Introduction
The number a Chinese factory quotes for a product is not one number. It is a stack of cost components, each with its own flexibility. Buyers who understand the stack negotiate on the components that can move, not against the total that cannot.
This article breaks down how a typical factory builds a price.
1. Raw Materials
Usually the largest single line item — 40–70% of unit cost depending on category. Materials are priced from the factory’s own suppliers, and quotes fluctuate with commodity markets.
Materials cost is mostly not negotiable at the factory level. What is negotiable is which materials the specification allows — a slightly different grade of steel, a different plastic resin, an alternate finish can move the total meaningfully.
2. Labour
Assembly, finishing, inspection, and packaging labour. In coastal Chinese manufacturing regions, labour has been rising for over a decade, and now represents a real cost line rather than a rounding factor.
Labour cost is mostly fixed by the factory’s own workforce structure. A supplier moving production inland to a cheaper labour region will often not disclose this — but it can show up as inconsistent quality if the inland facility is less experienced.
3. Overhead
Rent, utilities, depreciation on equipment, management, and administrative cost. Larger factories have higher overhead but usually more capable production; smaller factories have lower overhead but sometimes less consistent output.
Overhead is invisible on a quote but heavily influences the floor price a factory can accept.
4. Tooling And Setup
For custom products, one-time costs for moulds, jigs, or fixtures. These are typically charged either as a separate line item or amortised across the first production run.
Tooling is the largest negotiable item for OEM projects — factories often have flexibility on how much of it they charge to the buyer versus absorb.
5. Margin
The factory’s own profit. Depending on category and competitive intensity, this can be 5–20% on top of everything above.
Margin is where buyers usually try to negotiate first, but it is often the smallest movable component. Squeezing margin below a floor usually leads to silent specification changes.
6. Packaging And Miscellaneous
Custom boxes, inserts, labels, and any additional finishing. Often quoted separately, and often flexible if the buyer accepts standard packaging.
Where The Real Negotiation Lives
Buyers who negotiate on materials substitution, tooling amortisation, and packaging usually get further than buyers who negotiate on the headline unit price. The stack model tells you where.
FAQ
Are Chinese factory prices really that much lower than domestic manufacturing? Historically yes, but the gap has narrowed. Depending on category, Chinese prices are typically 30–60% below Western domestic prices — and closer for some product types.
Why do quotes from different factories vary so much for the same product? Different assumptions about specification, material grade, packaging, and volume. Comparable quotes require identical briefs.
How much profit margin does a Chinese factory typically make? 5–20% on the unit price, depending on category and competition. Below 5%, the factory usually cannot maintain quality; above 20%, another supplier is usually available.
Understand The Quote Before Negotiating
A quote you understand is a quote you can negotiate. If you would like Hansen to break down a supplier quote and identify where the real movement is, start a project.