Actually, its not that hard……..knowledge is power.
Raw Material Costs + Labor + VAT Tax + Margin = Price
If you can identify most of this, you can get close…….and most of this information is available online!
For example, are you manufacturing plastic bottles for cosmetics? How much does that plastic cost for the plastic injection molding machine? Look up raw material costs in China to increase your profits from your Chinese suppliers.
Also, consider labor costs…..there is a lot of variation between Guangzhou & Shantou. Recently, we quoted some boxes for a top retailer in USA. We selected factories from Guangzhou and Shantou…..Guess which factory was cheaper (by almost 30%!)…..
Monthly Labor Costs in Guangdong (1 worker per month):
Average: 3363RMB/month ($533USD/month) Look at the difference in labor costs between Shantou and Guangzhou….nearly 1500RMB (270USD)! Shantou is only a 5 hours away and has port access…..
广东省2010年在岗职工月平均工资情况: 省平均 3363元 广州 4567元 Guangzhou 深圳 4205元 Shenzhen 东莞 3881元 Dongguan 中山 3382元 Zhongshan 佛山 3090元 Foshan 珠海 2867元 Zhuhai 清远 2726元 Qingyuan 韶关 2656元 Shaoguang 惠州 2467元 Huizhou 汕头 2312元 Shantou 江门 2291元 Jiangmen 湛江 2232元 Zhanjiang 梅州 2223元 Meizhou 河源 2198元 Heyuan 茂名 2151元 Maoming 潮州 2043元 Chaozhou 阳江 1966元 Yangjiang 揭阳 1884元 Jieyang
What about VAT taxes? If you can develop a basic cost structure of your supplier, you’ll be closer to increasing your profits from your Chinese supplier with your additional leverage. Check how much they are really getting back from the government-17% extra margin for your supplier is a lot? Negotiating with Chinese can be tricky so learn as much as you can before you start…
Different products are taxed at different rates…..and these rates change frequently….it’s useful to know because you can use this as leverage with your suppliers…..