Table of Contents
- What is MOQ?
- Why do MOQs matter?
- What Are The Advantage and Disadvantage of MOQ?
- Should You Order from a Supplier Offering The Lowest MOQ?
- How do suppliers set MOQ?
- How to negotiate with suppliers and get a lower MOQ?
- Can Minimum Order Quantity Change?
- How to Find the Right Manufacturer with the Right MOQ?
What is MOQ?
MOQ, or Minimum Order Quantity, is the lowest minimum unit of product that a supplier will allow a buyer to order. It is an agreement settled between the buyer and the supplier, where the supplier has the right not to fulfill an order request that falls below their MOQ requirement.
Why do MOQs matter?
The right MOQ requirements are vital to driving a steady profit margin while reducing the supplier’s inventory cost in one go. Consequently, having the MOQ terms in place secures the buyer’s initially agreed stock demand with high assurance. In this kind of business setup, MOQ assures suppliers that the initial cost of a single unit production run can cover all the cost, effort, and energy, while also keeping a healthy inventory level.
What Are The Advantage and Disadvantage of MOQ?
The breakdown of the advantages and disadvantages of minimum order quantity is elaborated below:
Advantages of MOQ
- Controlled flow of profit returns
- Reduce warehousing cost
- Directed towards establishing healthy and long-time business partnerships with clients.
Disadvantages of MOQ
- High competitive disadvantage
- Barrier entry may put a budget strain on startups and small business owners.
- Majority of customers are much more inclined to order stocks with a supplier that has no restriction of MOQ to follow.
- In some cases, MOQ can be a non-negotiable term the supplier sets.
Should You Order from a Supplier Offering The Lowest MOQ?
Note that, it is perfectly reasonable to invest in a supplier/retailer offering the lowest minimum order quantity. Many sellers may reduce their MOQ to gain a competitive edge in the market, but of course, you should bear in mind and be skeptical if the MOQ is surprisingly low, it is almost unrealistic. There’s a high chance their item is not compliant with the existing industry or safety guidelines.
How do suppliers set MOQ?
Understanding the elements involved in your production run is necessary when setting your MOQ. There are two types of MOQ that you can offer:
- A low-ticket product will attract more customers launching their business on the fast market route. There will be a much lower administrative and production cost if you have a lower minimum order quantity as the products are relatively cheap. However, suppliers running with this business model will inevitably dry out their stocks due to excessive customer demand.
- A high-ticket product will require a larger inventory space paired with a lower administrative cost. Products also cost a lot more money and labor to produce. While the stocks have a lower inventory turnover, your customers can reach their ideal profit margin with fewer sales than selling low-ticket products.
How to negotiate with suppliers and get a lower MOQ?
The requirements of meeting the MOQ terms can be troubling for some. For this reason, we made some helpful tips to with negotiating the right deal to your suppliers:
- If you are outsourcing goods with a supplier for the first time, speak with them and negotiate to a lower MOQ for your first order.
- Some suppliers offer to lower their MOQ as part of their early payment discount, take advantage of that, and pay for half of the cost in advance.
- You can save time and worry by consolidating orders with other buyers to reach the minimum MOQ requirements.
- Offer to pay higher prices for fewer units to reduce the MOQ. For instance, if the retailer/ supplier MOQ is 450 units at $3 per piece, you can raise your quota to buy 400 units at $3.50 per piece.
Can Minimum Order Quantity Change?
MOQs reflect the economic volatility associated with the difference in accounting and marketing trends. Hence, estimating the minimum order quantity can vary to stay profitable, so it will likely not be at a fixed rate with every transaction.
What are the steps to Calculate Minimum Order Quantity (MOQ)?
Determine your minimum order quantity with these 4 easy steps:
- Determine the monthly demand for your product.
- Calculate the financial break-even point of the total cost and revenue per unit basis.
- Estimate the holding cost as part of the total inventory cost that needs to be paid for the inventory space of your unsold units
- Craft your MOQ terms according to the reports of financial accounting done previously.
What are the Tips on Implementing Minimum Order Quantity (MOQ)?
The following can serve as a guide to consider when implementing your MOQ terms:
- Measure your product demand beforehand to determine the appropriate metrics for achieving a high-sales turnover ratio.
- Always take into account the additional cost involved in storing your idle resources.
- The break-even point of the cost and gains of your units helps in setting your price range, and sales budget to be a profitable supplier.
- Outline sales strategies, use industry trends to develop the inventory plan and establish the MOQ on updated accounting records.
How to Find the Right Manufacturer with the Right MOQ for You?
Get to Know Your Industry
Different industries represent different trades in their supply chain and MOQ conditions. Yet, many people aren’t sure what goes into each faction and why they’re distinct.This is why it is important to research your target market and industry before taking up a business idea.
Every supplier has different things in mind while computing their definitive MOQs. As there is no standard formula for calculating the minimum order quantity, suppliers will set different MOQs for the same line of products. So it is essential to allocate a great deal of time looking for leads through referrals or directories.
Manufacturers and wholesalers requiring a minimum order quantity (MOQ) when placing a product order isn’t necessarily a bad thing. This helps ensure that the supplier remains in business and can afford to deliver products of satisfactory quality.
Some sellers might make changes in their MOQ to fit the customer’s budget. Despite that, the majority of the buyers end up with suppliers offering the same product for less MOQ. For this reason, it is essential to rule your transactions under an MOQ where customers will have the chance to negotiate their terms as well.