I never thought that I would be ever in a situation where I would say goodbye to a private labeling contract of 15k USD.
About three months ago we have been approached by a national retail chain with 120 stores in Turkey and also stores in five countries abroad, they found us by recommendation through a business partner.
Surely we were thrilled and excited about the opportunity. We had a good look into ourselves and our production capabilities before we went to our first meeting in Istanbul.
With a suitcase full of samples, price and production numbers in hand, we sit down to talk business. Soon we agreed on order numbers, payment terms, packaging, who would be responsible for the legal requirements (Product Information File and Safety Assesment) and soap kinds. Now we just had to agree on price and order times.
After a few weeks of price discussions, sampling packaging and soap design we got an email with a proposed order of roughly 20000 bars of soap, order value of 15k USD.
WOW, we thought. We emailed to get some small clarifications and asking for the official order.
The next day we got an email back saying that before they go through with the official order we had to sign some contracts. Okay, …
The first contract was a non-disclosure agreement. I found it a bit odd to sign it that late but why not.
The second contract was a frame contract and the third was a detailed private labeling contract with specifications for skin care products. And here the trouble started… even our lawyer was shocked.
Hackel raising phrases like …
… the buyer can cancel an already given order at any time without payment obligation …
… the producer is not allowed to resell canceled orders …
… prices cannot be raised without the written agreement of the buyer… (a buyer which had been nearly impossible to be reached by phone, email or mobile)
… this went on for 6 more pages… and yes we tried to negotiate but had been only contacted for being told, “this is our standard private labeling contract, we won’t change it”.
5 Lessons I learned from turning down a lucrative Private Labeling Contract
Lesson 1: Really always read the whole and all contracts send to you.
This might be an old hat but it is still true. Read, read, read and use your common sense. I cannot imagine how this contract would have turned out for us if we had trusted that a big cooperation doesn’t do one-sided contracts.
Lesson 2: Don’t invest in anything before having the real order in hand.
I am incredibly relieved that we didn’t invest anything besides time into this negotiations. Holding back on even the smallest investments – like shrinkwraps – was worth it. I am not so sure we would have turned down the order if we had bought already stuff.
Lesson 3: Stick to your guns even if a big guy sits across.
Never ever be intimidated by the person across you. Not in your private life and in business. Be respectful but do not be afraid of them. Know your worth and fight for it.
Trying to intimidate your negotiation partner is an old-fashioned but still often used tactic. Don’t fall for it.
Lesson 4: Don’t plan with money you don’t have yet in your pocket.
That is the part my hubby struggled the most with after our NO. We allocated the money to pay for the next school year. On my side, it was just a logic thing because the time and amount were nearly right but my husband seemed to have planned with it in a more firm way.
He will be upset and stressed for a few more weeks but I hope another order will take his mind off it. Needless to say, I would have preferred he didn’t plan on it so hopefully.
Lesson 5: Check always with a lawyer or at least legal counselor
Also if your common sense warns you and you are used to legal gibberish please still check in with a lawyer. Some terms are difficult to unravel and also saying no or yes to a contract has to follow legal guidelines for not getting you into trouble.
I would love to hear from you if you have run into something like this yourself and how you dealt with the situation. Or if you haven’t how would you have dealt with this…