If you are not familiar with the meaning of the term MOQ, you have come to the right place. In this article we will explain what MOQ is, what its definition is and what advantages and disadvantages it has for e-commerce owners.
(Plus, we’ll give you some tips for negotiating it.
Ready? Ready? Let’s get to it.
What will you find in this article ?
- MEANING OF MOQ (MININUM ORDER QUANTITY)
- WHY SUPPLUERS SET UP A MOQ
- ADVANTAGES AND DISADVANTAGES OF MOQ
- HOW TO NEGOTIATE A MOQ
- SOME CONCLUSIONS ABOUT MOQ
MEANING OF MOQ (MININUM ORDER QUANTITY)
MOQ is an acronym for Mininum Order Quantity. This is a term often used when we are involved in Internet sales, as suppliers usually set a minimum number of quantities from which they agree to prepare an order.
The number of units can vary greatly from one to another, but it is not uncommon to encounter high MOQs of several thousand units. Sometimes, MOQs are set on a cost basis, such as €5,000 for an item.
Each provider calculates the MOQ independently, so you can find MOQs of all types, from 1 single unit (this is not normal) to several thousand. In the image above, this Alibaba supplier marks an MOQ of 500 units.
Of course, the MOQ is a minimum amount you should order, but you can exceed that amount and buy more.
WHY SUPPLUERS SET UP A MOQ
With an MOQ, the supplier ensures that production costs are covered and that a minimum profit is made.
Asian suppliers do not usually have the products already manufactured, but make them at the request of their customers. And when they’re manufacturing, they want to make it as profitable as possible.
It is sometimes uneconomical to start the machinery and purchase certain quantities of material if production is to be very small.
ADVANTAGES AND DISADVANTAGES OF MOQ
- The main advantage of MOQs is that they give you access to the best price for each unit of product. Of course, the more product you order from the supplier, the cheaper the unit price will be.
- Of course, there are also disadvantages. Sometimes we are selling €1 products, but we have to deal with an MOQ of €3,000 before we have sold a single unit. This, for businesses that are not too large, can be a very high entry barrier that makes it impossible to place an order. We’ll give you some advice on how to deal with these minimum orders later, but it’s important to keep in mind that this is a factor that exists and can make things difficult for us.
HOW TO NEGOTIATE A MOQ
In many cases, facing an MOQ can be a headache for e-commerce owners. Even if the products we want to buy are inexpensive, buying several thousand at a time can make a break in our wallet (or simply be an unaffordable investment).
For this reason, many try to negotiate with the supplier as much as possible in order to be able to purchase the products. Here are some tips to help you get around this difficulty.
- Ask the vendor if they have a material of lower quality that they can use in production. In this way, the cost of production would be better and the MOQ, therefore, would be better.
- But be careful! The MOQs exist for a reason. If, in order to reduce the minimum quantity, they sacrifice quality, you may find yourself with a faulty or very questionable quality stock.
- Try to locate other buyers who want to purchase the same item. You can split the acquisition costs and achieve the MOQ more easily.
- Another option is to ask the supplier which products they manufacture most often. It will be much easier for us to access a reduced MOQ if the item we want to purchase is produced regularly. On the other hand, with products that only produce on time, the MOQs will be higher.
- In case you don’t need all the stock immediately, another idea that might work is the following: You can talk to your supplier about producing the quantity set out in the MOQ, but to give you half of the goods at first and half a few months later. That way, you could split the payment.
- Providers won’t always be open to this (some don’t have enough storage capacity), but it’s an idea you can try…
If you contact a supplier and none of these ideas work, don’t despair. Come by and find another one that will give you options and with which you can make a deal. There are a lot of people willing to sell!
SOME CONCLUSIONS ABOUT MOQ
The minimum order quantity allows you to access much cheaper unit prices but, let’s not kid ourselves, this can be a problem.
With the advice we gave you earlier, you will be able to opt for smaller MOQs, but remember:
- The manufacturers set an OQM for something. If you fight a lot of money, your profits will be reduced. This, which may be positive for you on a point level, will not be so in the long run. Suppliers prefer to work for profitable customers, and may in the future put other businesses ahead of you.
- If you push too hard to reduce the MOQ, the quality of the product may well be reduced, too – be careful what you end up selling in your e-commerce!
- If you can’t reach a beneficial agreement with one provider, move on to the next. And if you’ve contacted many and don’t get what you need, consider other strategies, such as dropshipping, that don’t require investing in stock up front.