Everyone wants to know what is MOQ and What does MOQ stand for? Well, MOQ stands for “Minimum Order Quantity” which signifies the least number of products or units that a supplier is willing to produce at one time. To know MOQ meaning in simple terms, it is a term of sale decided by each seller. When you approach a seller for a price, his quotation will contain all relevant information, some of them being, product specifications, grade, payment terms, packaging, and MOQ, among others. Suppliers consider factors like product type, cost, and mode of transportation, production capacity, customization level, and individual policy when deciding their MOQ. MOQs are usually set by suppliers to cover their cost of production and ensure that they make a profit off of each production run.
Now that you are clear with the MOQ definition, you must know that they are extremely important for suppliers because it helps them determine the businesses they’re willing and able to do. MOQs are sometimes negotiable, within reason, but it’s up to a businessman to be able to meet a supplier’s MOQs or negotiate a reasonable MOQ in order to do business with them, at the same time having minimal profits.
Top Reasons behind the setting of MOQs:
With proper clarity on what is an MOQ, let’s move to the next step. Suppliers set MOQs because the amount that they set may actually be the fewest units they can produce in one single production run. Since manufacturers produce items in bulk, they also prefer purchasing materials in bulk. It may not be time or cost-effective for them to set up their materials and run their machinery, until and unless they’re guaranteed to be compensated. Because of this, they set their MOQ to match what it is worth for them to set up a production run both time and cost-wise.
Advantages & Disadvantages:
The biggest advantage of MOQs is that they signify the best possible price of a commodity, per unit available. Often, the more in bulk you buy from a supplier, the more it drives down the cost of each unit. This means you’ll be paying less per unit that gets produced so you can maximize the profit you earn when you actually sell that product.
One disadvantage of MOQs is the upfront cost required to be able to get your units produced. But this cost doesn’t include the cost of shipping the products to you once the production run is over, or the necessary paperwork required to get the products through customs, etc. It’s only the cost of actually manufacturing the items.
Some useful tips for negotiating a MOQ:
Once you are thorough with what is MOQ means, its use, and the pros and cons, you can read about the following tips for negotiation.
1. Negotiate a Lower Price
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.
2. Buy from Legitimate Wholesale Markets Online
Marketplaces like Alibaba help you source products from a large variety of suppliers, allowing you to easily compare prices and deals to find the best one matching your requirements.
3. Buy from a Trader
Trading companies may sometimes place the same order for quite a number of buyers. This simply concludes that you can meet the supplier’s minimum order requirement without paying full price and without taking the full inventory. Lastly, after building sales momentum and gaining experience in sales, you will be able to better estimate demand levels. This will enable you to more accurately anticipate sales and order volumes. It allows you to estimate if the minimum order quantity is feasible.
Warning: It may be tempting to drive suppliers down to the lowest MOQ, and some suppliers may want your business so much that they’re willing to drive down their MOQs just to keep you as a customer, but this may come at a cost to you. MOQs are obviously put in place for a reason, so it’s important that you abide by what is needed and negotiate reasonably with suppliers. Just remember there are a few over-heard when you are importing any goods, so higher the value of the imported goods, the lesser the overhead margin.