What is Minimum Order Quantity or MOQ?
It is the he smallest quantity of products or units that a supplier is willing to produce or deliver at one time. MOQs are set by suppliers to cover their production costs and ensure they make a profit on every production run.
MOQs are sometimes negotiable. However, it is the company’s responsibility to meet a supplier’s MOQs or to negotiate a mutually acceptable MOQ. The MOQ varies from supplier to supplier. Some suppliers will have large MOQs like 100,000 units, while others may work with lower MOQs like 100 units.
However, there are certainly suppliers who produce custom orders or bespoke products and therefore only require a single unit as the MOQ. We will go into more detail on this later in the article.
Why the MOQ is so important?
MOQs are extremely important for suppliers as they determine which companies they are willing and able to do business with. By setting MOQs, suppliers can quickly communicate to potential customers what the requirements for cooperation are.
Some companies and entrepreneurs, often in the startup phase, operate on a small scale and only require a very small number of units for the time being. Such companies need to find a supplier who can easily meet their low MOQ requirements.
Other companies, on the other hand, operate on a large scale and require hundreds of thousands of units. These companies need to find a supplier that can meet their needs and has the materials, machinery and staff to produce the volume they want. Both scenarios have their own challenges.
Why suppliers work with MOQ?
Why a minimum order quantity? Suppliers set minimum order quantities because it costs them a certain amount of money to produce. The MOQ they set ensures that they are able to cover all the production costs AND make a profit.
If suppliers produce fewer units than their MOQ, they run the risk of not covering their costs and incur a corresponding loss. So for the suppliers, the MOQ is a kind of insurance.
However, the definition of a MOQ can also have a different background. Thus, it can represent the fewest number of units that the supplier can manufacture in one production run.
Because manufacturers produce items in bulk, they also purchase their materials in bulk. It often makes no sense for them to prepare their materials and set up their machines in terms of time and money unless a certain minimum quantity is purchased. For this reason, they set an MOQ that ensures that a production run pays off in terms of time and costs.
How to meet the MOQ
When you’re just starting out as a new business, meeting MOQs can be frustrating. Often, as a small business, you only need a small amount of items and cannot meet the MOQ requirements of many manufacturers.
If you find yourself in this exact situation, it’s best to communicate very directly with the manufacturers about the amount of units you need and your budget. If you cannot meet a supplier’s MOQ requirements and they are unable to scale down to the quantity you need, then you should go ahead and find another supplier with MOQs that match your requirements.
Before you give up too quickly, here’s the good news: There are many suppliers that offer low MOQs or even work without them at all. It’s all about finding those suppliers. Spend some time researching and looking at different supplier directories to find suppliers with MOQs that work for you. Depending on the product, it may also be an option to purchase items that you can order individually, thus avoiding a larger MOQ entirely. The best-known provider for this is probably AliExpress – but more on that in a moment.
Exceeding MOQs
MOQs are set by suppliers to define the minimum quantity of units they can produce at one time. However, this is only their minimum. If you want to source more units than the MOQ set by a supplier, that’s usually not a problem.
Communicate exactly how many units you would like your respective supplier to produce. The important thing here is that you make sure in advance that he has the materials, equipment and staff to service your request.
It may also be the case that a supplier has a maximum number of units that it can produce at one time. This is often the case when no larger manufacturing facility is operated. So if you want to have more than the specified MOQ produced, you should make sure that the supplier has the appropriate resources.
How to negotiate MOQs?
If you find it difficult to meet the required MOQs of the suppliers, we have put together some tips for you below.
1. Partial Deliveries
Difficulties in meeting the MOQ of suppliers can be of different nature: maybe you can’t store that much inventory, maybe you can’t pay for everything in advance, maybe you just don’t need that much inventory.
In these cases, you could ask the supplier to kick off production at the MOQ, then ship you the first half, and then ship the rest in a few months. Not all manufacturers agree to this because they may not be able to store the inventory.
However, if you make your potential suppliers feel serious and promise larger and regular orders, this could well be a way to go.
2. Alternative Materials
Consider if there is a lower quality material that can be used in place of the original materials. You could also reduce the production costs and thus the MOQ in this way.
3. Crowdsourcing
The tip below isn’t a negotiation tactic, but a strategy for meeting MOQs when you don’t have the capital up front.
Crowdfunding and selling through pre-orders is one of the best ways to secure funding for your products in advance. This strategy allows you to meet your supplier’s MOQ without having to advance money out of your own pocket.
With crowdfunding, you will ultimately order the quantity of products for which you were able to generate demand in advance. Planning and running successful crowdfunding campaigns like those on Kickstarter or Indiegogo requires a lot of effort and preparation.
So make sure you have the know-how and resources to successfully implement this strategy to meet MOQ targets.
A small warning
It may be tempting to push suppliers to the lowest possible MOQ. Some suppliers will definitely go for it and drastically reduce their MOQs just to win you over as a customer. But this can quickly lead to problems. While low MOQs may seem like an ideal situation, you should always consider the possible consequences:
- If you push your supplier’s MOQ too much, they may be forced to compromise on the quality of the products you make. In an effort to meet the MOQ you require while covering production costs, he may use lower quality materials.
- If you drive the MOQs down too far and that hurts the supplier’s profit, there can be other negative consequences. It becomes more likely that your supplier will no longer want to work with you in the future or will prioritize other customers’ orders.
Keep in mind that suppliers also need to make a profit and MOQs are put in place to cover their own costs. Try to understand that, even if at first glance it may seem at odds with your own business interests.
Good relationships are of the utmost importance in business. So avoid straining the relationship with your suppliers because of MOQs, because doing so can harm you in the long run.
Dropshipping: e-commerce without MOQ
As we have already mentioned, there are also possibilities to work completely without MOQ. The magic word here is dropshipping .
Here you obtain a product from a supplier who does not require any MOQ, but from whom you can order individual units. Even better, however, is that you can do without your own inventory and fulfillment with this model. All of this is taken care of by your supplier. You only order the products that customers have previously placed in your online shop. So you have hardly any risk and do not have to bear any upfront costs.
AliExpress is currently the largest marketplace for dropshipping products where you can really find something for a niche. As mentioned above, the minimum order quantity on AliExpress is usually a single unit, with the suppliers mostly being merchants from China.
Conclusion
MOQs are introduced for a reason. So it’s important that you stick to them, or at least negotiate appropriately with suppliers. Meeting MOQs can be frustrating and often even impossible for a new entrepreneur.
Keep in mind, however, that suppliers use their MOQ to cover their own costs. So if you can’t meet a supplier’s MOQs, you need to find another supplier or make other adjustments. So find suppliers whose MOQ you can meet.