Your supplier is pushing for huge price increases. What are the drivers behind the price increases? What should you do about it to protect your margin? Watch the video to get my tips.
In today’s episode, we’re going to talk about price increases. If you are already in business, you know the price has gone up significantly. If you’re thinking about starting a new business, please do pay attention because, by the time you launch your product, the profit margin may not be there for you.
So in this episode, we’re going to talk about the key drivers for the price increases and what you can do to mitigate those increases to protect your margin.
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Now let’s talk about those price increases that you have been suffering. The first driver to the price increase is the raw material price increase. If you’re in business, you notice the price has gone up two, three months before the Chinese new year. That’s a normal trend. Every single year, two, three months before the Chinese new year, the price tends to go up. The difference in this year is after the Chinese new year, the price didn’t come down, and these price increases are not just limited to the Chinese suppliers. I have suppliers from Taiwan, is raising price like crazy from Italy from Norway, from Germany. They’re all raising prices because there’s significant demand is here, supply is here. So this shortage of the material is driving your price increase by how much? How much your supplier is raising your price? I guess it depends on your negotiation skill, right? I’m seeing the suppliers are raising prices between 8% to 18%. In just a little bit, I’ll give you a couple of tips on how to mitigate these pricing increases. So, that’s the first driver raw material price is rising up so much.
The second driver is shipping. Have you noticed that the shipping cost has gone up so much? It’s gone crazy, actually. Honestly, I have not paid so much money on shipping in my entire life. To move a container from Taiwan to the West Coast of the USA, say Oakland Port, I have never paid more than $4,200 per 40-foot container. Guess how much I’m paying? $5,900. If it’s before the Chinese new year, we understand, there are capacity issues, there are equipment shortages. We paid premier for those containers. After the Chinese new year, things are not cooling down, instead, we keep getting bad news for different lanes. Like you’re planning to move a container from Germany to the USA by April 1st, they’re going to increase another $1,400. They call it a GRI General Rate Increase. So if you’re in business or starting a business, don’t forget to take these shipping increases into consideration, when you are pricing your product to sell.
The third price increase driver is currency. We can not talk about a price increase without talking about the currency or exchange rate fluctuation. If you’re doing business with overseas suppliers, you must pay attention to the exchange rate fluctuation. Capture the opportunity when your currency appreciates, and negotiate when the currency depreciates. Right now, where are you in a time where the currency is depreciating? If you log on to xe.com, that’s the website I like to use to track the currency history and make predictions of where the currency is going to fluctuate you can see, since June 2020, the currency peaked at 7.15, and now we’re at 6.45. How much is the drop? It’s 10%.
What does it mean to the supplier? If you’re paying the supplier $10,000, they’re getting 10% less than when they got your money in June 2020, because the currency has depreciated. In the Sourcing Warriors Mastermind Course, I have a specific video to teach the students how to leverage these exchange rate fluctuations to negotiate a better price. Please, don’t forget to ask for a discount when your currency is appreciating, because if you forget, the supplier will not forget when this currency is depreciating, they will ask for a price increase. Yeah.
So now, you know the three key drivers for the price increase, raw material is increasing on price. The shipping cost is rising and the currency is fluctuating. Now we’re on the depreciating curve. So these are the key drivers to the price increase. What can you do to mitigate this cost increase? Let me give you a couple of tips. The first tip is if you’re doing business with your existing supplier, you have purchased the products from them before. Now they’re giving you a price increase where you write them a new PO, you can ask for the last order exception, meaning this is the last time I want you to sell me this product at the old price, given our relationship, I’m pretty sure you can do that for me.
If you are new to this supplier, what should you do? Since you have no business history with the new supplier. Well, if you have an old quote, which is cheaper than the price now, you’re ready to place the purchase order, you can ask for the first order exception. Mr. supplier, if you want to earn a new customer, a lifetime customer could be worth millions of dollars, I want you to honor the quote you gave me three months ago, which is a little bit cheaper. So that’s your first order exception. For the exchange rate, I personally don’t think the exchange rate is going to continue to depreciate. So you do need to pay attention because everything runs in psychosis, goes up and, it goes down and goes up again. So when it goes up again, you do need to ask for a discount because you paid a higher price when your currency depreciated. Finally, when you are running your pricing model, please do take these rising costs into consideration. If you’re selling an existing product, adjust your selling price gradually to offset these rising costs in order to protect your margin.
If you’re launching a new product, just remember your cost analysis should be lent cost analysis. You need to include shipping and every other factor. If you don’t know how to do lent costs, get The Quote Master, I teach you step by step. I hope this video brings some awareness to the rising cost and what you should be doing to protect your margin. The next three to six months are going to be a little bit choppy, so pay attention. If you’re new to this E-commerce space and don’t know what to do, I encourage you to check out my Mastermind course. I will be delighted to help you grow and build your business. If you’re not convinced that the course is right for you, just check out the testimonials and see what other people say about the quality of the course. If you love the video, give it a thumbs up. I wish you a beautiful day until next time. I’ll see you soon.
Check out the link, the Sourcing Warrior Mastermind link, undertake Sourcing Warrior’s quiz to find out your sourcing IQ. Make it fun, learn something, have a great day. I’ll see you in the next episode.