Improve Your Supplier Relationships With Preemptive Generosity
If you own a product-centric business (a physical retail store, an e-commerce website, a shop on Amazon.com, etc.) where you must build strong relationships with suppliers, manufacturers, factories, trading companies or wholesalers I highly recommend making a monetary investment in those relationships through preemptive generosity.
I’ve been actively practicing ‘preemptive generosity’ with my suppliers for the past 2 years, with great results.
What Is Preemptive Generosity?
Giving small, unexpected and well-timed payments that improve your working relationship with your suppliers.
When you send a ‘final payment’ to suppliers for a order, include a little extra for your sales rep if everything ran smoothly. It can be just .5%-1% of the order value or $20 or any amount that’s very small compared to the size of the overall order.
Here’s an example with an invoice for $3,500.
$3,500 Invoice - PAID
Short Note Sent With Financial Transaction:
Total Invoice Amount: $3,500
$20 Extra ‘Thank You’ For Sales Rep Jack Ma – Thank you for preparing the order for pickup in just 5 days!
(Amount Sent Via Bank Wire - $3,520)
Won’t Preemptive Generosity Cut Into My Profit Margins?
Not much, or not at all… or it may save you money.
Here are 6 reasons you should give it a try when your factory completes their next successful order with you.
1. You Build Trust With New Factories FAST
In international business, not much says “I trust you” more than sending extra, unexpected money. Not much makes others comfortable trusting you than seeing this sincere trust come from you first. It can be difficult to express yourself clearly while communicating from opposite sides of the globe through clunky online chat platforms filled up with copy/paste Chinese>English Google translated text, but unexpected monetary gifts translate plainly into every language. It’s a clear trust signal.
Remember to clearly state that you know you are giving a little extra, and that the money is “For Sales Rep Jack Ma – Thank You For X!” Your rep, their boss, and many people in the company will likely hear about it. You may be the only customer to have paid $0.01 over the stated invoice all year.
How good did you feel the last time you found a $20 bill on the ground? Now imagine you’re in China where lunch costs $2. Now imagine you’re getting a simultaneous “Thank You!” round of applause for a job well done, and probably a smile from your boss.
You can give your rep that great feeling at any time. Do you think you might become one of their ‘priority’ accounts?
2. You’ll Deal With Less Delays
An unnecessary delay is when you ask your factory to put sticker labels on your products (very simple, it just requires a printer) and they respond “So sorry, our factory doesn’t know how to do that.”
When you tell them that it’s actually necessary, they ususally respond “Ok Ok. I’ll do it.”
These tasks hardly cost the factory anything, but they require a little extra thinking and effort. For the reps, it’s just easier to respond “We don’t know how.” By giving a little extra money, even as early as your 1-unit sample order, you’re setting the tone for the relationship. You gave a little extra, and they should do the same without delays.
3. You Can Reinforce Good Supplier Behavior
In the $3,500 example above , the phrase…
“Thank you for preparing the order for pickup in just 5 days!”
… is very important. It tells your rep exactly what they need to do to get the special “Thank You” again next time. Of course, this will be the most important think you want the rep to do to ensure the order is produced and delivered smoothly.
“$20 Extra For Jack Ma - Thank you for taking pictures of every box in the shipment so that I could confirm they were all labeled correctly!”
“$30 Extra For Li Ka-shing - Thank you for sending me the package tracking codes so I can follow the box locations as they ship!”
Jack will remember to take pictures again next time and Li will remember to send tracking codes, which is exactly what you need them to do to get your boxes delivered without a problem.
4. By Paying More, You’ll Likely Pay Less
If you work with a supplier long-term, they will eventually tell you that their prices must increase due to increased material costs, new Chinese government regulations, or something else.
Natural resources do fluctuate in value, governments sometimes implement costly regulations, and prices will rise over time due to inflation. Sometimes your factory just wants a bigger profit margin. You will get this email eventually… so beat them to the punch!
It’s much more difficult and almost rude for your factory to bring up a price increase when you already send them more money than they ask for. Even if raw materials prices do increase, they are likely to delay telling you, or they may not mention it all. Generously raise the price yourself by a negligible 1% and preemptively avoid, delay, or lessen an unexpected factory increase of a significant 10%-20%!
5. Your Rep Will Solve Problems Without You Even Knowing
Factories in China have a reputation for not telling customers when there’s a problem with their products. The 2008 Chinese Milk Scandal was a dramatic example, but factories every day ship from China hoping their buyers won’t notice mistakes.
This is probably more common if the buyer is a small e-commerce seller who doesn't pay for pre-shipping inspections and who they know ships directly to a 3rd-party warehouse (like Amazon FBA) without ever seeing the goods themselves.
To ‘save face’, your rep may not tell you when he sees mislabeled products, or poorly sewn stitching that is falling apart, but with a a little mutual trust and tangible money riding on the order’s success, they’re much more likely to jump to action fixing a few labels themselves or requesting a re-do from the boss.
6. Tangible Benefits At A Negligible Cost!
When your factory quoted you $7.65 per unit, you didn’t have a clue if the ‘fair’ price should have been $6.85, $7.65, or $8.45… much less a 1% difference down to $7.58 or up to $7.72. There are too many variables for one ‘fair’ price to exist.
When you do an order of 1,000 units and pay $7,650, that extra 1% is a negligible $76.5, and just sending $40 or even $20 is all you need to do to stand out as a trustworthy buyer proactively investing to create a profitable long-term relationship. In doing so, you set the stage for them to return the favor.
Less headaches, more enjoyable conversations, more trust, more appreciation back and forth between your suppliers and money saved as price-increases hit you last and costly mistakes are avoided. I’ll gladly pay 1% more for my inventory in exchange for that, especially since my factory could demand a much larger increase for any reason and I’d grudgingly pay.
Try This Yourself With Your Next Order
The template is short and simple. Its main purpose is to show on record that you meant to send extra money (to avoid confusion) and that you’d like it delivered directly to your rep for a job well done.
$X,X00 Invoice - PAID
Note Sent With Financial Transaction:
Total Invoice Amount: $X,X00
$20 Extra ‘Thank You’ For <<YourSalesRep>> – Thank you for <<SomethingSpecificToRepeatNextTime>>!
(Amount Sent Via Bank Wire - $X,X20)
Final Thoughts: A Few Things NOT To Do When Practicing Preemptive Generosity
Don’t Make It Expected: The gift must always be unexpected, even if you send it nearly every order. Never mention that you will send a bonus on future orders. Never make it an obligation and never feel like it has become an obligation. It must remain a genuine “Thank You!” gift, only if the order went flawlessly and if the rep deserves it in addition their commission at the factory.
Don’t Forget To Negotiate: Your strategic giving is separated from normal business negotiations. Not negotiating doesn’t look generous, but weak! Negotiate down and then give a small percentage back in gifts to your rep. Balance showing both strength and generosity without looking either over-dominant or naïve.