Sourcing Basics: How to Negotiate with Vendors

Product procurement is arguably the most important process of running your subscription box business. Without taking the time to find high-quality products that fit your box’s niche and value proposition – from vendors you can trust – you won’t have a subscription box, period. But that’s not where procurement ends, as you’ve got to negotiate with vendors once you find the products… and that is where a lot of entrepreneurs have trouble.

Stumped for stuff? Brush up on the 7 best places to source products from your subscription box.

In today’s article, we’ll look at the basics of sourcing and brainstorm ways to market your box to vendors. Specifically:

So let’s get to it!

Step 1: Finding Products that Fit

Photo by Gyorgy Bakos on Unsplash

The key thing to remember is that the products you choose need to meet two basic requirements: the concept of your subscription box and your sourcing budget. In other words, your subscriber should be able to see a clear line of logic for the sourcing decisions you’ve made when they open the box. (By “decisions,” we mean both the products you choose and the kinds of brands you work with.) Keep these tips in mind to source products successfully:

  • The products – and vendors – should match your niche and value proposition. If your subscription does monthly themes, for instance, the products for a given month should (obviously) match that month’s theme. Or, for a more specific example, let’s say your subscription box sells eco-friendly, handmade baby items, with a target audience of environmentalist, 30-something new moms. With that value proposition (of sustainable, safe craftmanship), you’d do well to look for products on places like Etsy.

Are you an Etsy seller yourself? See how adding a subscription box option could magnify your sales with our Etsy Calculator.

  • Explore stores you already value – or feel your target customer would value. Check out the merchandise. Local outlets can be a great way to source products if you want to convey a handpicked feel or increase the sense of scarcity (which can add to your value proposition). Even if you don’t intend to buy anything there, it’s a useful form of research. Jot down the brands the store sells and research those brands later. (This method works for small businesses and brick-and-mortar chains.)
  • Check out niche ecommerce sites for product ideas. There are a ton of specialized markets online for niche audiences. Read our guide to see some examples.
  • Write to the product brand (i.e. manufacturer), not the place selling it (distributor). We’ll talk more below about how to reach out to manufacturers. Just take note that if you reach out to a store/distributor instead, you’ll need to factor in that the product is likely priced higher in order to account for the distributor’s cut of the profits. It’s simpler and more cost-effective to go straight to the manufacturer.
  • Remember to consider location as you narrow down vendors. If your business is on the East Coast, and the manufacturing vendor for a product you want is located in Los Angeles, it’ll take a good chunk of time – and money – for standard shipping. The distance between your fulfillment center (whether you do it in-house or outsource) and product vendors, in other words, will impact your time to finish and deliver boxes to subscribers. We’re not warning you from working with long-distance vendors if that’s what you need – just plan out your month’s box cycle (and shipping budget) to factor it in.

Step 2: Reaching Out to Vendors

The first time you contact a manufacturer about partnering for your subscription box, keep it casual. Remember that this is a process; you’re starting a conversation, and you can negotiate details (like price) later on. Right now, you’re just inquiring if a partnership is possible. Make your value to them clear – you’re not only a buyer for their product, but an opportunity to expose their brand’s reach to an entirely new customer base.

Phone or Email?

While contacting a vendor by phone could seem more efficient in the short term, we recommend reaching out by email. This allows you (and the vendor) to maintain a record of what was discussed and agreed to, which you can refer back to later on if there’s any miscommunication or confusion between you. It also organizes all your communications with that vendor in one place.

Tip: Consider using a CRM – customer relationship management software – to track all your vendor contacts. See why in this post.

Before you send that first email, however, research the company and do your best to identify exactly which person at the company you should speak with. Emails addressed “To Whom It May Concern” may look unprepared and be dismissed, or arrive at the wrong department and be neglected. Don’t risk that. If it’s a large company, you may need to make a preliminary phone call to the brand’s headquarters to verify who’s responsible for bulk ordering.

The First Pitch (without Promotional Materials)

Below, we’ve included an example template you might use to initiate contact with a vendor if you don’t have a media kit yet. (We’ll talk about media kits more in a bit.) Keep it short and sweet; assume that your contact has a lot on their plate and may not have time to read a long-winded inquiry.

In brief, you want to make it easy for them to engage.

Dear [name],

I’m with [subscription company] – a monthly care package for [niche/target audience]. I’m interested in buying [#] units of [product], and I’m curious what sort of pricing you can offer and how much lead time you need. You can read more about [subscription company] at [link].

I’d like to send these out for my [date/month] shipment and we’re located in [city, state]. Please let me know if this is doable.

All best,
[your name]

This draft does a good job of succinctly conveying your product offering and your reason for writing. The vendor has a chance to learn more about your subscription business through the link, which allows them to see how your box is a good fit for their product without weighing them down with text.

The First Pitch (with Promotional Materials)

Now let’s take a look at a template you might use if you have promotional materials prepared already:

Hi [name],

I’m interested in placing a bulk order of [#] units for [subscription box] and I wanted to learn more about [wholesale/at cost] pricing. I’ve attached a [PDF/one-sheet] with a bit more information about our company.

We would need to order products by [date]. If you prefer, I’m happy to hop on the phone and discuss the opportunity a bit more as well. You can reach me at [phone number].

Thank you,
[your name]

This template also gets across your pertinent information clearly and concisely, but includes an attachment with information about your company in lieu of referring them to your website. The benefit of this is flexibility; it may be easier for your contact to read over this info in 1-2 pages rather than clicking around your site for 20 minutes. It’s also possible for the contact to keep a physical copy, if they work better with analog means.

So… how do you draft one of these PDFs, anyway?

Media Kits and Why They Work

The term “media kit” might sound fancy, but really, all it means is that you have a standard document to send out to interested partners (such as vendors or press outlets). Think of this like a cover letter and resume for your business. Just as a cover letter demonstrates your strengths for the position you’re applying for, the purpose of a media kit is to show how your subscription box fits with the vendor’s target market (or, if sending to a press outlet, that your box will appeal to a wide audience).

See an example: Check out the media kit that Lilee, a luxury lifestyle box for young women professionals, sends to vendors. 

To do this, you’ll want to pull together a one-sheet: literally, 1-2 pages of information describing your brand’s mission, niche, value proposition, and target customer. Include a brief summary of your target subscriber’s demographics and psychographics, your price point, and what kinds of products your box will carry each month.

In the post linked above, Lilee uses infographics in their media kit to convey the demographics of their target audience. In that case, they worked with a graphic designer, but you can do the same on your own in no time with online design services like Canva or Piktochart.

You might also tell your brand “story” – in short, how and why you came up with your subscription box idea. This helps convey your brand’s personality and vision. Remember to keep this as simple and straightforward as you do everything else in your one-sheet.

Lastly, don’t forget to note in your one-sheet what promotional perks your vendor will receive in return for providing product!

Step 3: Negotiating on Price

The product manufacturer has written you back and they’d like to place their products in your subscription box. Great! But the price for your order is at the top border of your budget, or perhaps over it. So let’s talk negotiation.

First, we need to cover some basic terms.

Price Points

There are three main types of product pricing we’ll focus on today: MSRP, wholesale, and what we call “at cost.”

  • MSRP (Manufacturer’s Suggested Retail Price): As you can guess, this is the brand’s price point, and the cost you’ll pay if you were to select that product in a store.
  • Wholesale: This is what retailers would pay to sell that product in store, and is (for obvious reasons) significantly discounted. Usually 50% of MSRP. The difference between the MSRP and wholesale price is how retailers make money.
  • At cost: This is the price it costs to make that product – usually 50% wholesale (aka 25% of MSRP). If you were to buy the product at that price, the manufacturer would just break even on the product.

Many subscription box entrepreneurs assume that they should aim for wholesale pricing when they place orders, as they – like a retailer – are ensuring that products get into the hands of customers. But keep in mind that you aren’t a typical retailer as we’d think of it. You and your business are much more than that!

More Than a “Retailer”

Why? Because standard retailers are ordering the same products habitually, with the intention of making one-time sales. Your business effectively does the opposite: maybe you only purchase that specific product from the vendor once, but your business operates on recurring sales (i.e. subscription revenue). This means you could maintain a longtime relationship with the vendor’s products while providing newness for customers.

Think of the benefits of a subscription-based business model. Instead of the customer being exposed to the vendor only once, as with a one-time sales model, you have the opportunity to introduce the vendor’s products to an entire subscriber base in their target market. You’re not just putting their product on a shelf; you’re curating an entire experience around that product, which will attract your subscribers to that manufacturer’s brand.

For this reason, we encourage you to aim lower than wholesale pricing and negotiate for at cost pricing. At the very least, you should NEVER pay more than wholesale, and ideally less than that.

Example Pitches

Having said all this, we want to acknowledge that it can be hard to sell yourself. We’ve all struggled at some point with finding that line between confidence and (we worry) arrogance. Haven’t we? Nevertheless, you need to make the effort to pitch with confidence if you’re going to negotiate a price point. If it helps, practice reading aloud your emails to the vendor. As they say, you’ll have to fake it until you make it.

Here’s an example of a reply email, negotiating to lower the cost of a bulk order:

Hi [name],

Thank you for the quote. While I’d really like to include [product] in the [month] box, my budget is capped at around $X-Y per unit. Is there any way you can meet me in that range? I’d also happily let you guys include an insert in each box with a coupon code and call to action [and/or other promotional efforts for vendor].

[your name]

Like the initial emails we looked at, this draft is short and sweet. The writer gets across their appreciation for the vendor’s time while enforcing the bottom line – that the price point is too high to make it work – and underlines the subscription box’s value to the vendor.

A subscription box offers the value of product promotion on a scale far beyond traditional one-time retailers, after all. In curating a subscription with their product for your target audience, you’re essentially finding this vendor new customers! By offering to carry their product for your target market, you’re exposing them to an audience that overlaps their own. And that means you’re doing their marketing for them, essentially. That kind of exposure is priceless.

Keep in Mind

Remember as you negotiate that this is a symbiotic relationship. As much as the manufacturer helps you by providing items for your subscription box, you help them by exposing their products to a new class of customers. Now get on Google and start searching!

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