By Chris on Apr 19, 2018 5:57:42 PM
Have you ever heard about MOQ? If you did, are you sure you know why MOQs are important, which are the advantages and disadvantages, and why suppliers set MOQs? If you are involved in Multichannel Marketing, to fully understand this concept is a conditio sine qua non. Let’s jump in!
What does MOQ mean
MOQ stands for “Minimum Order Quantity” and refers to the least amount of products that a supplier is willing to produce at one time. It stands for the minimum amount your retailer has to spend per order to be able to stock your products at their store. Here's an example: if a supplier advertises a MOQ of 1,000 units, you must be able to purchase at least 1,000 units to be able to deal with that supplier.
Easy, right? The MOQ is calculated by each supplier and depends on what it costs them to produce each product. MOQs cover the price, effort, and energy it takes to produce units, ensuring to the supplier that he will be able to earn a profit too.
The answer is quite simple, MOQs determine which suppliers are willing and able to do business with your company. By setting a Minimum Order Quantity, suppliers can easily establish with their partners how many units it takes for them to do a profitable and competitive business..
Hint: Some suppliers do not have a MOQ, which is very useful for new sellers who can only afford to buy a low quantity of units. But this means that you end up paying more per item than someone who buys 1,000 units, for example. Retailers that can only afford to buy in small quantities are vulnerable against bigger competitors who can buy in bulk.
Some companies operate on a large scale. Therefore, they need a sea of units produced. These kinds of businesses need to make sure they find a supplier that can meet their demand and have the materials, machinery, and personnel available to produce the amount of units they need, at the lowest price.
MOQs operated by suppliers
Suppliers set Minimum Order Quantities because, as we said before, the process of production costs a certain amount of money and the MOQ ensures that they’re able to cover all the costs of production, plus make profit. If suppliers were to produce fewer units than their MOQ, they might not cover the cost of their production or be lucrative. Consequently, when order quantity is lower than MOQ, you will probably be charged extra, or worse, your order will be declined due to poor profit.
Furthermore, suppliers operate with MOQs because the amount they set may be the fewest amount of units they can produce in one single production run. It may not be time or cost effective for them to set up their materials and run their machinery unless they’re guaranteed to be compensated for a certain number of units produced by their production run. A Minimum Order Quantity matches what it’s worth for them to set up a production run both time and cost wise.
The right manufacturer
You are looking for a producer that already specializes in your industry. They will also have the equipment, pricing, relationships, and data available to you to make your life easier.
If they own:
- Quality control
- Significant core competencies
- Efficient workflows
- Strong and long-lasting client-customer relationships
- A responsible view of an orderly marketplace
...Then this producer might be your perfect match!
Your order vs. their MOQ
If you’re new in the business world, being a successful seller while meeting MOQs can be exasperating. It could happen that, as a new business, you only need a small amount of units produced and can’t meet the MOQ requirements of many suppliers. In this case, you have two options: either you comment to the manufacturers of the amount of units you need, or you negotiate!
A few more tips:
- Ask for the specific number of products your company needs paying the MOQ price you were told to. You won´t save money, though you’ll still have to pay the full price of the supplier’s MOQ upfront, but you’ll get the specific amount of units you need – which can save you from managing inventory you don’t want or having more products than your business is able to sell. With the leftover goods that the supplier provides, you can tell them to do what they want with it (they can sell it, offload it to a wholesaler, or keep it). This option may not make sense for everyone, but it may be worth keeping it in mind.
- You can’t store that amount of inventory, you can’t pay for it all upfront, or you don’t need that amount of inventory all at once? Try to talk to the manufacturer and ask him if he can produce the entire production run and give you half of the products first and then the rest in a few months. Some suppliers may not have the storage space for it, but others might be willing to help you if they know you’ll become a regular customer of theirs.
- Check if there’s a lower quality material that can be substituted for the ones they were originally going to use. You can drive the price of production down and, therefore, the amount of the Minimum Order Quantity.
- The best ways to acquire bankroll for your products upfront are Crowdfunding and selling pre-orders. You can meet the MOQ of your supplier without having to fork over the cash straight from your pocket, ordering the specific amount of products that you need. And wait! Make sure you have the know-how and resources to pull this off for it to be a successful campaign.
Some things to consider
It may be tempting to drive supplier’s down to the lowest MOQ; some suppliers may take up on driving down their MOQs just to keep you as a customer, but this may come at a cost to you. Therefore, consider the potential consequences:
- By driving down vendors MOQs too low, you may force them to compromise on the quality of the units they produce. This can make your products seem low-quality or make them less durable. Be careful!
- If you drive down the MOQs too far and cut into the supplier’s profit, they may resent doing business with you. They may just not prioritize your business over other clients, or worse, it will be less likely that the supplier works with you in the future. Remember: suppliers need to make a profit and MOQs are used, as we learned above, to cover their own costs; so try to be understanding of that, even if it’s less favorable for you. Relationships in business are unrivalled, so compromising your relationship with your supplier because of MOQs may come with more consequences sooner or later.
Minimum Order Quantities are operated for a reason. Therefore, it’s important that you abide by them and negotiate reasonably with suppliers. While it may be unbearable for you to meet MOQs, or if it seems impossible if you’re starting your business, remember that MOQs are put in place by suppliers to cover their own costs of doing business. After all, this is an useful, cost-effective, and profit-driven tool! So, if you can’t meet a supplier’s MOQs, try finding the one you are able to meet, or try sourcing your products through wholesale so you can purchase products one-by-one, as you need them.
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