Supplier loves to ask this question: “What is your target price?”
Have you ever got this question from your suppliers? I bet you have. What is your answer then, “I don’t know.”?
Most people don’t know how to answer the question. If you don’t know how to answer it “smartly”, your supplier may sense you are a new buyer, in return, they might give you a higher price.
I am Yuping Wang, I have been sourcing for 20 years, let me shine some light to this question and give you some tips on how to answer it like a sourcing Pro.
First Let’s Get Serious About the Target Price…
Tip # 1. Worst-Case Scenario
Before the supplier asks you about your target price, you should have asked yourself first – at what price point I would lose money.
For the students in the Sourcing Warrior’s Mastermind course I ask them to do a solid landed cost analysis first and try to figure out the best and the worst-case scenarios. The worst-case scenario is a reference point for your “target price”.
Every dollar improved upon worst-case scenario is additional profits.
Tip # 2. Don’t Throw an Offensive Number.
After you know your worst-case scenario, the tendency for most people is to give out a very aggressive “target price”.
Here is the thing, if your “target” price is too aggressive your supplier can take it as being “offensive”.
They can perceive you, either not serious about doing business with them, or a complete rookie who is throwing numbers around.
So, what they do? Supliers will ignore you and quit responding to your emails. Don’t want to waste more time on you.
Tip #3. Don’t Be the First One to Tell.
Now that you know not to throw the aggressive numbers around, the next ‘not-to’ is not to be the first one to show the hands.
Remember, your worst-case scenario is only a reference point. Your target price could move up or down from that point, depending on how the negotiation goes (To learn more about how to negotiate like a real Pro, click here.)
Since your “target price” is a “moving target”, and, you don’t know what your supplier’s true cost is, you can not be the first one to show your target price. The supplier may quote you a price that is even better than your target price.
If you show your hands first, you may leave some profits on the table.
Ok, got it. Not to throw an aggressive number, not to be the first one to tell the target price, then what should you do then?
Here are Sourcing Warrior’s Tips…
Tip #1. “I wish I could tell you.”
What is your target price? “I wish I could tell you.”
That is all you need to say. You can elaborate a bit if you want to make it more effective.
“I’m so glad you asked. I wish I could tell you, but it’s our company’s strict policy not to disclose the target price to any suppliers during the quote process.”
If you are part of the Sourcing Warrior’s training, this makes total sense to your supplier, because in your RFQ package you already indicated that you are qualifying the supplier to become one of your approved suppliers.
Hint, hint… our company has a qualification process, and we got more suppliers than just one.
Tip #2. “You don’t want to know.”
What is your target price? “You don’t want to know.”
Why is that? Because your target price is so low you don’t want to tell and offend them. In a way, what you are saying is completely true.
But “You don’t want to know” sounds a bit rude, so let’s massage it a little bit:
“We got some really aggressive target price in mind. You really don’t want to know. I suggest you put your best foot forward and send us your best quote.”
Tip #3. ” It’s a little bit too late to ask.”
What is your target price? “It is little bit too late to ask.”
If the supplier is not the first few who send back the quotes right away, you get to imply you got some good quotes already, even if, the quotes you got are not that good.
“My dear, it’s a little bit too late to ask. We got some really good quotes that beat our target price already. It’s really a little bit too late to ask for the target price now.
I suggest you send your quote in as soon as possible. We’re at the final stage of screening out three best suppliers.”
“What is your target price?”
Does this question still feel intimidating? After you have read this article, I bet you won’t ever say “I don’t know” again. Game on, test the answers on your suppliers and smile.