know.

00:34:49.342 --> 00:35:06.371
But I mean if it's actually true that if you had that money you would invest more in marketing or you would invest more in team members, or you would invest more in whatever, that is, anything that would move the needle forward so that you could sell more volume of product, means you're going to buy more volume of product from them, which means they win.

00:35:06.371 --> 00:35:17.398
So frame it that way, if you give me terms, I can do these things and by doing those I will sell more product, which means I will buy more product.

00:35:17.398 --> 00:35:19.934
That is the best way to frame that conversation.

00:35:19.934 --> 00:35:22.264
I think it's absolutely true that you need to frame it that way.

00:35:22.264 --> 00:35:27.360
I think it's also true going back to the question of where are you in the pecking order?

00:35:27.360 --> 00:35:28.742
A perfect example.

00:35:28.829 --> 00:35:30.713
We went to China to visit our manufacturers.

00:35:30.713 --> 00:35:39.952
We have two, and one of them we are probably one of their smallest clients, or at least a fairly small client in comparison to what they have.

00:35:39.952 --> 00:35:42.818
They service Walmart, lowe's, target.

00:35:42.818 --> 00:35:48.436
They're selling hundreds of millions of dollars in product every year.

00:35:48.436 --> 00:35:53.452
We are one of their smallest buyers, so we are not high in the pecking order.

00:35:53.452 --> 00:35:53.873
Now.

00:35:53.873 --> 00:35:58.012
We have a good relationship with them and we did manage to negotiate some terms with them.

00:35:58.012 --> 00:36:03.672
So it's not as if just because you're low in the pecking order that you can't negotiate terms.

00:36:03.672 --> 00:36:06.521
You can just know where you stand.

00:36:06.521 --> 00:36:07.925
We had to push.

00:36:07.925 --> 00:36:08.626
It wasn't?

00:36:08.626 --> 00:36:10.052
You know they didn't just give it to us.

00:36:10.052 --> 00:36:18.012
We did have to push on that and maybe we wouldn't have gotten it had we not visited the actual factory and form that relationship.

00:36:18.032 --> 00:36:23.237
So it's a thought you know, you may spend a few thousand dollars traveling over to China to meet with your manufacturer.

00:36:23.237 --> 00:36:30.213
But think about how much money you might save if you can get better product costs or you can get better, you know terms, so that you've got more cash flow.

00:36:30.213 --> 00:36:33.655
It might be worth that few thousand dollars to go visit your manufacturer.

00:36:33.655 --> 00:36:46.003
But then, secondarily to that, if this manufacturer won't give you terms, well, there are other manufacturers that produce that product or that could produce that product.

00:36:46.684 --> 00:36:57.125
Maybe you go to a somewhat smaller manufacturer for whom you won't be so low in the pecking order and you could negotiate terms, because in this situation you already have a manufacturer.

00:36:57.125 --> 00:37:08.161
There's no reason for you to leave that manufacturer and go somewhere else unless they can offer you better terms or a better price, or both, than the manufacturer that you're with, that you're fairly happy with.

00:37:08.161 --> 00:37:11.052
So you have a lot of leverage there.

00:37:11.052 --> 00:37:22.380
If they want your business and you would be a fairly large client for them they might be very willing to offer you those terms or offer you better pricing, or even both, to get your business.

00:37:22.380 --> 00:37:27.690
You know, because they know the only way they're going to get you is if they offer you those better terms and whatnot.

00:37:29.655 --> 00:37:30.577
Yeah, absolutely Well.

00:37:30.577 --> 00:37:45.813
And I think the other thing that 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 that product, it's going well, and now, instead of you know ordering 10,000 units at a time, you're ordering 20 or 30 or 50,000 units at a time.

00:37:45.813 --> 00:38:11.900
You know I think that's the other thing to keep in mind as well as what are those scenarios where you should renegotiate and recognizing you know, once you've got you're able to order in larger batches, that you know you should look at renegotiating or at least asking about price discounts from that manufacturer that may not fall neatly into you know kind of the categories that they give you.

00:38:12.481 --> 00:38:13.543
Yeah, yeah for sure.

00:38:13.543 --> 00:38:16.588
Just just because they've given you pricing tiers, you know kind of the categories that they give you.

00:38:16.588 --> 00:38:16.969
Yeah, yeah for sure.

00:38:16.969 --> 00:38:21.463
Just just because they've given you pricing tiers, you know, in terms of volume, that doesn't mean that you can't negotiate something different.

00:38:21.463 --> 00:38:22.045
Almost always you can.

00:38:22.065 --> 00:38:39.342
And again, you know, if you originally went with manufacturer A because you can get a thousand unit MOQ and you didn't go with manufacturer B because it was a 10,000 MOQ, but you're now selling enough that you could buy, you know, let's say even 8,000, right, that's pretty close to 10,000.

00:38:39.342 --> 00:38:42.079
You could connect with that other company.

00:38:42.079 --> 00:38:45.972
Just because they said their MOQ is 10,000 doesn't mean it actually is.

00:38:45.972 --> 00:38:49.972
Most cases they would go less than that if they thought you would be a good customer for them.

00:38:49.972 --> 00:38:52.880
So don't be afraid to connect with a.

00:38:53.090 --> 00:38:58.454
You know a company that maybe you're not quite ready for their, their MOQ, but maybe you're close, they might go for it.

00:38:58.454 --> 00:39:12.460
But the reality of the situation is again you know we were talking earlier if the, if the 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 MOQ that's a pretty significant drop in pricing for the product.

00:39:12.460 --> 00:39:17.646
You should be negotiating for that if you're anywhere close to being able to order that 10,000 MOQ.

00:39:17.646 --> 00:39:31.556
Reality is, if it's a dollar a unit and you're paying $2 a unit to the other company and you're buying 8,000 units now, well, you could easily afford 10,000 units at a dollar a unit versus, you know, $2 a unit.

00:39:31.556 --> 00:39:33.733
So you know, don't be afraid to revisit that.

00:39:33.733 --> 00:39:38.173
You know, on a semi-regular basis, you know if your volume's increasing you should be revisiting that.

00:39:39.157 --> 00:39:39.920
Yeah, absolutely.

00:39:39.920 --> 00:39:43.715
Well, the last item that I have on here before I wrap up is talking about shipping.

00:39:43.715 --> 00:39:59.193
I know we've talked a little bit about skew drop before, but when we talk about manufacturing and kind of that cashflow situation, how do you think about factoring shipping into that process?

00:39:59.213 --> 00:40:12.297
Well, I'll tell you right now the thing for us that is actually most critical with that, and, from the sounds of things, a lot of other Amazon sellers are running into the same problem, and it may be it may be a temporary blip, but the problem is it comes up, you know up.

00:40:12.297 --> 00:40:20.472
We've had this blip come up on multiple occasions, and that is Amazon struggling with getting inventory actually brought into the warehouse.

00:40:20.472 --> 00:40:39.262
The number of shipments that we have sent in over the last two months or more that have been delayed, rescheduled, canceled, or Amazon brought the inventory into their system but then it just sits in purgatory and doesn't actually end up in our sellable inventory for two, three, four weeks.

00:40:39.262 --> 00:40:42.677
That's a problem, and that wraps up your cash right Again.

00:40:42.677 --> 00:40:45.653
You have money tied up in that product but you can't sell it.

00:40:45.653 --> 00:41:13.362
So any of those bottlenecks that you run into along the way are problems with your cash flow, and so accounting for those and making up for those is an important piece and one of the things that we are recognizing at this point, for whatever reason, is the shipments that are coming directly from China straight into Amazon FBA are going in much easier than shipments that are coming from someplace in the US and shipping into Amazon's warehouses.

00:41:13.849 --> 00:41:16.878
I don't know why they're courting Chinese sellers.

00:41:16.878 --> 00:41:18.742
I don't know, but it's true.

00:41:18.742 --> 00:41:27.273
And so Skewdrop is a service, again that we've discussed before, but they have warehousing that you can utilize in China.

00:41:27.273 --> 00:41:33.880
They will store, they will be your staging warehouse in China and they will ship directly from SkewDrop into Amazon FBA.

00:41:33.880 --> 00:41:49.510
They are also setting up new systems where they will ship directly into other 3PLs and their shipping costs are exceptionally good, even sometimes shipping in smaller quantities at a time, so you don't tie up so much inventory on the water at any given time.

00:41:49.590 --> 00:42:00.543
You could have weekly shipments, or every two weeks you could have a shipment going, so that if one of them gets tied up in the port or one of them goes down in the water or whatever it is, you're hedging your bets.

00:42:00.684 --> 00:42:04.038
You know you have more shipments running through and it's just a continuous cycle.

00:42:04.038 --> 00:42:09.596
But again, they're going straight into Amazon FBA and they're not getting held up.

00:42:09.596 --> 00:42:24.458
And so, even though you're bringing it in from China and there's something in your head that says I should just have this stuff sitting in a warehouse in the US, yes, you should probably have that you should have some inventory at a staging warehouse in the US just in case.

00:42:24.458 --> 00:42:35.836
But I would be really investigating Skewdrop as an option of getting your product into Amazon's warehouses much faster than trying to get it in from domestic locations.

00:42:35.836 --> 00:42:38.163
For whatever reason it's not getting held up.

00:42:38.163 --> 00:42:51.940
And again, if you can send in those smaller shipments then you're not tying up as much of your money at a time, you know in shipping and product costs because you don't necessarily have to order in as large quantities, even from the manufacturer you could.

00:42:51.980 --> 00:43:15.601
You know a lot of manufacturers like, let's say, their MOQ is 10,000 units, right, they in reality what they really want is just, they want a steady stream of orders, they want a certain number of orders coming in from a customer right, and they're expecting, like, okay, you order 10,000, but maybe we're not going to get another order for a month or two months, you know, or three months.

00:43:15.621 --> 00:43:28.617
Well, what if you tell them well, I don't want to order 10,000 units at a time, I'd like to order 3,000 units at a time, but I will order every week or every two weeks, you know, or whatever it is right, I'll order this, you make it, we bring it in, you know to, to skew drop into their warehouse.

00:43:28.617 --> 00:43:35.465
It doesn't cost you much to domestically ship that product from the manufacturer to skew drop, and skew drop doesn't charge that much for storage.

00:43:35.465 --> 00:43:37.954
And then you can ship in in these smaller quantities.

00:43:37.954 --> 00:43:42.873
So then again you don't have as much money tied up in one big 10,000 unit order.

00:43:42.873 --> 00:43:46.320
You can buy 2000 units, 2000 units, 2000 units.

00:43:46.320 --> 00:43:48.351
So again, it just helps with that cashflow.

00:43:49.735 --> 00:43:55.163
Yeah, and I just want to emphasize and I know we've talked about this before is is that we don't have any connection with skew drop.

00:43:55.163 --> 00:43:57.592
It's just a service that we've had a good experience with.

00:43:57.592 --> 00:44:01.382
There are other services out there that do similar things.

00:44:01.382 --> 00:44:10.621
It's just a skew drop is the one that I know, mike, you've had some you have had experience with and then we've talked about here because they've worked well.

00:44:10.621 --> 00:44:21.297
So, yeah, for sure I don't have the only solution out there for this, but it is a you know, at least based on, you know, our discussions a good solution for what we're talking about.

00:44:21.679 --> 00:44:23.347
And the only one that I have experience with.

00:44:23.347 --> 00:44:25.255
So, yeah, I'm going to mention them, but yeah.

00:44:25.958 --> 00:44:34.635
Okay, well, as we kind of wrap up this episode, you know what is, maybe you know one action item that you would leave for listeners as they think about.

00:44:34.635 --> 00:44:42.902
You know kind of mastering their manufacturing and maximizing you know their cost of goods from manufacturers and managing their supply terms.

00:44:44.050 --> 00:45:06.990
Well, I think again, just like with anything else, when it comes to the idea of solving, let's say, problems within your business, you need to figure out what the biggest problems are, and if expenses is where you're focusing, then the question is where are your largest expenses by percentage and which of those expenses are the ones that would be easiest for you to dial in?

00:45:06.990 --> 00:45:23.865
If your COGS, and specifically your manufacturing costs, are a large portion of the cost of getting that product into the hands of a customer, then that's probably an area where you want to place some significant focus and try to see if you can get that cost of goods down.

00:45:23.865 --> 00:45:25.047
Cost of manufacturing.

00:45:25.047 --> 00:45:31.177
If the shipping costs are what you're eating, then focus there and maybe skew drop is an option or something like that.

00:45:31.177 --> 00:45:32.639
You know so I don't.

00:45:32.639 --> 00:45:41.181
You know, I don't want to make it sound like the first thing you should do is focus on your cogs today because we did this episode right.

00:45:41.181 --> 00:45:42.856
That's not necessarily true.

00:45:42.856 --> 00:45:44.697
Maybe cogs isn't where your problem is.

00:45:44.697 --> 00:45:49.382
Maybe your cogs are great and maybe other expenses are where you really need to dial things in.

00:45:53.150 --> 00:45:56.117
But if cogs is a problem, then I think then the question becomes okay is it the manufacturing cost?

00:45:56.117 --> 00:46:06.751
Is it a matter of how much I'm paying for the product or is it a matter of how much I have to pay at one time and then I'm tying up in terms of my cash flow?

00:46:06.751 --> 00:46:08.414
Because those are two different things.

00:46:08.414 --> 00:46:15.875
Maybe I'm willing to pay a little bit more for the product per unit if I don't have to tie up as much of my money at one time.

00:46:15.875 --> 00:46:18.663
So again, differential between two manufacturers.

00:46:19.010 --> 00:46:23.045
Maybe one of them is going to charge you $2 per unit but they won't give you terms.

00:46:23.045 --> 00:46:28.599
Maybe another one is going to charge you $2.25 a unit but they will give you 60-day terms.

00:46:28.599 --> 00:46:32.577
Well, maybe the cash flow is more important than that.

00:46:32.577 --> 00:46:34.532
You know small differential in price.

00:46:34.532 --> 00:46:39.731
So don't get yourself locked into one perspective on how you need to save money.

00:46:39.731 --> 00:46:42.059
Maybe it's not a matter of saving money.

00:46:42.059 --> 00:46:47.597
Maybe it's a matter of saving on cash flow so that you have that money you know available to do other things.

00:46:47.597 --> 00:46:50.693
So just don't get yourself pigeonholed into one way of looking at this.

00:46:51.115 --> 00:46:51.697
Yeah, yeah.

00:46:51.697 --> 00:47:02.963
I think that's a great point and I mean I would leave listeners with just kind of reemphasizing that and looking at if you've never renegotiated with your supplier, thinking about those different levers you can pull.

00:47:02.963 --> 00:47:16.525
It's not just about price, it's also about what are your terms and what are your MOQs, and what does that process look like, whether it's 60-day terms or chunking out those payments.

00:47:16.525 --> 00:47:34.413
There's a number of different levers that we've talked about here that you can use in order to put more money into your pocket at the end of the day, but also to free up cash flow, which just gives you more opportunities that you can take with your business as you work on building your brand.

00:47:35.375 --> 00:47:37.219
And especially if you're working toward an exit.

00:47:37.219 --> 00:47:38.643
Cash flow is a big deal.

00:47:38.643 --> 00:47:41.882
Anybody who's looking to buy your business cash flow is going to be huge.

00:47:41.882 --> 00:47:44.773
So make sure you've got that dialed in for sure.

00:47:44.773 --> 00:47:46.038
Perfect.

00:47:46.400 --> 00:47:52.039
Well, I think that's a great place to wrap for today and we'll be back next Tuesday for anybody who's interested.

00:47:52.039 --> 00:47:59.797
If you want to get your questions answered live, we are on LinkedIn next Tuesday where we'll have some Q and a in order to answer your questions live.

051: Tactic Tuesdays: Manufacturing Mastery - Maximizing Discounts & Managing Supplier Terms

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