China Sourcing: What is my target price?
September 11, 2019
We have been helping importers manage their China supply chain for 40+ years now. And many that come to us for help share a common concern – pricing. However, one of the very first questions we ask new clients – what is your target pricing? Many of them are either not sure or don’t have one.
In this blog we will share what a target price is and how to determine what your target price should be.
What is a target price?
A target price is the price you would like to pay for your product to be made – one that would make you happy. Ideally, this price is what you would pay for the goods in your warehouse that would include: landed cost – i.e. shipping costs from the factory, customs tax and duties, warehouse storage fees, etc.
Why do I need a target price?
Developing a target price helps to give you a point of reference. Without setting a clear and attainable goal, how do you know you have reached it? With a clear target price in mind you are able to evaluate quotes from suppliers.
Who needs my target price?
Your sourcing team will need this target price when they are collecting quotes from suppliers. Obviously it would be best to withhold this pricing from suppliers and to ask them instead to provide their best possible quote. Some may be able to offer an even lower price, but will not do so if your target price is higher than their quoted price.
How do I determine my target price?
We describe it as a price that would give you as large a competitive edge as possible, but is still realistic.
Determining your target price involves:
- Being clear about what your product should be sold for in your chosen marketplace
- Being clear about what competitive products (if any) are selling for
- Understanding all the costs related to getting your product to the customer (Including freight, warehousing, tariffs etc.)
- Understanding the desired margin you need to make on the product
Tip: If you are already sourcing your product from China but you want to benchmark new sources, your target price could be 10-15% below your current price.
Is my target price reasonable?
This varies from product to product and industry to industry. Determining a reasonable cost depends on many factors:
- Your volume: Are you buying huge quantities?
- Your quality requirements: What are your specs?
Generally, there are many factors at play when it comes to target pricing, and there is no one-size-fits-all answer. Armed with the above information, you should be able to set a target for your sourcing team to work with. The rest is up to them.
What information do you use to set your target price? Is that a useful tactic in sourcing? Share your thoughts with us.
By Jocelyn Trigueros