A minimum order quantity is often seen as a necessary evil in wholesaling, retailing, and manufacturing.
Some businesses like it, some businesses hate it, and some businesses have to use it.
But what is a minimum order quantity exactly? What are its benefits for suppliers? And how do buyers effectively deal with it?
Read on to answer all of these questions and learn how suppliers can use minimum order quantities to their advantage and how buyers can make it worth their time.
A minimum order quantity (MOQ) is the lowest set amount of stock that a supplier is willing to sell. If you can’t purchase the MOQ of a specific product, then the supplier won’t sell it to you.
All MOQs vary, depending on the product.
High-ticket items that cost more to produce will usually have a lower MOQ than low-ticket items that are easy and cheap to produce.
If you’re a buyer, we’ll show you how to navigate MOQs later in this post.
If you’re a supplier, let’s look at what its benefits are to your business.
The purpose of minimum order quantities is to allow suppliers to increase their profits while getting rid of more inventory more quickly and weeding out the “bargain shoppers” simultaneously.
A minimum order quantity is set based on your total cost of inventory and any other expenses you have to pay before reaping any profit – which means MOQs help wholesalers stay profitable and maintain a healthy cash flow.
Wholesalers don’t always prefer this way of doing business, but in many cases, wholesalers are forced to sell using MOQs because they’re forced to buy a minimum of stock from the manufacturer.
Here’s an example of how to use MOQs in your business:
Let’s say you sell golf balls. For retail customers who are buying in small quantities, you sell one pack of golf balls for $10.
If you want to sell wholesale, then you should reduce your price just enough to make it a good deal for the buyer, while allowing you to make a larger profit and quickly reduce your inventory at the same time – like golf ball packs for $5 a piece with an MOQ of 100 packs.
The goal is to attract a small amount of buyers who purchase the largest amount of your stock.
Since you know minimum order quantities are often used by wholesalers to find the best buyers and stay profitable, you can attempt to present yourself as their ideal client while negotiating lower prices or looking for the deal that is the most mutually beneficial.
Here are a few tips for dealing with MOQs and making them worthwhile:
If you want to make MOQs worth it, then you should start by attempting to negotiate a lower price.
The supplier may not be able to lower the price, but you’ll never know if you don’t ask.
If you develop a good relationship with a supplier, or it’s a slow time of year for them, or if they’ve overstocked their shelves, you’ll have a better chance at persuading a supplier to lower their prices.
But if the supplier is in high-demand with loyal customers, it’ll be difficult to get a deal. In that situation, if you want the product bad enough but don’t want the full minimum quantity, your best course of action would be to pay more to receive less.
The caveat to online marketplaces is that you should still vet the suppliers you want to buy from, even if the marketplace initially vetted them.
The best part about B2B marketplaces is that you can usually find more low or non-existent MOQs online than you could otherwise.
Trading companies can place one order for multiple buyers. This means you can meet the supplier’s minimum order requirement without paying full price and without taking the full inventory.
This lowers the price of the MOQ for all buyers involved and reduces the impact of holding more inventory than you need.
Minimum order quantities are just one tool out of many that suppliers can use to optimize their business.
If you’re selling online wholesale, you should enforce MOQs, but you should also try reducing your shopping cart abandonment or choose the right selling environment when deciding between Amazon Seller Central vs Vendor Central.
Similarly, MOQs are just one of many hurdles that buyers have to overcome.
But If you’re a buyer or a seller, there’s one tool you both should be using:
This will allow you to know how much you need to sell or buy in real-time, provide accurate forecasts for future demand, and enable easier stocktaking for streamlined productivity.
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