TL;DR: A Chinese factory price has five components: raw materials, direct labor, factory overhead, tooling amortization, and profit margin. Most importers only see the total. The ones who negotiate well understand which component has give and which one does not.
A factory quotes you ¥100 per unit. You do not know whether that is ¥95 of cost and ¥5 of profit, or ¥50 of cost and ¥50 of profit. If you do not know the breakdown, you cannot negotiate effectively.
The Five Components
| Component | Typical Share | Negotiable? |
|---|---|---|
| Raw materials | 50-65% | Only if you change the material or the factory has cheaper suppliers |
| Direct labor | 10-20% | Marginally — labor rates move slowly |
| Factory overhead | 10-15% | Not directly — it is spread across all orders |
| Tooling amortization | 0-10% | Yes — paid separately or spread across volume |
| Profit margin | 5-15% | The only part you are actually negotiating |
Where the Money Really Goes
Raw materials are the biggest cost and the hardest to negotiate. The factory pays the market price for steel, plastic, fabric, or whatever they use. They cannot negotiate with their supplier any more than you can negotiate with them. If the price seems high, ask to see the raw material invoice. A factory that is honest about their margins will show you.
Tooling is the hidden cost. Custom molds, dies, and fixtures cost money to make. The factory either charges you separately for tooling or amortizes the cost across your unit price. A ¥5 per unit tooling charge on a 10,000-unit order is ¥50,000 in tooling costs buried in the unit price. Ask whether tooling is included or separate.
What to Ask
Can you show me a cost breakdown by material, labor, and overhead. A factory that provides this is operating transparently. A factory that refuses is hiding margin or does not know their own costs well enough to break them down.
What raw material grade are you quoting. The difference between 304 and 201 stainless steel is roughly 40 percent in material cost. A lower quote might mean lower-grade material, not a better deal.
Is tooling included or amortized. Tooling is either a one-time upfront cost or built into your unit price. Know which.
The One Thing Worth Paying For
Some factories quote higher because they include better QC, better packaging, and better communication. This costs more but saves money over time. A ¥3 per unit premium that buys you a factory that answers WeChat within an hour and ships what the sample promised is the best ¥3 you will ever spend.
Written by Xinya Zhang. I know what materials cost in China this month. I know which factories are busy and which need orders. Tell me what you are buying