Minimum Order Quantity

When you are looking for a product and buying it abroad, you can only sometimes order in bulk. You want to test the product and see if it matches your taste. MOQ is essential when you only want to order a few pieces of products to sell. It can give you savings in many ways.

When you finish reading this, you will know what does MOQ mean and how to make your buying decision more effective. Let’s begin!

1. The basics of MOQ

1) What is MOQ?

MOQ is a unit a seller uses for their products. What does MOQ stand for?  It means Minimum Order Quantity. It is the smallest number of pieces of products a supplier is willing to sell at one time. For example, if a supplier’s MOQ is 100 units, you must buy at least 100 units in one order.

2) Why is MOQ so important?

MOQ is essential for both the seller and the buyer. A supplier or seller puts an MOQ to manage their business costs or operations. It keeps them running their production, and though they sell it in small quantities, they will not lose money.

On the other hand, an MOQ for the buyer can help with planning and budgeting. When you buy products with MOQ, you get the lowest price possible. You can profit when you sell them and save big on shipping costs.

2. Why do suppliers use MOQ?

1) Cost management

Production costs are one of the suppliers’ concerns in their business. To manage this cost, suppliers have to use MOQ. The MOQ should cover the price of a product they will produce in bulk because it is less expensive than producing in small numbers.

For example, when they use machines to produce products, there is a cost involved. They pay for raw materials, electricity, and labor. So, to save costs, they produce things in a minimum required quantity to distribute the cost and profit. In return, the buyer pays less for the item.

2) Operational efficiency

MOQ helps suppliers run their operations or production smoothly. They can plan their production schedules better. When they have a set plan, it helps them avoid frequent changes in setup.

They also use their resources efficiently. When there’s efficiency, it brings better product quality and consistency.

Suppliers can organize their operations when they have many units to produce. There are fewer disruptions, less downtime, and more energy-saving use of labor and materials. All these factors contribute to a smoother and more organized production process.

3) Profit optimization

Suppliers can compute their profits by having an MOQ. Selling larger quantities at once reduces the cost per unit and increases the overall profit. MOQ helps small- and medium-sized businesses manage their costs carefully.

Suppliers need to ensure that every order produce profit to their business. By setting an MOQ, they can ensure that each order is worth the effort and resources invested.

This strategy will help suppliers maintain healthy profit margins. It will also allow them to grow and sustain their business, especially if the market competition is tough.

4) Risk reduction

MOQ helps suppliers reduce risk. Suppliers will not keep unsold stock when buyers agree to purchase a larger quantity. MOQ lowers the risk of over-production and inventory holding costs.

Unsold inventory is not suitable for suppliers. It affects their capital and requires storage space. If they do not sell it quickly, they need to sell it at a significant discount to sell it fast.

By setting an MOQ, suppliers can minimize the risk of excess inventory. This will not add up as a burden and ensure that all of their products are sold on time.

3. How does the MOQ affect different business models?

What is MOQ in business? MOQ, in every industry, can affect many things. It can impact its operations, inventory, profit, cash flows, and more.  We put a table below so you can see what MOQ can do to affect the two business models:

1) E-commerce and retail

2) Wholesale and distribution

Factors	E-commerce and Retail	Wholesale and Distribution
Challenges and Opportunities	Requires advance payment but offers cheaper unit price and higher profit.	These companies have buying power so they can negotiate MOQ that can lead to cost savings and better terms.
Inventory Management Strategies	Balance stock levels to meet demand without overstocking. Use sales data and forecasts to make decisions on MOQ.	Maintain the supply of stock to meet demand while avoiding overstock.
Cash Flow Implications	Large orders can impact cash flow. Needs to balance bulk purchasing with other business costs and needs.	Buying in bulk can reduce costs but requires significant investment and cash flow management.
Risk Assessment	Before placing large orders to meet some supplier’s MOQ, consider the market demand, storage costs, and the risk of overstocking.	Evaluate market demand, competitor actions, and consumer behavior to minimize unsold stock risk.
Negotiation Strategy	E-commerce owners can negotiate with suppliers to lower their MOQ requirement under certain conditions.	Build strong relationships with suppliers to negotiate lower MOQs and better terms.
Volume-Based Pricing	Prices can be based on tiers or bracket of orders	Buying in larger quantities reduces cost per unit, improving profit margins.
Long-Term Supplier Relationships	Sticking on one supplier can provide lower MOQ or flexible payment terms and long-term partnership	There is consistency of large or bulk orders so it comes with better payment terms. Suppliers offer priority service.

4. How to calculate MOQ?

There are three factors you can look at to help you effectively when calculating your MOQ. Let’s look at each of them.

1) Demand forecasting

Historical Data Analysis

You can use past sales history to predict the demand. You use the information to decide how much stock to order to manage inventory.

For example, A-Tech is a small electronics retailer. They look at their sales data from the past two years, and in the past six months, they sold an average of 300 units of a Bluetooth speaker each month.

This number suggests that they will likely need around 300 units per month. It helps them decide how much to order from their supplier to meet the expected demand.

Seasonal Variations

Buying more will have enough stock to meet increased demand during peak periods. Usually, a business may need more stock during the holiday season or special events. They can plan their orders to ensure adequate supply without overstocking.

For example, Lily’s Toy Store sees that sales in December are typically three times higher than the monthly average. They sell about 200 units of Lego toys a month, so they need 600 units of Lego for December.

Market Trends

Market trends help in understanding consumer behavior and demand patterns. For example, AREA Clothing is a fashion retailer and knows that wide-leg pants are becoming popular.

Instead of sticking to their 200 pieces monthly orders, they increase their order to 400. This keeps their customer loyal to the store by ensuring they have enough stocks.

2) Break-even point calculation

Cost Components

You must include all the costs, such as raw materials, labor fees, and overhead costs. For example, Jolly Candle calculates its break-even point. After listing the costs, it determined it needed to sell 72 candles at $10 per month.

This helps them see how much they need to sell to cover costs before they make a profit and decide how many units they need to order from their supplier.

Profit Margins

Consider how much profit you want for each unit and factor this into your MOQ calculations. For example, Yannah’s Bake Shop calculates that each cake costs $10 to cover expenses. They want 50% profit, so they price each cake at $20.

For their MOQ, they calculate how many cakes they must sell to cover their fixed monthly cost.

3) Holding cost analysis

Storage Costs

These costs include rent for warehouse space, utilities, and labor. For example, LYLA Furniture must pay $2000 for rent and utilities. They use this cost to analyze how many units per item they need to buy and store in their warehouse.

Opportunity Costs

Holding stocks that you cannot sell quickly can tie up your capital. Calculating the opportunity cost helps determine how many pieces you need to order. You can use the money on your marketing instead of stocking it.

Depreciation Factors

Inventory can depreciate over time. This is common to perishable goods or products that can become obsolete. You can use this factor to decide on your MOQ.

5. How do we minimize the minimum order quantity?

1) Establish Good Supplier Relationships

Make it your top goal to build a strong relationship with suppliers to help negotiate lower MOQs. If you develop trust and good communication, they can give you more flexible terms and better cooperation.

2) Improve Negotiation Skills

Good negotiation skills are essential. If you let your suppliers know you are looking at a long-term business, they can provide a win-win solution. You need to present your needs through an effective negotiation with suppliers. Buyers can often persuade suppliers to lower their MOQs.

3) Optimize Payment Terms

You can request a better payment term to meet MOQ. Negotiating an easy payment term can also help manage your cash flow. Sample payment terms you may ask for are extended payment periods or installment plans.

4) Use Sourcing Agents

Sourcing agents can help find suppliers that offer better terms and lower MOQs. They have good resouces for your needs.

For example, if you choose JustChinaIt, they are the experts in this field and have served thousands of clients.  Through proven networks, they connect clients with reliable suppliers.

6. Use JustChinait to easily manage your supply chain

JustChinait offers a one-stop solution for managing your supply chain. Our team of experts can provide procurement, warehousing, and transportation services, making it easier to handle all the aspects of your supply chain in one place.

1) One-stop procurement

We can find your suppliers from our high-technology database of reliable and proven suppliers across China. We can compare each supplier to provide the best deals and competitive pricing. We can also directly order from suppliers and ensure fair negotiation.

2) Warehouse Service

Here at JustChinaIt, we have a facility that can store your products from China suppliers.  Aside from storage, we do quality checks and inventory management.

3) Transportation solutions

We offer different types of shipping such as consolidated shipping and pick/pack services. Our transportation solutions are flexible for all your shipping needs. Our detailed and accurate tracking system ensures that you can be confident in your orders and shipments from us.

7. MOQ common problems:

1) Are all products the same MOQ?

No, different products can have different MOQs. The minimum order quantity depends on factors set by suppliers. Some factors are the cost of making the product, the demand, and the supplier’s rules.

2) What can I do if I cannot order the supplier’s MOQ?

If you can’t order the minimum amount, talk to the supplier first and ask them to lower down. If they cannot make it lower, you can also look for other suppliers with lower MOQs, such as retailers. Usually, direct factories are in high demand for MOQ.

3) Why do suppliers use MOQ?

Suppliers use MOQ to keep their businesses running, too! They want to cut costs and make their operations sustainable. Like you, they also want to make a good profit and reduce risks. Setting MOQ  helps them cover the cost of production and setup, ensuring they stay profitable.

If you order minimum, you are getting a good deal of price for a product.

4) How does MOQ affect inventory management?

MOQ affects how much stock you can keep and how much cost you can bear. Larger MOQs mean more inventory. You will need more storage space and that can affect your cash flow. You need to have a good inventory management strategy to help balance these factors.

5) Can you write an MOQ with suppliers?

Yes, you can definitely negotiate MOQ with suppliers. A reasonable MOQ and establishing trust can guarantee good business. Always consider having good relationships and showing potential for long-term business to help you get better terms.

Conclusion

Are you looking to make purchases with minimum order quantities? We have a wealth of quality supplier resources, through careful comparison and selection, is committed to providing you with cost-effective sourcing solutions. Focused on simplifying the import process for you, so that you can easily get the price advantage, JustChinaIt is an indispensable right hand in your business operations.
If you want to harness the power of Made in China to drive your business forward, then
contact us and together we can pave the way to rapid prosperity!