Do you know the MOQ meaning? When starting into the wholesale or private label business, there are a lot of different acronyms that continuously come up.MOQ is short for minimum order quantity (MOQ). This is an important term to understand and one you will run into all the time in the world of wholesale and manufacturing.The goal of every entrepreneur is to obtain products at the lowest possible prices for optimal profitability.Finding suitable suppliers with minimum order quantities that suit your wholesale business will go a long way in the growth of your company.So, what is your ideal MOQ, and why is it important?This article gives you everything you need to know about MOQ.Read on for this and much more.
MOQ Meaning | What Is MOQ?
The acronym MOQ stands for minimum order quantity, and refers to the smallest number of products or units that a supplier is willing to manufacture at a given moment.Manufacturers usually set this to cover their production costs and ensure that each production run is profitable.
What Does MOQ As A Wholesale Seller Mean?
For a wholesale seller, MOQ or minimum order quantity is the lowest number of units that wholesale suppliers allow buyers to purchase at a time.Wholesale sellers impose this restriction to ensure that they don’t waste time and resources on orders that will bring very little or profit at all.Setting a MOQ will also ensure that the sellers do not order excess products that will tie up capital and increase storage costs.
How To Determine What Your Minimum Order Should Be?
As a reseller, you need to be able to do some math to see if a MOQ is going to work for your business or not. To determine your minimum order quantity, you will need to estimate your product's average demand. This is the average number of units you are likely to sell. This will depend on factors like season and competition, among others.Past data can be helpful in this.Then you will need to find the best prices available to maximize profitability. If you are selling on Amazon, Tactical Arbitrage can help you find the suppliers with the best product deals. This will scan the suppliers and develop a list of the best prices, saving you time. After identifying and obtaining the best prices, you will need to multiply the best price per unit with the estimated demand in units to get a value.This is only an estimation, but it gives you a nice number to work from. Set your minimum order slightly below this value. And only look for places that will offer a MOQ at or under this number.
Type of MOQs
Only two types of MOQs exist: High MOQ and Low MOQ.Let’s look at them in detail.
This type of MOQ doesn’t have set values, but it varies on the industry and the type of goods purchased. It only allows patronage from the top 20% of stores.Some manufacturers have MOQs that restrict many huge stores and only permit around 20% of the buying population.This 20% covers mainly the most affluent buyers.
Typically set by start-up suppliers, a low minimum order quantity is specified as between 1-50 units. These start-up suppliers are just entering the sector and trying to carve out a niche for themselves.
Pros of MOQs
Access to the Best Price
The most significant advantage associated with MOQ is that they give you the best price per unit available. This is because buying in large quantities lowers the production cost per unit. The higher the quantity ordered, the lower the price per unit.
Build Strong Relationships
Customers that buy your average order quantity or more are not only more likely to make repeat orders but are also more invested as their orders require more money.
Helps Avoid Losses On Shipping or Production
The whole point of a MOQ is to keep you from losing money on your products. Setting a MOQ allows you to set your break-even point and profit margins.
Manufacturers require that you make advance payments before you get goods produced. This can be massive and thus quite prohibitive, especially for small businesses.
Challenging To Set
Setting a MOQ is not an easy task and requires considering various factors. Setting it too low may incur losses due to high production costs while putting it too high will scare customers.
Can Infuriate Existing Customers
Implementing a MOQ can be upsetting to already existing customers.
Negotiating a MOQ / 10 Tips On Working with Your Supplier
If meeting your supplier’s MOQ is difficult for you, you can try negotiating for better terms. The following tips will be helpful:
- Find out from the supplier the possibility and availability of lower-quality materials instead of their original use. This will reduce the production cost, and subsequently, the MOQ.
- You may have difficulties paying the entire MOQ amount upfront, or cannot store all the goods, or you simply may not need that much inventory all at once. In this case, discuss with the supplier about producing the entire production run but sending you half of it first, then the remainder in a few months. This will allow you to split the payment.
- Look for other buyers interested in purchasing similar products and share the acquisition costs to make it easier to meet the MOQ.
- Another alternative is to inquire about the supplier’s most popular products. It’s considerably easier to get a lower MOQ if the product you are interested in is frequently produced.
- You can also pay the MOQ pricing but specify the number of units you require. Although this won’t save you money, it will spare you from managing undesired shipping costs or having extra items that you can’t sell.
- Ensure you maintain constant communication with your supplier. Keep them updated on your progress. This way, you will build a better relationship, and they may decide to make the terms better for you.
- Share your business vision with your supplier and make them buy into it. If they like it, they will support and participate in its growth and are likely to offer you better terms with time.
- Always make timely payments for ordered products. This will help build trust and confidence, and the supplier may give you special considerations.
- If you’ve tried everything, but the supplier fails to budge, consider seeking other suppliers with better terms or those willing to negotiate.
- Alternatively, if your budget is insufficient to meet the MOQ, try other ways of raising the upfront money by selling pre-orders or crowdsourcing.
Why Do Suppliers Setup MOQ
First, it costs suppliers a specific amount of money to create a production run. Setting MOQs ensures that they can cover all the production costs while still making some profits.Creating fewer units than the minimum order quantity may lead to loss-making and the inability to meet the production costs. Nobody wants that, right?Suppliers at times set MOQs that depict the size of their factory. They may have a certain number of units they must produce in a single production run. Manufacturers produce goods in bulk. It means that they buy materials in bulk as well. As a result, setting up their machinery won’t be cost-effective unless they are assured of a specific amount of compensation.They set up MOQs that reflect the value of setting up a production run in terms of cost and time.
Cost and Timeline of MOQ
The cost and time vary from one supplier to another depending on the materials needed, the time required to produce the product, and the overall production cost. MOQs can range from one product type to several thousand. No set rules govern them.While some suppliers have a minimum price order instead of a minimum quantity, others don’t have any MOQ. Generally, the overall cost of production decreases as more products per batch are ordered because suppliers can produce in bulk. Therefore, you will be paying more if you order just a few items at a time.
Finding The Right Manufacturer & MOQ
Finding the proper manufacturer with the right MOQ is not easy, but it’s crucial. This is how you can find the right fit for you:
Get Familiar With The Industry
First, strive to get enough insights into the industry that you intend to start your business. Seek a deep understanding of everything concerning that industry and how things happen there.This is important because starting your business in an unfamiliar industry blindly would be a recipe for failure. Therefore, identify the big players in the area and familiarize yourself with the industry’s occurrences, systems, and forces.
Carry Out Research
Investigate stores that are comparable to yours in terms of size, scope, and target market. Identify the various vendors they work with, their arrangements while purchasing products and the current rates.If you cannot find a supplier with an MOQ that suits your startup business in your niche, you can consider online stores that sell in units to start with. This will enable your store to grow and be able to deal with firms that offer MOQ.
How To Make The Most Out of MOQ
Say you find a killer product and you want to make the most of the minimum order quantity you have to buy to get your first order. These tips can help you make the most out of MOQ:
Give Incentives For Higher Spending
If you have a ton of inventory on hand, you can start offering discounts for buyers who want more than just one unit at a time.You can give quantity discounts in exchange for a minimum spend. In this case, you charge the retailer less per unit in exchange for a larger guaranteed overall spend. This can be done on Amazon if you are enrolled as an Amazon Business seller. This is a great way to provide discounts to businesses who are looking to buy your product in bulk!
Improve Your Inventory Turnover
Look for creative ways of attracting and retaining customers to promote your inventory turnover. Ordering extra inventory product orders can motivate you to have a greater inventory turnover rate because you’ll be under pressure to sell your stock faster because you spent money upfront.Aka - You want your items to fly off the virtual shelves. This can be done by offering deals or coupons through Amazon to increase sales. This can get the ball rolling towards steady and consistent sales.However, don’t rely solely on flash sales to attract and retain customers.
Find Other Suppliers Or Distributors
Try to haggle with your manufacturer if their MOQ is larger than you’d like. If they move on their MOQ, you might need to get a little creative.One of the ways you can get creative would be by partnering with a trading firm or a wholesale distributor, who buy in bulk from a manufacturer and resale lesser quantities to others. This could lower your MOQ and help you get the product you need.You might be able to do this as well with other Amazon sellers you know and trust.
Using Tactical Arbitrage For Wholesale Sourcing
When it comes to wholesale sourcing, time is of utmost importance. You may spend a lot of time searching and analyzing different suppliers and the products they offer. Tactical Arbitrage is a tool that can help you speed up the process of searching through list after list trying to find a new opportunity to sell.With Tactical Arbitrage, you won’t have to spend all your time exploring as the tool will present this data with a touch of a button.You can utilize the Tactical Arbitrage function to upload the UPC and cost information from the wholesale spreadsheet to see which products are profitable.Additionally, you can use filters to magically filter and leave out products/suppliers that don’t meet your criteria.The tool has a reverse search feature that you can utilize to find profitable products. It allows you to upload ASINS directly to find profitable products and shows you the best places to source the products at a more significant profit.Utilizing Tactical Arbitrage will enable you to find the most profitable sources quickly.You can try a free trial of Tactical Arbitrage here.
Minimum order quantity, which is the least number of products a manufacturer can make, is set for a purpose. It’s meant to ensure that manufacturers can cover their production costs while making some profits.With this in mind, as a business owner you need to find suppliers with a MOQ that suits your business or try to negotiate for better terms. If you are just starting and unable to meet the MOQ requirements, you might want to consider looking for other products to sell on Amazon.We hope you are now fully aware of MOQ’s meaning and its purpose and how you can navigate it as you start your Amazon wholesale business.
Should I go for a supplier offering the lowest MOQ?
Before you settle on the manufacturer with the lowest MOQ, it’s important to learn about their history on timely order fulfillment, ability to meet the product’s set safety standards, and customer service effectiveness.Pushing the supplier’s MOQ too low makes them inclined to create low-quality products as they’ll try to satisfy the reduced MOQ with inferior materials while launching a suitable production run.Again, driving your supplier’s MOQ too low eats into their profits which may cause a strain on their relationship with you. As such, they may drop you at the very fast opportunity when their business picks.
What you need to know before ordering from a supplier?
Before making an order from a supplier, determine the number of goods you need and the overall cost implication.You should also consider the smaller growing companies as they tend to be more flexible and have a pronounced need for business than large, stable firms.It’s also essential to learn about their quality control procedures and go for those that send samples first and allow you to make your choice before finalizing with them.
What Are The Benefits of Ordering in Bulk?
Lower cost per unit: The larger the number of goods ordered, the lower the production cost per unit hence lower price per unit.It ensures you don’t run out of stock: Since some orders may take a while to be shipped depending on the source location, ordering in bulk ensures that you still have some stock left before the next order arrives.
What If You Need A Small Amount Of Stock?
If you cannot afford the MOQ and just require a few units to get your business going, get honest with the manufacturer and tell them about the number of units you can afford.If they insist on maintaining the MOQ, it’s best to seek alternative suppliers with terms that suit your needs. If you are unable to find any, go for options like dropshipping or wholesale suppliers like AliExpress.
What is the difference between MOQ and EOQ?
MOQ, which stands for minimum order quantity, is the minimum number of units that manufacturers are willing to supply at any given time. MOQ helps ensure that production costs are covered and some profits made.EOQ, on the other hand, stands for economic order quantity which is the ideal quantity of inventory that a seller can stock to minimize storage costs while also avoiding product shortages.
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