Are you a buyer who never heard about MOQ? Well, MOQ is something you need to know before you start importing. It is very vital.
The manufacturers decide the MOQ based on the amount it costs them to create the product. Sometimes, it also depends on an individual supplier’s profit margin. Thus, it varies between every single supplier and every single product.
As a buyer, you are free to find a manufacturer that has a lower MOQ. You can also test a few products if the MOQ is high. It will help you reduce the risk of ordering products that are not up to standards.
So, in either case, you will have to deal with the term MOQ as long as you want to import products from Chinese suppliers.
Knowing this term before you decide to import products for your business will help you a big deal. So, let’s understand everything about the MOQ.
What does moq meaning?
MOQ is an acronym that represents ‘Minimum Order Quantity.’ It means that a manufacturer has set a certain quantity of items for buyers to purchase.
Let’s understand the MOQ definition with a simple example. For example, if the manufacturer has set 50 pieces as the MOQ, buyers can never order 49 units. It means that if you, as the buyer, want to import blenders, you’ll have to purchase at least 50 pieces of the same.
Most MOQs differ from supplier to supplier. Some will have large MOQs like 100,000 units, while others may have 100 MOQs units.
This video Explains what MOQ Meaning
Why Do Suppliers Operate With MOQs?
Suppliers operate with MOQs to ensure they profit from each product they produce.
They set minimum order quantities because it costs them a certain amount of money. That is the money to produce a production run.
The MOQ they set ensures they can cover all production costs and profit. Thus, every supplier calculates their MOQ.
If they produce lesser units than their MOQ, they may not be in a position to cover the cost of their production. And, it all depends on what it will cost them to produce each unit.
Another reason why they set them up is that the amount they set could be the least quantity. It also represents the least number of units they can produce in one production run.
Manufacturers produce items in bulk. Likewise, they also buy the materials in bulk. It isn’t time and cost-effective for them to have the materials on set and go ahead to run the machinery. Not unless they are sure there will be compensation. That is for the number of units their production run produces.
Out of this, they opt to set up their MOQ. Manufacturers find it worth setting up a production run both time and cost-wise.
Advantages and Disadvantages of MOQs
Of course, setting up MOQs works in favor of the manufacturers. But MOQs can also benefit buyers. Let’s figure out some of the benefits and drawbacks of MOQs from the buyers’ perspective.
• MOQs often give the best price per unit available to buyers.
• The bigger you buy in bulk from the supplier, the more down the price.
• Let’s consider Alibaba. There you will find a range in the price of a product. You may find out that the product listing is $4-$8. It means that the more you order, the more you can save. Small orders can cost you $8 per unit, while the bigger ones can cost you $4 per unit.
• You get room to negotiate with the supplier. It helps you get a better deal for your business since you know the range they work with all through. It is so helpful.
• You are paying upfront to ease the production of your units.
• The cost doesn’t cater to the shipping or the paperwork needed.
• You may need to place a large order upfront to save money on the product you plan to sell.
• There is a higher possibility of not selling everything you bought.
• With this, you can lose money because you mismanaged demand. It is something you can try to avoid. You are in business to make profits, not to incur losses.
• A higher MOQ increases the possibility of having too much inventory on hand.
Things to Consider When Calculating MOQs
Calculating MOQs depends on how the industry and product are at the moment. Prices of components and raw materials often change.
Such fluctuations occur till the last element of the supply chain. Thus, it may prompt suppliers to change prices and MOQs to stay profitable.
Since businesses have different requirements, there is no fixed MOQ amount. Often, there is a debate between having a higher MOQ and paying a higher price per unit.
Remember, there are no go-to formulas for calculating the minimum order quality. Let’s consider some basic steps when making MOQs calculations.
1) Consider Demand
The suppliers need to consider things like seasonal variations and lead times. Or what it takes to produce an order.
It takes seasonability, competition, product type, and other factors into consideration. It helps in estimating how many units a supplier can sell.
Now, let’s consider it from your (the reseller’s) perspective. You may realize that the minimum order quantity the manufacturer sets isn’t different from what you will sell-through.
Besides, you may also need to be accountable for your timeline when calculating MOQ for your store.
It takes time to get the inventory ready. Moreover, it also includes shipping, freight transit times, and lead times. And any delay that may occur along the way.
Consider all these factors when calculating MOQ for your store.
2) Calculate Holding Costs
Another thing you need to consider is how much you will pay to store products. It is financially beneficial to ensure you don’t keep many items in your inventory for too long.
There’s one thing you need to consider before you invest in inventory.
Some items need special treatment. For example, you may need to refrigerate some of the products. Some may have awkward shapes, which makes inventory management a bit hard.
Holding inventory for long isn’t the best option. It would be best if you count these costs in MOQs.
3) Find the Break-Even Point
The vital part of determining a MOQ is calculating all costs. It includes expenses incurred in labor, setup charges, and other production and delivery costs.
If you are trying to establish the smallest order quantity on your own, you will need to know your break-even point.
A break-even point can occur in the second transaction for orders. You can reach this point after recovering the customer acquisition cost when your customer comes back through your marketing efforts.
Also, when dealing with wholesale orders, you may need to consider the lowest price. Note down the per-unit dollar amount you’re willing to charge from your buyers.
4) Set Your MOQ
Let’s say the majority of your customers are willing to buy 300- unit orders. Then, you could set 300 units per order as your minimum order quantity or even go down to 250.
After gathering all data, you need to set MOQs for every product and create a strategy to implement it.
You may also need to offer bulk buying discounts and other incentives. What’s more, your MOQ should work with customers to maintain relationships.
As you can see, there are so many factors involved in a simple MOQ. You can check the MOQs set by established manufacturers. It will help you set a similar MOQ for your products.
What Is the Common MOQ of Different Suppliers?
Now you know that MOQs vary from item to item. But do we get to see a common MOQ applicable to different industries?
Of course, there is no specific number aligned with a particular industry. But we can browse through different platforms to identify what MOQ manufacturers set most often.
So, let’s talk about the number of different suppliers.
1) Small Scale Factories
Do you import from China more often? Is it anything less than a container? Then you are getting involved with small-scale factories.
These factories have a reasonable minimum order quantity rule. Moreover, they talk about the total sell instead of quantity. The scale ranges from $1000-$2000.
2) Wholesale Manufacturers
Wholesale manufacturers produce goods in bulk. Thus, they have lower MOQ in comparison to small-scale factories.
Their quantity rule ranges from $100-$200. If you opt for customs styles, that can go up to $1000.
3) B2B Sites
Do you trade on B2B sites like Alibaba? Well, suppliers on these platforms are helpful to a new business. A lot of users use them.
Suppliers on B2B sites deal with different customers at a time. A good thing about these sites is that there is a chance to merge your order. You can combine it into an existing order in the production line.
Their MOQ can range from $500-$2000. This price range is inclusive of customizations.
4) B2C Platforms
Platforms like Aliexpress, DHGate and so on. They usually do not have an MOQ requirement.
Some suppliers ask for bulk buying, though. The MOQ requirement can be a couple of dollars. That is, a minimum of 2 units to order.
How to Get a Lower MOQ While Purchasing?
Do not overlook the oblivious step that works best in negotiating a lower minimum order requirement. Let’s have a look at what you also need to do.
1) Pay in Advance
While starting, you can pay the seller some additional cash in advance. With this, the seller will be able to get the needed materials which, as a result, can assist in acquiring a lower MOQ.
There is an advantage to developing a relationship, even though it can impact your profit margin.
2) Use Readily Available Material
When working with a product supplier, you need to find out the supplier’s type of materials. Out of this, you need to know how to design a product that comprises those materials.
3) Consider Joint Orders
The operating cost makes suppliers set a high MOQ. These costs include workers’ salaries, machinery setup, electricity bills, etc.
The best thing you can do is ask your seller if they have any other order that matches your specs sheet. You can then merge your order with the other, which allows you to get a lower MOQ.
4) Work With Small Factories
Small factories work with a team of 10 or fewer staff members. These factories have lower quantities as they don’t deal with many customers. With this, you are sure of getting a lower MOQ.
5) Prefer Less or No Customizations
One thing you can do is lower the customizations. Suppose you want to order a T-shirt. Then, you can opt only for color schemes. You can avoid customizations such as printing different designs, adding logos, etc.
Remember, customizations often result in higher MOQ.
6) Hire a Sourcing Agent
You can consider hiring a sourcing agent like Fulfillbot. An agent knows every corner in China. That means your chances of getting a product with low MOQ increase when dealing with an agent.
Sourcing agents spend most of their time fulfilling orders. Thus, they have good relations with different Chinese factories.
As a result, they can use their contacts to help you get lower MOQ on products.
How do you find low MOQ manufacturers?
Find the right supplier based on the size of your business.
If your business is just starting out, and HIGH MOQ will make you take a lot of risks, so if the manufacturer has a high MOQ, the best option is to look for a wholesaler. Purchase some in small quantities, and then let China sourcing agent(for example Fulfillbot) replace the product packaging and logo, using your own packaging and logo.
Changing product packaging and logos is often affordable.
How Can You Negotiate MOQs?
If you could be having hard times meeting supplier MOQ, these tips below come in handy.
This video can help you negotiate A Low MOQ (Minimum Order Quantity) With Chinese Suppliers
1) Ask for a Specific Quantity
You need to pay the MOQ, but remember to ask for a specific number of items required. One thing to note, though, this option will not save you money.
You will still need to pay the full price of the supplier’s MOQ upfront. Instead, you can ask them to give you the product in the required quantity.
2) Buy Leftover Inventory
You can request the supplier to sell their leftover inventory. Or offload it to a wholesaler. You can then buy it in a small quantity from a wholesaler.
The option may not be effective for every business, but it’s something you need to note down.
3) Buy Some Part of MOQ
Suppose you could be having trouble meeting a supplier’s MOQ. Sometimes, you can’t store the amount of inventory at one time or can’t pay it upfront. Or don’t feel like you need that kind of inventory all at once.
You could check if the manufacturer can give you half of the product first and later the rest in a few months.
One thing to note, though, not all manufacturers would love this idea. Some may not have the storage space for it. Others could be willing to help you if they feel you are serious.
They could also help if you become their regular customer.
4) Substitute the Raw Material
You can also check if there’s a cheap material substitute for a particular product. You can ask the manufacturer to use that material.
It would help you drive the production price down, and so will be the amount of MOQ.
It is more of a strategy for meeting MOQs and less a negotiation tactic. Besides, it works best if you do not have a budget to meet a MOQ upfront.
5) Get Investors If You Can't Lower the MOQ
Crowdfunding stands as one of the best ways to get funding. It helps you meet your supplier’s MOQ without using cash right from your pockets.
Remember, it takes time to organize successful crowdfunding campaigns. Also, it is not the best fit for non-serious or unprepared business persons.
Having said this, you also need to have a little knowledge and resources to get through this.
MOQs are important for suppliers since it controls businesses. Setting MOQs comes in handy for them.
Moreover, it allows suppliers to communicate with buyers at ease. That could be on how many units it takes to work together.
On the other hand, MOQs help buyers understand the market. It allows buyers to plan their budget, inventory, and pricing.
Whether through Alibaba or any other platform, you are at liberty to ask for a minimum order of quantity as a buyer.
You can achieve this by communicating with the relevant party. Once you get the supplier’s details, ask them to offer a lower MOQ.
You need to note down that there is no fixed MOQ on Alibaba. It all boils down to the type of products and the supplier you are dealing with at the moment.
MOQs can vary for different products. Some products have a 50 MOQ while others have a 1000 MOQ. It shows that it depends on the supplier and the product type.
There are also wholesalers that support 1 piece sales，but the price is different.
It means this product min order 500pcs.you cannot order anything less than 500 units of a certain product.
High MOQ means that this product has a high order quantity, often requiring several hundred or several thousand pcs, which is determined by the order quantity of raw materials.
Remember, MOQs are in place to help manufacturers and buyers. It helps them to sustain business models.
Both buyers and sellers need to respect others’ time, money, and resources in a business. Mutual respect helps relationships to flourish for years.
So, if there’s a need to negotiate with suppliers, you need to abide by the MOQs put into place.
Don’t worry, even if the supplier disagrees with lowering the MOQ. You can contact a reliable dropshipping agent to get a product sourcing service. An agent can find high-quality products and negotiate the MOQ terms on your behalf.