A beginner’s guide to understanding MOQ(Min Order Quantity)
If you’re into the art of business, you must have come across this acronym. It might seem like a straightforward terminology, but there’s a whole lot more to it than you could ever imagine. But, if you just want to venture into business, you will come across this terminology often, so keep reading.
In business, hearing this term is most likely inevitable as it kind of rules transactions between factories and buyers. So, if you have a general knowledge of it, it would be profitable for you.
So, in this guide, I will give a detailed explanation of everything you should know about the MOQ and how to use this knowledge to your advantage. Let’s jump into that already!
What exactly is MOQ?
For starters, the acronym MOQ stands for Minimum Order Quantity. Although, it can be interchanged with MQO, which means the Minimum Quantity Order. It all means the same.
For easy understanding, I want to paint a picture for you. Imagine walking into a store or going over some products on Alibaba, and you wish to purchase them. As you check the price for each unit of the product, you find out that it costs just $20. Yeah? You’re so happy about this. But, when you try to place an order, you don’t seem to be able to get just one unit as it says “MOQ – 100Pcs”. As a beginner, you don’t understand why the supplier has refused to sell only a piece to you, so you move on.
You spot another supplier of the same product and try to order. The same thing happens, but you don’t just get it. Here’s what happened.
The supplier has refused to sell just a piece to you because “100Pcs” is their “MOQ.” Minimum order quantity refers to a specific amount of products, which is a baseline for orders. It is the least quantity that a supplier is willing to sell to a buyer or manufacture at a time.
This is set just for the supplier to cover the cost of production and ensure that they don’t make losses after every production they run. If not sold at this rate, the supplier may be at a considerable loss, and that’s why they are sometimes adamant about it.
But the good news is that MOQs can vary from one supplier to the other. Some may produce lesser than the others, and that’s why MOQs are sometimes reasonably negotiable. Some may not even have at all. So, it’s all dependent on the supplier. Got it?
What are the types of MOQs?
Basically, there are two main types of MOQs used by suppliers or manufacturers. They are;
1. Low MOQ
When a minimum order quantity is set within the amount of 1 to 50units per supply, it is called low MOQ. This type of MOQ is mostly used by start-up businesses trying to make a name and gather contracts for themselves.
The suppliers who use this type are mostly at the risk of making losses and not breaking even. But, I think they are more interested in gaining customers than making profits. That’s why they set at such a low rate. This may increase as they create a niche in the industry for themselves.
2. High MOQ
As opposed to the low MOQ with a set range of 1 to 50 units per production, the high MOQ does not have a set range. It is dependent on the industry and what products they manufacture.
Some industries set MOQs so high that average stores cannot purchase from them are only meant to be patronized by large-scale businesses. But, they do not make transactions of less than 50 units is for sure. And as said earlier, this may vary across stores and industries.
Now, you know the two types of MOQs; let us take a look at why this MOQ is so vital to suppliers.
Why suppliers make use of MOQ
You may wonder, ‘why do suppliers or manufacturers even operate will MOQs?’ Well, they have to. I gave a hint at the beginning of this post about “breaking even’. Let me explain why they need to work with MOQs.
1. Cost of production
It takes a certain amount of money to run a production. Suppliers operate using MOQs because they need a particular product quantity that would be able to cover the costs of production and still get the necessary profit from it. This refers to breaking even.
The estimated MOQ is the number of units that, when produced, will cover the production and still have profit. If a supplier is made to manufacture below this MOQ, they may not be able to regain the money spent on production and still run a profitable business. This is why it is necessary for them.
2. Units per production run
Another critical reason suppliers put MOQs in place is that that might be the fewest units they can produce per production run.
As manufacturers, they will buy materials in bulk and produce using heavy pieces of machinery. The MOQs they set may be the amount that will be able to compensate them for cost and time spent in a single production. For cost-effectiveness and time saving, they set up MOQs that will be suitable for them to comfortably run their pieces of machinery and spend time, energy, and money.
So, let’s not think they are unreasonable about this. The production might not be easy to carry out, and just like you, they need to make profits. I mean, that’s why they run the business. Yeah?
What determines the value of MOQs?
MOQs are just made to be profitable for manufacturers or suppliers. But two main factors can influence the value of the MOQ set up by the business. They include the production cost and the manufacturers’ decision.
1. Production cost
The MOQ will be determined by the expenses made in production (with a calculation of per units that will be able to make the manufacturer break-even).
This will affect the MOQ as the quantity per supply must not cause the manufacturer to incur a loss after every production run.
2. The manufacturer’s decision
This will strongly determine the MOQ. The decision made by the manufacturers will affect the MOQ as they will only take quantity orders profitable or beneficial to them.
So, a rise and fall in the manufacturer or supplier’s decision will determine how much you will have to order. This is why I said MOQs are negotiable and bendable.
What are the Boons and Banes of MOQs?
Let’s briefly talk about the advantages and disadvantages of MOQs.
Boons of MOQs
The significant advantage of using suppliers with MOQs is that you will be able to get the best price (possibly) per each unit that is available. This is because the more quantities of a product you buy from the supplier, the more the cost of each product is reduced. This means the price you’ll pay for each product will be less. Hence, you will be able to maximize the most profit you’ll earn when you start selling the products. Beneficial, right? Yes!
Also, on the manufacturer’s side, it is beneficial for large industries that need to stock up large quantities of their merchandise. So, it’s a win-win situation.
However, here are the drawbacks;
Banes of MOQs
The most painful part of using MOQs is that you’ll have to pay a large amount of money upfront. This cannot be very comforting. Despite getting better prices, you’ll have to provide an upfront production cost required to get your products. And as a small business, it might be too heavy to bear.
Not only that, you’ll have to know that cost of production does not cover the costs of shipping and paperwork to get it through customs. The extra cost will be incurred to get the bulk goods and pay for the essential paperwork that is required to obtain goods and items through customs. You might find this insane.
Pro-tip: Do not forget these costs when negotiating the prices with your suppliers.
Hey! Before we go further, let’s take a look at an additional point to note as you go deeper into the business.
Is there a difference between MOQ and EOQ?
As a business enthusiast (or maybe not), you might come across what is referred to as EOQ in business inventories. EOQ is an acronym for Economic Order Quantity. So, yes, there is a difference between MOQ and EOQ.
EOQ is a term that is very helpful to buyers. It represents the ideal or necessary purchase a company or business must make at every business transaction. It helps to cut the inventory costs and help open up profits for buyers.
Meanwhile, MOQ helps suppliers to make the least profit available. If a supplier should sell lesser than this, they may likely incur a loss at that transaction.
Therefore, these two terms MOQ and EOQ, are both relevant terminologies in the business of supplying and buying. Easy? Yes!
Moving on, there is an exemption to how beneficial MOQs can be to buyers. And this is if you are an online retailer (or even offline).
Is MOQ beneficial to the retailers?
I know I said earlier that MOQs could be advantageous to buyers. Well, here is a drawback. It will only favor you incredibly if you are a wholesaler of the products. If you’re not, you might not be able to maximize the necessary benefits from it.
As a new online retailer, you might not be able to place orders with suppliers with very high MOQs. Retailers will only be able to work with small suppliers or those with lesser MOQs. This will mean that they will have to be faced with the burden of paying higher prices since the suppliers will also have a higher cost per unit to profit from the business. This can be rather challenging.
Also, if retailers will only be able to work with suppliers with low MOQs, they will have to sell items that have little competition in the market. This is a significant restriction for such retailers.
This is the reason why all buyers should have an idea of negotiating MOQs that I will teach later on in this post.
Ways to find suppliers with MOQs suitable for you
Sometimes, with large suppliers and manufacturers all around us, we might find it hard to find those with MOQs we might find suitable and affordable.
So, here are some ways you can find suppliers whose MOQs will be best suited for your needs. Take a look!
a. Know your product industry well
Before you even commence the business, you must relate positively to your industry. Here are ways to study your industry:
- Know the larger stores in your industry.
- Familiarize yourself with the systems and protocols in the industry. Participate in the events held by the organizations in your industry. You might get to be in the gathering of suitable suppliers.
It would actually be better if you get accustomed to these things before going into that industry.
b. Do the right searches.
You will have to do your research about various suppliers. There are easier ways to find out these suppliers through research. Here:
- Ask similar stores selling your kind of products about the suppliers they deal with.
- Get to know about stores your size, scope, and target. They may also help you find suitable suppliers.
- Check out B2B platforms for suppliers. Such eCommerce platforms may include Alibaba and Aliexpress.
- Search on Google about different suppliers (either large or small-scale).
- Get all the names of the suppliers that manufacture the products you specialize in.
- Find out if the suppliers have negotiable price ranges and MOQs.
Pro Tip: To find reasonable MOQS, you can check these suppliers directory for more: Manufacturers directory, Dropshippers directory, Wholesalers directory, and others.
Maximum Order Quantity?
I know you wonder if there would be a thing as Maximum Order Quantity since there is a minimum. Well, I don’t think such a thing would hold water.
There won’t be a problem if you need to purchase more units of the product than the MOQ of the supplier. An MOQ is just a limit to which a supplier can go below, so they don’t incur losses. So, obviously, they would be able to produce more quantities if you desire.
So, if you plan to order more than the supplier’s MOQ, it is allowed. You just need to reach out to them directly and let them know how much you’d like to purchase.
However, some companies (I repeat some!) have a maximum at which they can go at a time. This is rampant among suppliers who run small factories. Therefore, it is essential that you communicate clearly to ensure you are on the right track. Clear?
Now, let us go into some negotiation.
Negotiating with suppliers about MOQs- Is it right?
Negotiation is obviously a relevant skill to have in every business. So, definitely negotiating with suppliers about their MOQs is right, allowed, and worth it.
If you find it challenging to meet a supplier’s MOQ, you can go into a negotiation and see how lucky you might get. Below are some essential tips you can use as you negotiate;
A. Suggest the use of lower quality materials
If you’re encountering difficulties meeting a supplier’s MOQ, it might be because they use high-quality materials to produce the goods. This will incur more costs, hence higher MOQs. You can check out if there are lower quality materials the supplier can use to make your products. This would reduce the cost of production and MOQ.
Although this may not be that advantageous as the quality of the products will be at stake, it is still worth trying.
B. Find suppliers who work with installment.
If you get such suppliers, you can suggest that you order the whole MOQ but get half first and then the rest later on. This is mostly done by businesses that don’t have spaces to stock up inventories.
C. Find business investors
Some investors are willing to sponsor businesses in exchange for profit. You can go into a business partnership with them. This way, you will be able to raise the money for the required MOQ. You will also be able to afford the MOQ without splitting it.
D. Negotiate politely and upfront
Some suppliers love the idea of a long business relationship, so going upfront about your plans would go a long way. Suggest a long-term relationship, and they may be willing to give you products at lesser MOQs. Remember those good manners will help you.
E. Find another buyer
You can also find another buyer who wants to buy at lesser MOQs too. You can coordinate with the buyer who is purchasing the same products as you and split up the costs and quantities. This would be preferable.
F. Find easy-to-produce goods
It would be best if you chose to specialize in products that are easy to manufacture. They will require lesser energy and costs of production. If the products are produced more often, it will also be better. Hence, negotiating the supplier’s MOQ will be much easier.
G. Consider pre-produced goods
Because some manufacturers only produce goods when it is needed, they will set up high MOQs. So, it would be possible to get products with little or no MOQs if they are not custom made. You can choose to order from wholesalers. MOQs are easily adjusted in this field.
H. Use your competitors to your advantage.
Since your competitors are people that sell the same products as you, you can team up with them to order from the same suppliers by splitting the MOQs. Ordering in groups is much more comfortable.
If none of these tips seem helpful, you shouldn’t back out immediately. You can look into other ideas. Do better research. You might come across the suitable MOQ you seek.
But, remember that quality is the key. Don’t go into low-quality products in the name of meeting MOQs. This can ruin your reputation. Think carefully.
Frequently Asked Questions (FAQs)
As considerate as I can be, I will briefly answer some questions you might be thinking of spanning through the internet for. I will answer them shortly and as directly as I can. I hope you find it helpful.
I. Should I go with the vendor with the least MOQ?
As much as choosing such will sound sensible, it shouldn’t be the priority. This is because if a supplier’s MOQ is really low, you should doubt its quality. They may be inferior or infringed. So, ensure you consider quality over any other thing. What is a business without a good reputation? It’s not worth it.
II. Can MOQ be changed?
Yes! The MOQ of a supplier can change from time to time. It will depend on the costs of materials in the market and the expenses on production. Sometimes, the materials will be cheap and the other time inflated. The market price is not stable, and so is MOQ.
III. Can I ask for a sample even though I cannot meet up with the MOQ?
Yes! Asking for samples will show that you are a first-time buyer and that you are interested in the products. So, it would be good if you test the quality before going into a negotiation.
I hope those questions were all answered nicely!
Well, we’ve come to the end of this post. A piece of simple advice from me is to not jump into any supplier. Going into products with high MOQs doesn’t always guarantee high-quality materials. So, be very careful when choosing a supplier. This will be a challenging phase, but you will scale through.
Now that you have understood all about MOQs and its standards, I hope this knowledge helps you in business. And do not forget, happy customers, healthy business! That’s the sole aim of running that business.
Thank you for reading, and have a great experience in running your business.