What is MOQ? Definition and How to Calculate
"Have you ever heard of MOQ? It stands for minimum order quantity, and in most cases it's the number of units that a manufacturer will agree to produce for an individual buyer. You might be wondering why this is important information. The answer is simple: your startup just got its first big break!"
What does MOQ Mean?
The minimum order quantity is the fewest quantity of units needed to be purchased for a time. Also, it is often set by the manufacturer or supplier based on the production run. But a merchant can set the MOQs for different types of orders. Here are some of the instances to understand MOQ meaning.
Here are some of the instances of MOQ
- The manufacturer’s MOQ will be 1,000 units. It means you will be able to buy an inventory of 1000 units.
- A brand may have MOQ requirements for wholesale or retail partnerships. They will need a minimum of 50 units or products worth $500 bought together.
How To Benefit From Minimum Order Quantity?
The terms of MOQ may seem unsuitable for you if you are purchasing on the side. But it is good if you are selling the inventories. Many of the people who are part of eCommerce businesses will partner with the manufacturers that have set minimum order quantities. Some of the brands will be in the position of using their MOQs in their wholesale partnerships.
Know about the tips to work with MOQs.
Incentivizing Higher Spending On The Orders
If you want to deal with wholesale or retail, then you need MOQ. It will help the bulk buyers to know if the retailers pay the minimum amount. Then instead of the minimum spend, you can provide volume discounts. It will enable you to charge retailers low costs per unit in exchange for the overall spend. But you have to find good retailers with whom you can have lasting relationships.
Put An End To Slow-Moving SKUs
Some brands will have slow-moving SKUs than they need. They will be stuck paying for its storage. Also, they have to give MOQs for the inventories that do not sell. So it is important to keep the SKU content minimal.
Increase The Inventory Turnover
When you order excess inventory, then it will lead to a high inventory turnover ratio. You will be in a lot of stress to sell the inventory quickly because of investing a lot of cash. So you have to boost the inventory turnover then the MOQ will not be too high.
Find Suppliers And Distributors
You can attempt with the suppliers and distributors to fix reasonable MOQ rates. You can also try negotiating with them as it helps. Try working with a trading company or wholesale distributor too.
How To Calculate MOQ?
If you want to calculate MOQ, then there are some factors you have to keep in mind. Many businesses have different needs. There is always a trade-off between getting higher MOQ and having a higher price per unit. Further, there is no particular formula to calculate MOQ.
Think About The Demand
When demand forecasting, a manufacturer will take into consideration the product type, competition and other factors. This data will help in performing the next order. Therefore check with the supplier and try to set the MOQ based on the demand of the products. Then only you can sell the products soon.
Calculate The Break-Even Point
If you want to fix the minimum order quantity on your own, you have to be aware of your break-even point. Consider the lowest per-unit dollar rate you want to charge instead of the higher-order value. But it must not be very low.
Know Your Holding Costs
Some of the products are very expensive to store than others. It is because they will need special warehousing needs. So you have to know about the items you cannot keep for long.
Set The MOQ
If you experience high demand, then you can come up with MOQ that suits you. If your partners buy 200 units per order, you have to sell 150 units per order to make profits.
How To Negotiate MOQ?
Know about some of the tips to negotiate with the MOQ.
- You can ask the supplier if they have low-quality products which they can use for production. In this way, the production cost will be less.
- If you want to lessen the MOQ quantity, then the quality has to be compromised. But take care that you do not sell faulty products.
- You can try to find the buyers who want to purchase the same products. Then you will be able to divide the acquisition costs.
Business is hard. But you don’t have to go it alone! Let Simpl help you take care of the fulfillment so that you can focus on what you do best - running your business and making money. We know how important MOQ is in eCommerce, which is why we offer a variety of services for every stage of the ordering process including inventory management, warehousing, order fulfillment and more. Our customer service team will be happy to answer any questions or concerns that come up along the way too.