7 Ways to Reduce Your Unit Cost Without Pricing Negotiation

Importers have a tendency to obsess over price negotiation, while there are far more effective unit cost-cutting strategies. In this guide, we list 7 effective methods that you can start using today to reduce your product costs when importing products from Asia.

While each method alone may not save you more than a few percentages, the accumulated cost saving can end up saving you hundreds of thousands of dollars on a yearly basis.

1. Use cheaper materials and components

This is not necessarily as bad as it might sound. Finding cheaper materials and components can offer dramatic cost unit reductions, without sacrificing product quality and safety.

However, this requires a fundamental understanding of the unit cost structure.

Example A: Wristwatch (Initial Specification)

• Watch case: $12
• Crown: $0.5
• Indexing: $1
• Movement: $4.5
• Leather Strap: $3.5
• Wooden box: $7

Total unit price: $28.5

Example B: Wristwatch (Adjusted Specification)

• Watch case: $12
• Crown: $0.5
• Indexing: $1
• Movement: $4.5
• Leather Strap: $3.5
• Gift box: $2

Total unit price: $23.5

This strategy can also enable you to take money from one material or part, and invest in quality upgrades that have a better impact elsewhere.

2. Increase your order volumes

If you’re currently buying just 500 pcs per order, you can unlock notable unit price reductions by increasing that to 1000 pcs or 2000 pcs per order. While this is arguably a rather obvious price reduction strategy, it can help shave off 5 to 10% of your unit cost.

The downside is that you’ll increase the risk of unsold inventory and need more storage space, while also locking up more capital in your inventory.

However, Amazon sellers and other e-commerce businesses are increasingly using inventory financing services to offset that issue.

3. Buy materials and components for more than one order

If increasing your order volumes is not on the table, you may still want to consider buying materials and components for more than just one order.

Larger volumes results in a lower price, not only when buying finished goods, but also materials from subcontractors.

For example, apparel buyers can, via their manufacturers, purchase fabrics, velcro, buttons and other parts covering projected volumes over the course of 3 to 6 months to cut costs.

However, this requires that you have a solid relationship with your supplier, as it comes with certain risks. First, this strategy only makes sense if you are already placing regular orders from your supplier. Second, the supplier must also have enough warehouse space to store surplus materials.

4. Reduce your product defect rate

One failed order can wipe out months worth of profit. Returning products back to your factory in Asia, or successfully claiming a refund, is extremely difficult. As such, a strict quality control process is not just a ‘nice to have’ but something that every importer must implement.

Example A: 0.2% Defect Rate

• Order volume: 1000 pcs
• # Defect units: 2 pcs
• Unit price: $10
• Order value: $10,000

Actual unit cost: $10,000 / (1000 pcs - 2 pcs) = $10.02

Example B: 20% Defect Rate

• Order volume: 1000 pcs
• # Defect units: 200 pcs
• Unit price: $10
• Order value: $10,000

Actual unit cost: $10,000 / (1000 pcs - 200 pcs) = $12.5

Here’s what a basic quality assurance process can work

1. Submit your product design drawings and bill of materials before you place the order, and make the supplier sign and stamp all documents.

2. Create a production manual, which clearly outlines your payment terms and definition of a defective product. This document must also include an acceptable defect rate, which is normally set below 1%.

3. You should only pay a 30% deposit before production starts. Make your supplier know that you will not pay the remaining 70% until they have passed the quality inspection.

4. Request photos from your supplier during production, to ensure that they get colors, packaging and other details right.

5. Create a quality control checklist and book a quality inspection once production is finished. Luckily, the Bureau Veritas InSpec platform makes it incredibly easy to book quality inspections online.

6. You should only pay the remaining 70% balance if the quality inspection passes. If not, you must book a reinspection.

Further, your supplier must ‘trained’ to understand that you take your quality requirements seriously and that you’ll book inspections for each and every order - with an exception.

This makes a huge difference when it comes to reducing the defect rate.

5. Use standardized materials and components

Custom designed plastic or metal parts require injection molds paid for the buyer. Injection molds and another tooling can cost anywhere from a few hundred to tens of thousands of dollars - money that has to be counted into the unit cost.

Example A: Custom Designed (OEM) Watch

• Order volume: 500 pcs
• Unit price: $20
• Tooling cost: $1000
• Order value: $10,000

Actual unit cost: ($10,000 + $1000) / 500 pcs = $22

Example B: Factory Mold (ODM) Watch

• Order volume: 500 pcs
• Unit price: $20
• Tooling cost: None
• Order value: $10,000

Actual unit cost: $10,000 / 500 pcs = $20

6. Reduce material waste

The factory unit price is the sum of the material cost, labor cost, operational expenses, and the supplier's profit margin. If your product is designed in a way that it results in a lot of waste material on the factory floor than this naturally results in a higher unit cost, not to mention the unnecessary and negative environmental impact.

Reducing waste material requires a thorough understanding of the production process. While you can ask your supplier for suggestions, you’re better off spending a few days on the factory floor to see for yourself and implement changes accordingly.

7. Book ocean freight instead of air freight

This is another old trick in the book but still lost on many importers. While I understand that orders are often delayed, and you may not always be able to wait around a month to stock up - last minute air freight bookings can still eat up a big chunk of your profit margin.

Placing your orders a month earlier than usual can help you make the switch from costly air freight to affordable ocean freight.