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Negotiating Terms With Suppliers to Save Cash Flow with Dan Ashburn
On today’s episode of Quiet Light, Dan Ashburn joins us to discuss negotiating terms with your suppliers. Dan is the co-founder of Titan Network, the Mastermind for Amazon sellers, the China Magic, the immersive Mastermind discussed in another episode.
Tune in to pick up some awesome tips about how to save cash and boost the overall value of your business.
- How he came up with this concept.
- Why face-to-face interaction is important.
- Forecasting sales, inventory requirements, and pay-out per unit.
- Using market data to help with forecasting.
- The formula/numbers Dan uses.
- Making sure your offer is win-win.
- Timing your requests.
- Having perseverance when it comes to your requests.
- Traveling to China.
Mark: Shortly after you buy a business, you’re obviously looking for any opportunities to increase your return on investment. Sometimes that’s through growth, sometimes that’s through different ways of cutting expenses. But oftentimes looking at your suppliers and the terms that you have with your suppliers can be an easy way to free up free cash flow or get better terms or be able to even get different rates. But how do you go about actually negotiating those terms? How do you approach the suppliers, especially when the relationship is new? If you’re on the sell side, the same sort of questions applies; how do you approach suppliers in a way where you can increase your return on investment by negotiating better terms? Joe, I know you talked to someone about this and have some good tips here.
Joe: Yeah, Dan Ashburn from Titan Network. You know what? Just in the podcast, I’ll just tell you right now, Dan goes through a step by step process to basically walk people through what to do, how to do it and get better terms with your supplier. And the ultimate result, whether you’ve got a straight-up e-commerce business, a Shopify store, or an Amazon business, or whatever it might be, even retailers that are out there importing from overseas. I hear it over and over again that when you make the right connection in the right way with your supplier, you can get better terms. The end result is more cash flow. More cash flow means you’ve got the ability to buy more inventory as you try to keep up with growth, which is often a good problem to have. But Dan talks about it quite a bit in there. And the piece that is forgotten and not all that talked about is people are always trying to drive top-line revenue. But if you can negotiate better terms with your supplier and then get a better reduction in the cost of goods sold, it’s going to boost your overall value as well.
Joe: Hey, folks, Joe Valley here from Quiet Light Brokerage, and today, I’ve got Dan Ashburn on the line with me. Dan is the co-founder of Titan Network and I think China Magic as well amongst another a number of other pretty fancy titles and credits to your LinkedIn profile here that I’m looking at, Dan, but that’s as far as I get with fancy introductions so why don’t you tell the folks that are listening about yourself and about your background and what you do?
Dan: Yeah, sure. Thanks for having me, Joe. So, yeah, I’m the co-founder of Titan Network Mastermind for Amazon Sellers, co-founder, and co-organizer of China Magic, which is a trip where we take 100 people twice a year to source products over in China. We’ve taken over 500 people now and the co-creator more recently of Amazing Selling Machine. And then my team and I are responsible for delivering eight figures in sales on Amazon per year through my brand management agency.
Joe: That’s an awful lot. How do you do all that and not lose all your hair? You got a nice head of hair there. So this is a prod for people to go to the YouTube channel as well.
Dan: Yeah, for sure. So I have a good team around me. I’ve got a good management team. I’ve got an executive assistant who makes me look really good. And then, yeah, I just got good people around me so it’s pretty cool.
Joe: Okay. There are not a whole lot of Amazon sellers that we have on the podcast and that I deal with on a regular basis; I’ve been doing this for eight years that have a beautiful British accent. So tell me about that aspect of it. You’ve got; I don’t know how many you said in terms of Amazon sellers, 1,600 that you work with or something like that. How many are typically US-based versus Europe based?
Dan: Yeah, it’s a great question. I’d still say the majority of the market is in the US. I’d probably say it’s a 70/30 split right now. However, Europe is growing and it’s growing fast as markets like Germany, etcetera pick up. And if you combine the combined sales volume of Europe to the US, then it’s a good opportunity. And Europe is definitely picking up. A lot of the Europeans are obviously using US as their main channel as the US seller are then coming out over into the European market to diversify.
Joe: Okay. So a quick side note before we get into the meat of this discussion is that Amazon has just made it a whole lot easier to transfer a European seller account. So that’s real positive news. It doesn’t necessarily have to be a stock sale anymore. It can be an asset sale and it’s easy to transfer so positive stuff there. But today we’re talking about a little bit of your China Magic experience and your China experience in general and negotiating terms with your suppliers to improve cash flow and to improve your bottom line and boost valuations, which is a breath of fresh air because you can’t; you wrote that line when we talked about it because most people don’t think about valuations when they’re working with suppliers and things of that nature but you do.
Dan: Yes. So you’ve had Scott Dietz on a number of times now. Scott was very much a mentor of mine over the last few years and something Scott really instilled in me is what’s good for selling your business is good for building and running your business. So installing that, combined with the challenges that I come across so many sellers have; there’s one thing in this business that stops growth and that’s cash flow, its cash on hand. We all know there are only three ways really to grow the business, sell more of the same products, sell additional products, or sell the same products in new marketplaces are really only the three ways. All three of those ways take cash and they take cash flow. So we very quickly; my team and I launched this, my team and I really set our minds over the last couple of years to how do we solve this problem for the accounts that we’re involved in, the brands that we have stakes in, and the people that we’re working with across Titan Network, China Magic, etcetera to really solve this problem. And that’s where this working with a supplier to fund that growth, that whole concept really came from. And I’m really proud to say that the last year or so, the last 18 months, we’ve been getting some pretty impressive results where suppliers are letting us go north percent down, 10% on shipment, 90% two or three months thereafter so it’s really positive.
Joe: One of the things I hear often is, yeah, I just got back from a trip from China. I was able to do this. I’m getting better terms here. I reduced my cost of goods sold here. I ate way too much and drank way too much and I feel like I’m a member of their family now. Is that what everybody has to do? Do they have to get on a plane and go to China to meet the manufacturer and supplier or is it just something that helps but there are other ways to do it?
Dan: Look, there are other ways; there are always other ways to do it. You can get this done over a Skype call or a Zoom chat like we’re having now but if you’re serious about growing the business and you want to go in and get the times that you want, then every time in every case, physically being there in China in the room, staring the person in the face, building a real relationship with that person gets the better result every time. And where we’ve had a good result virtually, it’s always been as a result of following up physically with someone. So we’ve already been earlier in the year or we may be met them at the last Canton Fair but there’s always been that physical interaction. And I think what people underestimate about China is the business culture out there is relationship-driven. It’s all about building that relationship. It’s all about going and having that male drink and some of the alcohol stuff that they put in front of you to really build up that relationship. And there’s so many benefits to that relationship much further beyond payment terms and cost of goods sold even down to stuff like it’s coming up to Chinese New Year that productions run is full. And because you have that relationship, they bump you to the front of the production line, which keeps you in stock.
Joe: So let’s get to specifics for the audience then. For people that are; and talk to them as if maybe they’re your clients, they may be somebody that just bought an Amazon business from Quiet Light Brokerage or they’re somebody that listens and is getting expert advice from folks like you. What are the first few steps that somebody should take? And I know this is general information for general people, specific would be if you were talking to one. What do you advise somebody to do?
Dan: Okay, cool. So first off, we need to understand what terms do we need to achieve and what are we aiming for? What’s our goal? So the first steps or so of executing this process before you got to China or before you attempt to do this virtually is we need to put together a sales forecast. We need to understand what am I expecting to sell over the next 12 months and include uplift for Q4 based on historical dates or if you’re selling seasonal products, make sure you’re including all of that uptick and then break down what you plan to order. So once you forecasted those sales, understand what inventory requirements you have and what your current order rate would look like with your supplier over the course of that year. Then figure out with that information what is the payout per unit on your sales? So you need to calculate the Amazon payout per unit after all fees and marketing costs. So within our brands, we work to operating 10% advertising contribution or true A-costs whatever you want to call it. And we factor all of that in and we figure out after storage fees and etcetera, what is our P&L per unit?
Joe: Did you say 10% advertising; is that what that was?
Dan: Yeah. So as a PPC contribution, margin, or a true A-cost; whatever you want to call it. Once we’re out of the launch phase and we’re in some maintenance we factor in a 10% margin for advertising.
Joe: It’s great, we do key financial metrics anytime we list a business for sale and typically see the ad cost somewhere in that 8 to 12, 8 to 15% range so 10% is a good number. Before you go on too far, so you’ve talked about doing a sales forecast and of course, that leads into inventory need forecast. The question often comes up, what’s the best software if there is such software for inventory management and sales forecasts? Do you use some or do you create it with Excel spreadsheets?
Dan: So we keep it simple. We do all of this in Google Sheets. We have adopted a new inventory management system and I’m pretty impressed with it if you wanted to talk about that. But we do all of this in a basic Google Sheet template. And if you want, Joe, I can have that template sent out to your subscribers. But yeah, we just use a Google template, we use a Google sheet and we just manually plotting in numbers, manually forecasting out. It’s nothing fancy. If we want to work with someone at more advanced than we’ll offset pull in an accountant or a bookkeeper; someone that’s more savvy with the numbers. But we’re just using historical data to forecast the future 12 months.
Joe: And you’re pulling that data from Amazon or from QuickBooks; where are you pulling it from?
Dan: Yeah. Typically, depending on the account that we’re working with or depending on whether it’s an in-house brand or a joint venture type relationship, we will take the initial data from Amazon. So we’ll take your initial sales data. And then if we can sanitize that data with actual validated bookkeeping records, then obviously we will do that. But for the sake of this exercise, it doesn’t need to be 100% accurate. This is a forecast and everyone knows; I think what everyone gets is they get that analysis paralysis on forecasts. Because I think what if I don’t meet the forecast or how do I know what it’s going to sell? You’ve got to take the best guess and if you haven’t got 12 months of trailing data, go use tools like Keeper to look at your number one like for like competitors trailing 12 months of data. Just use data in the market to be able to inform your own self forecast.
Joe: So doing a cash flow forecast or I’m sorry sales forecast leads into what your inventory needs are. You’re doing that in Google Sheets and what’s next from there?
Dan: So before we can move onto the next stage, we then have to figure out what our payout per unit is, because these three pieces of data, the sales forecast, and the inventory need forecast as you call it, and then the payout per unit factoring in a rough 10% advertising contribution. That gives us all the information that we need to be able to produce an accurate cash flow forecast. So what sellers I find out doing most that aren’t taking on external cash or external funding, they’re kind of running on this system of hope. They kind of think or hope they’ll have the cash in the bank for the next inventory order, but they’re not really forecasting enough ahead to say, will I have enough cash on hand to be able to fund my next inventory order to meet demand of growth and not run out our stock at the same time? But without those three data points, without knowing how many you’re going to sell, what inventory you need to meet that demand, and what your cash payout per unit is, you can’t put together a cash flow forecast. So once you’ve got those three data points, we then put together our cash flow forecast. So to give you sort of a demonstration of this, we base it on our current term. So let’s say typical terms, 30% deposit, and 70% before shipping. That’s pretty much most the market.
Joe: Pretty standard.
Dan: Yeah. So we will forecast our cash flow based on those terms for the products that we want to negotiate. So you might have one product with a supplier or you might have 10 but you just do it for the group of products that you’re talking about with the supplier. So we’ll have the sales forecast at the top of that cash flow forecast. Then we’ll have a payout forecast which is based on sales. It’s just that payout per unit multiplied by the number of units we expect to sell in that month. That gives us our total cash pile for that given month. We then factor in some fixed costs. So things like employees, software, training, salaries, costs that we know we’re always going to have. And then we might factor in some ad-hoc costs like travel conferences, going to China Magic twice a year. God, I’m plugging that. So we factor in those hard costs and then that gives us a forecast month by month, January through December. If we go for the annual calendar year of what our cash on hand looks like. Then we just have to plugin based on what we know we have to order what cash output; what cash outlay do we need to factor in based on 30/70 payment terms. That then gives us an accurate view of where we’re going to have a deficit on cash, where we’re going to be up on cash, and what that looks like for the next twelve months. Does that make sense?
Joe: It does. You sound like a grown-up here, running a business with real numbers and doing some analysis.
Dan: I’m trying to.
Joe: Congratulations. And that’s what you teach the folks at Titan Network as well. You’re going through this with them
Joe: And do you produce video walkthroughs on how to do this with examples?
Dan: Yeah. So we’ve got like the whole step by step. Within Titan, we have something called masterclasses and we’ve got an entire master class on supply payment negotiation with all the templates, negotiation, soft scripts, ways of approaching; I’ll give you some secret sauce in a minute but even like a presentation that we use to present this information to the supplier, all of that is all inside of Titan. And our Titan members; I mean, the results that we’re getting, someone got a 50 grand credit line off the back of this.
Dan: I can’t count how many now; it’s got to be 20, 30 members in the last few months alone that are getting terms, even just improved terms like 20% down because the raw material costs are quite high, but then they’re not paying 40% until 30 days after shipping and the remaining 40% until 60 days after shipping, which means they’ve been selling the product likely for 30 days before that balance is due, which just opens up so much opportunity because you can afford to sell more product cause you can order more inventory. You can afford to expand into new markets because you can afford more inventories. Or you can afford to launch new products. And for anyone that’s doing some serious money in this business, they know launching products is the fastest way to grow it. So, yeah, I mean, the results are quite stellar and we’re doing some good things in time for sure.
Joe: It’s all good stuff. Everybody listening certainly needs to do it if they’re not doing it now. So once you’ve got all this information, the forecast and estimates and things of that nature what do you do with it?
Dan: So once we’ve created that cash flow forecast based on our current terms, so 30/70 we then produce a second forecast and we play around with those terms. So the example of I’m looking as a reference in front of me here is 20% deposit, 35% 60 days after shipping, 45% 90 days after shipping. And this is actually a live case study on one of the ASINs that we run. So we will adjust the cash flow to the new terms to then demonstrate what that does for our cash flow. And at this point, this is all internal. This is all internal reporting, preparation to support and enable the negotiation. So I know here, just look, I’ll read us some numbers because obviously, I can’t cast the screen. On our 30/70 our cash on hand column across the bottom January was in this example 5,000, February is 3,000, March goes into a 2,000 deficit, April goes into a 4,000 deficit because we’ve paid out that 30% deposit on this inventory order.
Joe: Can you just with those numbers do you have a ballpark total revenue figure as well? I’m just curious.
Dan: Yeah, we do. So down here we’ve got a total payout figure in this example because we haven’t got the retail cost in here. We just track basically what cash flow we receive from Amazon so it’s on the end of the column. But if it scales up; this was an example of a new product launch achieving 300 in the first month to a thousand units in the 12 months; very, very conservative forecast.
Joe: Okay, so what happens when you flip this to the new terms that you’re trying to achieve?
Dan: So interestingly, the cash outcome; so at this point, we’re not forecasting what additional inventory we can get so the cash outcome at the end is the same. So December, for instance, in the 30/70 on this example, the cash outcome for December, cash on hand sorry is 79,000. It started at 4,000. In the after states 20/35/45 again it’s 79,000 at the end of the year in terms of cash on hand. But the difference is I don’t have a single deficit in my 12-month run because I’ve been able to achieve better payment terms. So that’s sort of step one of this process, cash flow forecasting existing terms and saying where your deficits are and then making sure that you can negotiate payment terms that mean you never run out of cash. You never need to go into any credit line, credit cards, any sort of equity or debt financing, because you’re always going to have positive cash on hand to fund the growth of your business.
Joe: So what do you have to say to those people that are listening saying, okay, I got this, I’m just going to ask for these better terms and they don’t do this work and they don’t do a presentation the way that you want, what it is their supply going to say?
Dan: It’s funny, actually, because one of the things we normally go to; this is a typical role play and if I ever talk about this on a stage and you lied and or anything like that, this is how it typically goes. You send an email that goes, hey, I need some better terms. Can I pay you the balance after shipping? The supplier email backs no. You sit there drinking FML like, what am I going to do? Yeah, most people just go give me better terms, a supplier goes no. And if you think about it, these factories; these suppliers, how many brands are asking them daily? How many of their customers because they’re supplying hundreds if not thousands of customers.
Dan: I’m just saying give me better terms. I hope you sat there as a factory owner going well what’s in it for me?
Dan: You have to answer that question of what’s in it for me. It’s got to be a win-win relationship.
Joe: Let’s get to it then. The next stage is I mean, obviously, you’re seeing so no deficits, which is great. The entrepreneur is sleeping better at night. They’ve got a little more cash for themselves, but also cash to probably buy more inventories which is what’s in it for the vendor, right?
Dan: Absolutely. So with everything we do, we have to approach these relationships as a win-win deal. Having been to China more than a dozen times now, I’ve taken over 500 people. I have been involved in a number of these negotiations at lower levels and much higher levels. It is all about the relationship. It’s all about the win-win. And you have to present what’s in it for them. Why should they risk that workflow, their cash flow? Because I sense you’re asking them to fund your business. Why should they risk that inaudible[00:20:16.2]. So the outcome for everyone has to be a benefit. So the way we do that is there’s a five-step process to presenting a win-win. And this is what we break down into a presentation and we’ve got templates for etcetera. So Step 1 is the opportunity and the conversation that you’re trying to get across is there’s a big opportunity to make more sales. That’s kind of the message you’re trying to get across. And the reason it’s better to do this in person as well is you can take; if you’ve got like a logistics manager or sourcing agent on the ground. All of our Titan members benefit from Titan sourcing, so we provide this to them on the fly. But yeah, if you’ve got that on the ground, you can then have that person translate but also be like an internal ambassador for this process. So step 1, the opportunity. There’s a big opportunity to make more sales. Step 2, the challenge. The challenge is I can’t order enough inventories to fund and meet the demand of my growth because of cash flow. And that’s the challenge that you need to communicate. You can’t fund your growth because of cash flow, and that’s limiting your ability to grow because your sale is outgrowing your cash impact. I lose sales and as a result, the supplier, the factory that you’re dealing with is going to get smaller orders. The solution is better terms so we can order more inventories. The whole objective here is better payment terms, more cash on hand, and allowing you to order more inventory just to grow faster; to compound that growth faster, the benefit, larger orders for the supplier, more sales for us. So that’s kind of the five-step story that your supplier, your factory really needs to understand from this process. I’ll read…
Joe: Read them off. Yeah, you were just going to do it. Yeah, read them off real quick one more time.
Dan: Opportunity, challenge, impact, solution, benefits. So they really need to understand each one of those points and then we’re going to break down exactly how we do that.
Joe: Okay. So look, I haven’t been to China before and I want to ask you about that a little bit, but I know that there are benefits for the manufacturer because you’re going to be placing more orders. What’s their recourse if you don’t pay on those notes or is the risk so low because you’ve been there, you’ve met with them, didn’t rush on building a relationship.
Dan: So you’re not going to get this sort of payment terms on your first order. We have, however, had a number of success stories on their first order, even just slight movements like 20/80 on the payment terms or a slight reduction in COGS because we’re guaranteeing more orders. We are getting some traction on first orders. This is more for sellers who are probably more your audience, Joe, who are sort of gearing towards exit. I’ve got an established relationship inaudible[00:22:54.8] the second to third order is kind of the sweet spot that you can start bringing this up. And if you bring it on early in the relationship, every time you place a bigger order, you can revisit these terms, you can revisit the relationship. So for the factory, yes, of course, there is risk involved, but they’re weighing up the relationship with you and there are other insurances and stuff that you can bring up without getting too technical. You kept their eyes on ways of ensuring the order and stuff which can give a lot more confidence to the supplier but we don’t do that most of the time. It’s just purely based on the relationship and your order history.
Joe: Okay, so any more steps after the 5 that you talked about there?
Dan: Yeah there is. So that’s the story we’ve got to present but when it comes to actually presenting that you’ve got to back that story with data. So they have to believe you and they need to see the numbers for themselves to tick that logical box. You’ve ticked the emotional box, you’ve got the relationship. They believed your story. Now you’ve got to present the data to back your story. So the six-step process to presenting the win-win, one is the growth potential, two is a product by product sales forecast. So that forecast to we produced in the beginning, we’re just going to take the sales aspects of it and present that in a nice presentation. We’re going to then present the order values to meet that demand and we’re going to show them the before and after. We don’t get into showing them the internal cash flow or the profit or anything like that. We just show them on the current payment terms this is what we can afford to order, on the new payment terms this is what we can afford to order. And what they’re going to say is an order of say, 5,000, 10,000 units but with the new payment terms, I might be able to order 20,000, 25,000 units. So they’re going to see a drastic change in the volume of units that you’re able to order if they just work with you on the payment terms. Now, once we’ve done that, there’s two other points. We always present what out of stock means. So most factories and suppliers don’t really understand what it means when you’re out stuck financially from a sales perspective. Sure they’re being hammered; you’re sort of getting on email, you’re getting on Skype, you’re doing you thing saying well I need this order, can you push it? Can you put it to the front of your production line and you’re sort of pressuring them. But because you’re pressuring them so much they’re not really thinking about the impact on sales. So you can show the cost of being out of stock from a point of re-launching, lost sales velocity, lost growth. So maybe you’ve lost a couple of places in rank which has actually brought your growth percentage down, the momentum of growth. And for them, they’re not going to be getting as frequent orders because that volume is down, meaning you’re not placing as bigger orders. So you can still present the loss to them as well, which is a nice sort of stick to underpin the whole thing. And then finally you go right to solve this problem; this challenge, to order more from you and to recover was it, defend against that potential loss of being out of stock. These are the payment terms I need. And you just present the data to back the story. And it’s quite easy, there’s a whole template towards it in terms of how we do that. You can use screenshots out of your Amazon seller central accounts to back the data; you can use Keeper screenshots within the presentation as well as just sort of showing screenshots of that spreadsheet you really want to be showing the analytical graphs to back that data because it really gives that visual representation.
Joe: I’m sorry so let’s just put in the; so for every 10 people that go through this process and try to renegotiate terms to go through the full process, they do it right. They do the projections. They do everything that you’ve talked about so far, which I think is eleven steps after they’re doing the sales forecast, do 9 out of 10 of them get better terms or 10 out of 10 or 2 out of 10; what are the odds? Just put it into a realistic perspective for the audience.
Dan: So if you are already working with the supplier, you’re already in communication. You’re not just…
Joe: Yeah, let’s assume that somebody has been placing two, three, four, five orders. A lot of people if they hadn’t done this, they’d been placing the order for two or three years.
Dan: Yeah, so that person I would be as confident to say that eight in 10 people. I am yet to come across a relationship of that stature that’s established with good communication where you won’t end up better off. Now, you might not get the terms that you want straight out the gate, but I guarantee if they value your business, which they should do by that point you’ve got a relationship, you will end up off in a better place. So 90 to 100% of people will end up better off. 80% of people will execute to a point where it impacts customer for sure.
Joe: And this includes a trip to China because you’re presenting it in person?
Dan: Yeah, this is like optimum. You’ve gone to China. Think about how many requests these factories and suppliers get from brands in the west as they say it asking. And then think about the percentage of people that actually get on a flight, fly to China, sit in the office, drink sake and do all that good stuff. That is going to be like 98 and 2%. So who are they going to prioritize? They’re going to prioritize those showing real commitment. Business is about commitment. Business is about doing what you said you would do. And I think that’s all this is. It’s as simple as that.
Joe: Yeah, the 80% of people that have established brands can certainly get better terms with these vendors. Are you seeing; obviously they’re ordering more and with higher volume orders comes lower cost of goods sold. How do you negotiate a lower cost of goods sold? Is it strictly volume based or do you make that part of this overall presentation that you’re looking for terms and lower COGS at certain levels?
Dan: Yes. So what we do is we hold that conversation. So in any negotiation, you need the person you’re negotiating with to say yes a few times. You need to get them to agree and we need to chip away at the yeses. So what we do is we hold that COGS conversation right until the end. So once we’ve gone through showing the growth potential, the product by product sales forecasts, showing the order values to meet the demand before and after if they give us these terms, the impacts of being out of stock, and then say this is the payment terms we want and always start higher, by the way. Always start higher than you actually need because there will always be a piece of negotiation. They will turn around and say, yes, hopefully. That’s the goal. That’s our amount in agreement. It might not be what you want, but they might say, well, on this one, we’ll give you this and if you meet the demand, then on the next one we’ll give you this. We might be a bit of an up curve. We then turn around and just say so now I’m placing a bigger order, I get a better price, right? And you’ll find about half the time they’ll smile and laugh at you and say, yes, the other half the time they’ll say, let’s talk about that in the next order. But yeah, you have to put a bit tongue-in-cheek in whether you have to build the relationship, play on the relationship.
Joe: Is this done over dinner or is it done over a desk; how do you see it most often done?
Dan: Typically, it would be done; in most cases, it’s going to be over some sort of food environment, some suppliers and factories would like to get the business done and then go for dinner. Most likes to get the relationship piece in first. They want to sort of learn about you, your family. They want to give you some food, take you to lunch. And then during that process, we’ll then bring it down to the conversation. Now, it’s important to say it won’t always happen there and then in the room. A lot of the time you’ll present this, you’ll throw in that thing at the end that says, so now I’m placing a bigger order do I get a better price and be a bit cheeky with it. And a lot of the time they’re going to turn around and say well, look, we need to run our raw material costs. We need to look our production workflow. We need to speak to our internal production manager. We’ll get back to you within a few days. So depending on how long you’re in China, it could be back when you were in America or back in Europe. You’ll jump on Skype and they’ll go, okay, cool we’ve run the numbers. It makes sense. Yes, we can do that. So it kind of happens like a bit of a fluid conversation during the social aspects. Sometimes you’ll sit in an office and just get it done. But most of the time it would be over some sort of lunch or something like that.
Joe: I got you. Okay, any other steps that you want to review?
Dan: No, we’re good. So really just remember, it’s a win-win. Do your internal prep; what they say is the success is in the preparation, success in the planning. Do your planning, and then make sure you’re presenting it in a way that presents it as a win to them. And yes, you can achieve this virtually over the internet, but you’re going to have 100% better results. And if it’s okay, Joe, I’ve got some examples here, actually.
Dan: So Case Study 1, 30% deposit, 70% before shipping, after 0% deposit, 100% percent 60 days after shipping.
Joe: That’s a beautiful outcome. I can’t imagine anybody would be upset about that.
Dan: No, it’s cool. That was actually inaudible[00:31:13.0] and my business partner and Sarah, who’s head of Titan Sourcing that negotiated that one. The next one was 30% deposit, 70% before shipping after we got a 30% deposit because the raw material costs were quite high on this product, which you have to still work with them on, and then it was 20% percent before shipping. So we pay sort of 50% and then we got 50% percent 30 days after arrival at Amazon FBA, which meant we had 30 days of sales before having to pay the remaining 50%. Case Study 30% deposit, 70% on the approved inspection report. That was a bit of a quality assurance thing there. After we got a 20% deposit, 35% 60 days after shipping, 45% 90 days after shipping so that was a nice one. And then finally, the fourth one and I’ve got some bonus tips at the end if you want them, Joe, 20% deposit, 80% before shipping. That was the terms we had so it was a bit nicer on the frontend. After we got a 10% deposit, 40% on landing in the USA, and 50% 60 days after landing.
Dan: And these are typical; I can stand there and say now these are just four cases that we’ve done we’ve got a whole Titan network full of members that are doing the same.
Joe: Yeah. No, I want to hear about the bonus tips. Also want to hear briefly about China Magic and maybe we can have Athena on to talk about it. Just let me ask; go ahead into the bonus tips and then then I want to talk briefly about China Magic.
Dan: Yeah, sure. Because there’s loads of benefits above and beyond obviously COGS and terms.
Dan: Okay, so tips to success face to face always will produce a better result. They often pay for the trip and that’s what you got. Think if you’re looking at a cost offset, you’ll often get to pay for the trip in the renegotiation. Always ask for more than you need; really important. You probably won’t shake hands there and then as I said. Make sure if you come to see the boss, you don’t want to be waiting on a middle person or a middle man so they then you have to go and sort of do the translation. You want to be in front doing the deal with the boss. Before you go into that environment, before you even head out to China, if you’ve got a representative from that factory or you’ve got a sourcing agent that handles that relationship for you, then get them onside. So run through the presentation with them first so that when they’re in the room, they’ve already done the thinking, they’re already standing there, and they can get the buy-in of the boss in the room. Consider consolidating your orders to one supplier. It gives you more buying power. And one thing we’re a big fan of in Titan and in China Magic is leveraging an outside adviser. Because then you can play the whole good cop bad cop. If you want to maintain a good relationship you can bring in someone that’s like an external advisor to crack the weight a little bit and you can call them your finance person. You can call them whatever you want to. That allows you to do that. And remember, every relationship and supplier cash flow is different so you have to really; don’t just tell them what you want, understand what they need, and bring the two together. And this is counter-intuitive but it’s often being willing to pay more to achieve the terms especially in the beginning. So one thing you can do is if they’re not budging, you can afford to give them a dollar bum pull over here now on a product to get them to nudge on the payment terms which is still going to give you more cash on hand and then come back to renegotiating the COGS once you’re up at the higher volume because you’ve been off to some of the growth.
Joe: I like it.
Dan: And also take gifts as well; take presents. It works. It depends; there are controversial views on this. So Kian Golzari for instance who is a sort of an expert on China Magic everything; he’s doing sourcing and product development. Kian loves; he’s from Scotland, he’s from Edinburgh, he loves taking some Scotch whiskey with him. Other people take chocolate. There’s the whole red envelope with some cash in it for the children but that one’s a bit more controversial. But yeah, just my advice would be take something that’s important; not important but personal to you, and then that creates a talking point and it creates more of a relationship and a bond.
Joe: Okay, that sounds great. I think one of the most important things I see people that are running great businesses and eventually sell them, they’re great businesses, do great for buyers. They really have been to China and they always wind up with either better terms or better COGS. It sounds like a scary place to me, though. I’ve never been so is China a scary place?
Dan: It really isn’t. So when I first got involved in the early days with China Magic I went out there as a guest speaker and then ended up becoming a co-organizer with Athena. I thought the same but when you land; if you think like Guangzhou where the Canton Fair is. That’s where we go. It’s the biggest product sourcing Fair in the world. I think they start setting up 5 million products on display during the Canton Fair. They’re used to receiving hundreds of thousands, if not millions of westerners through that fair over the course of 12 months. The airlines are efficient. The flights are cheap. I mean from the US, the flights are $500 on a good day it’s $400.
Dan: Yes. I mean, it’s really cheap. That’s for obviously economy. I got a first-class ticket; I mean first-class pod for two grand.
Dan: So yeah I mean it’s cheap. We head out there and we’re picked up by a nice comfortable bus and we stay in the Four Seasons Hotel which was rated Forbes Best Business Hotel in the world 2019; the one where we go. So they look after us. We’ve got five staff service and food, good internet. We then head over to the fair. This isn’t a market; there are other markets like Ebru and stuff which are a bit more like rack markets, Canton Fair is a professional establishment. All of the suppliers there are paying serious money to have a booth at this fair. So if they don’t speak English themselves, they’ll employ English speaking representatives. So you can have a really good conversation there. Sometimes you have to work with a bit of culture and there are definitely cultural barriers that you have to learn, like receiving a business card with two hands and showing that respect. It goes much further and Ken covers all this in China Magic. We go into depth like we spend some of that four hours just going into how to have a conversation with a supplier so that they know you are educated. But yeah I mean, to cut a long story short, it really isn’t. Like I walk around in my shorts and my t-shirt, I go down and they’ve got little smoothie bars now I’m on the streets by the hotel. It’s quite a pleasant place.
Joe: Fantastic. How do people learn more about Titan Network and then China Magic and again I think we ought to probably have somebody on for China Magic and what that event is all about because it’s; I don’t know, it’s the next step. I don’t know if I would want to go on my own and I assume that you would not recommend that. You go with a group that does this on a regular basis. So tell us about how more people learn about Titan Network and in particular this cash flow management renegotiation, all of the different steps that you’ve talked about.
Dan: Yeah, sure. So if you want to know more about Titan Network, we’re an invite-only membership organization for Amazon sellers. We’re going from strength to strength. And the thing about Titan Network is it’s created by sellers for sellers. So it’s not about any one person’s success. It’s not like a guru led thing. You can learn it at TitanNetwork.com. That’s where you go and learn about Titan Network. And if you feel like you want to find your tribe and your family, then take a look there and you can apply for Titan Network. If you want to learn more about China Magic go to ChinaMagicTrip.com. It’s got the full trip details on it. I’m going to give you access to a little special link. If you go to ChinaMagicTrip.com/masterclass we go into a bit more depth on these payment terms upon negotiation stuff. And it’s got off-screen shares. You can actually see some of the slides. And that’s all out there free of charge so you can go and take a look at that. Yeah, I’d love to do a follow up about China Magic. I’ll bring Kian on, I’ll bring Athena on and go into the depths of like not just payment terms and cash flow, but how do you build these relationships and how do you find these factories that you’re not going to find in Ali Baba, how do you improve the quality, how do you differentiate products in 2020; yeah, we could talk about a lot.
Joe: Well, I think it’s a great service to the people that are Amazon sellers or even just not Amazon sellers, other people that sell-off of Amazon need better terms as well.
Dan: Yeah. We’re seeing Shopify sellers. We’re seeing a lot of these influencers on Instagram that are realizing they’ve got an audience. If they apply a physical product to that audience, they’re going to make money. We’re seeing all these guys come along now because it doesn’t matter whether you’re selling on Amazon or Shopify, physical products are physical products. And to your point about going alone, there are seasoned travelers out there that will have no issue in visiting China themselves. But for me, it’s about return on my time, a return on investment on my time so if I can go with 75 like-minded sellers at a similar point the journey led by multiple seven and eight-figure sellers, get shown 30 years’ worth of sourcing experience across Marcy, Kian, myself and the team in a couple of days; so condense that learning period, get the COGS on payment terms on it and every single evening mastermind for four hours a night on every single area of the business, that to me is a bigger return on my time than just going over to China myself. So that’s kind of my view on it.
Joe: Yeah, if I was in the e-commerce world myself, I’d be in. I’d want to bring my son though so he enjoys the world travel. Maybe in another life, I’m out of the e-commerce business myself. I’m an entrepreneur at Quiet Light Brokerage only. So listen Dan, I appreciate all the time you spent here. I think its great advice and I know from experience that people that exit their business for the maximum value end up doing a lot of the things you’ve talked about so thank you. I appreciate it.
Dan: Yeah, no there’s just a final closing point now. We should tie this back to valuation. So you’d go how does this make my business worth more? Well, I think I’ll just spin-off three raises in my head to maybe cut this in. One is it’s going to make you more attractive as you’ve got solid foundation relationships with your supply chain and you’re not relying on Alibaba or some sourcing agent. Buyers want to know you’ve got the full foundation. Two if you’ve got more margin, you’ve got more profit, more profit, bigger valuation. And three, if you’ve got better cash flow and more cash flow on hand, you can compound that freight faster which means you achieve your valuation faster. So that’s how they tie it back to valuation.
Joe: And again, I say it and I’ll stop saying because Mark keeps correcting me there’s no fifth pillar. All of the things that you’re talking about make you a better business person; somebody that others will trust because you’re instilling confidence in them that will bring you better value as well. People if they trust you they’re willing to pay more for your business. So Dan, great stuff, thanks so much for coming on the podcast.
Dan: I appreciate it, Joe. Thanks for the time.