MOQ Meaning | How to reduce MOQ by 30% or more

MOQ Meaning | How to reduce MOQ by 30% or more

moq meaning

When dealing with suppliers and manufacturers, knowing all the lingo is essential like MOQ meaning, FOB, DDU and so on. The short answer:

What is MOQ?

MOQ is an acronym for Minimum Order Quantity. It is the minimum number of units you must order in one go and is a requirement decided by the supplier. Manufacturers become increasingly profitable with scale, thus requiring a minimum amount to be worth their time.

Now, let’s discuss a few more intricacies regarding dealing with suppliers and how to reduce the MOQ in our favour. 

MOQ Meaning: Minimum Order Quantity

So, we know MOQ means Minimum Order Quantity – now this is how it’s used in practice:

Say your supplier requires an MOQ of 750 units at $2.00 per unit. This limit will be calculated as the smallest profit margin they are willing to work to in this instance. This is based on many factors however, you can largely assume MOQ and price are inversely correlated due to the effects of economy of scale.

The higher the MOQ, the lower the unit cost. 

MOQs are often negotiable, like any other part of the deal. However, approaching negotiations with a bit of respect and tact will demonstrate you understand how their side of the deal works.

The MOQ will vary from supplier to supplier. 

Don’t be surprised to see offers for 10 units or 10,000 units for the same product. Again, this can be for a number of reasons, the big ones being how much customisation is required and if the product is currently being produced.

For example, if the factory is already manufacturing 10,000 products for another company, the cost of adding a small number to that production run will be rather cost effective for them – allowing them to offer you a low MOQ.

Conversely, if a production run needs to set up for you only, the MOQ will be higher.

The importance of MOQ for a good business relationship 

Understanding the MOQ meaning and adhering to it will demonstrate to your supplier that you are serious and willing to take a risk on the product. Willingness to take risk on a product shows your investment in the product and likelihood to be a repeat customer on a scale beneficial to the supplier. 

No manufacturer wants to receive a request to create 50 units for a customer. The profitability is low and the chance of repeat custom is likely lower too. This would allow a brand to purchase say 50 units of 50 different products to ‘test the waters’ where a high percentage will likely fail to gain any sales traction. 

Big orders = more money and a chance of an ongoing relationship.

Similarly, it’s important to find a supplier that can meet your manufacturing demands. If you will likely require 100,000 units per year, look for suppliers with higher MOQs and higher production capacities. 

Well matched brands and suppliers will work more synergistically from start to finish.

Paying suppliers? Do it safely and cheaply, read my write up on TransferWise.

Why suppliers have MOQ’s

In addition to the above, suppliers work with bulk raw materials. Often these can only be purchased in minimum quantities also. Depending on how much work the factory is currently doing, it may be impossible for them to purchase raw materials without incurring unnecessary wastage.

Understanding the MOQ meaning here is critical. 

Furthermore, the cost of running the machinery may not be worth it for a small production run. But this will vary factory to factory and with product type.

Why MOQ is good for the buyer

The main advantage with MOQs is the cost reduction with increased quantities ordered. 

Everyone knows that buying in bulk is a good idea, even at the supermarket buying 16 toilet rolls will be more cost effective than two. 

But the effect is even greater here.

I have been unprofitable before buying at the minimum MOQ. But once this first order proved the market was there – I was able to buy at a larger scale and become profitable. (Although I wouldn’t advise operating that close to the line routinely…!)

Why MOQ is bad for the buyer 

Cash flow and risk.

Problems consistent with the smallest private label brand to giants like Nike and Adidas.

They are the biggest problems with the physical products and Amazon FBA models. You are required to put down a large amount of capital based on only your research that the item will sell, and sell for a profit. 

This is where quality product research becomes extremely important. As you start to part with your cash, you will really start to hope your research was thorough and logical (minimal emotions and blind hopes!).

So, how do you minimise your cash flow and anxiety problems?

Negotiation!

How to reduce MOQ: negotiation tips

You understand the MOQ meaning, now let’s reduce it as much as possible. 

Firstly, consider if the current supplier you are conversing with is the appropriate supplier for your business.

What I mean by that is, are you looking to source for Amazon FBA, are you looking to test a market, are you dropshipping, have you done lots of market validation and want 10,000 units straight away?

Assuming most reading this are in the Amazon FBA space, let’s consider that.

For your first order, you ideally want a low MOQ to minimise your risk of the product not taking off like you had hoped. If you can’t stomach the MOQs offered by factories on Alibaba for example, have you considered using a trading company instead? 

Trading companies often work with more than one factory and may be able to tag your order onto a current production run, allowing lower MOQs.

Can you get your product (or something similar) on Aliexpress? If yes, perhaps an order of 100 units here would allow you to test if the market would be receptive to your product. Then with this knowledge, you can order with less risk on Alibaba.

These are quite specific examples, but should get you thinking along the right lines on how to sidestep scary MOQs.

How to reduce your MOQ with a wholesaler/supplier on Alibaba

Specifically again for Alibaba, I have more luck negotiating here than with my UK based suppliers.

Here’s some things to try:

Ask for a lower MOQ

Simply don’t accept the first figure that gets mentioned. Suppliers on Alibaba will often highball you in the chance of you accepting. Conversely, you should do the same, offer a counter that is lower – they may accept, they may not.

For any counter offer, I like to pair it with a reasoning. For example, ‘my boss would like to go with company x for their lower MOQ however, I prefer your product (so does he) and I believe we have a better relationship. Would you be willing to meet us at 300 units this time only, I will be able to persuade him to choose your company if so, and our next order will be increasing to 600 units.’ 

This is a rough example, but the point being don’t just ask for 300 units with no reasoning – the answer will much more likely be no – what reasoning do they have to agree?

I regularly reduce MOQ by 30% or more using this sort of approach. However, keep in mind that they may not be able to budge their MOQ for any number of reasons as previously discussed.

Delay discussion of MOQ

When dealing with new suppliers, I’ve found most leverage by discussing the product first, getting a sample and then once you have invested a bit of time with them, discuss MOQ.

This demonstrates that you are a serious customer and that you are interested in their products and capabilities, not just the cheapest price. 

The best practice here is to talk to multiple suppliers and receive multiple samples. This way you can play suppliers off against each other which will help you to find a sensible and proper MOQ.

Raise the price

If you can’t negotiate a lower MOQ consider offering to pay a higher price per unit. Remember the MOQ is based on minimum acceptable profitability for the supplier. For example, adding $0.15 to each unit may swing the balance and enable them to lower their requirements. 

Obviously, do the calculations and decide if a slightly higher unit price is worth the smaller cash outlay and risk!

Change materials or processes

Explore the possibility of using a cheaper material, a smaller number of manufacturing processes or stages to reduce costs and thus lower MOQ. Again, weigh up the pros and cons of having a potentially lower quality product vs capital expenditure and risk. (Rarely would it make sense to compromise quality in my opinion).

Meet the MOQ with delayed shipping

If reducing your inventory storage costs will make the deal worth it, ask the supplier if they can store 50% of the order for a while before sending it on. Maybe use air shipping for half and sea shipping for half to stagger delivery.

Similarly, if the products would be too expensive to receive and store, you could ask if the supplier would be happy to discard/sell the remaining products if this would be more cost effective for you. However, there are limited times this would be applicable and would it be morally right to knowingly waste.

MOQ Meaning: Parting thoughts

I hope you have increased your understanding of the MOQ meaning and the importance of MOQ in product procurement.

A few things to remember when reducing the MOQ:

  • If the supplier lowers their MOQ, they may be substituting materials to reduce their costs without telling you. Make sure you know what’s going on.
  • Remember business is about relationships! I never drive a supplier to their breaking point knowingly. Negotiation is fine, but if you can make a comfortable profit on a deal, keep it there and allow your supplier to make some money too. A happy supplier that enjoys working with you will make your life 100000 times easier. The slightly lower profit that you make will be paid for ten fold in my opinion.

Take care,

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MOQ Meaning | How to reduce MOQ by 30% or more
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