There are plenty of terms that are unique to eCommerce and product sourcing – one of the most common and also the most influential on your business management is MOQ.
It has significant consequences on your cash flow management, inventory management, barriers to entry, product sourcing, shipping costs, warehousing costs, and quality assurance checking processes.
But what is MOQ and how does it impact your store?
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What is MOQ?
MOQ stands for Minimum Order Quantity.
It refers to the minimum units a manufacturer will product on a single order. This prevents a factory from receiving lots of small orders that they are not designed to fulfil.
Most factories are built to produce large quantities of goods that will be shipped via pallets, trucks, or shipping containers – they struggle with the management of thousands of individual units.
To resolve this factories often set Minimum Order Quantities which means that they will not accept small orders below this limit.
If a factory has a MOQ of 1000, then it means they will not accept any orders of less than 1000 units at a time.
Is MOQ negotiable?
Absolutely, up to a point.
Most manufacturers will participate in sending out samples of one or two individual units so that you can check the quality and functionality of certain products – although this may only be accepted if you are already down the path of purchase.
If you already have an existing relationship with a factory then they might also wave their MOQ with you if you need to order smaller quantities for acceptable reasons.
Treat the MOQ as a recommended starting point that can be negotiated down if required – but make sure you don’t ruin your fledgling relationship with a new manufacturer by making unreasonable demands.
There are also factories that cannot change their MOQ under any circumstances. Maybe they can only send product via shipping container due to their locations near the local port. In this case anything less than a full shipping container might not make logistical sense with the resources they have available.
What is a normal MOQ?
There is no such thing as a normal MOQ – it really depends on the manufacturer.
If you are purchasing from local craftsman then they may be able to sell individual units of a bespoke item.
If you are purchasing from a local embroidery shop then they may have extremely low MOQ’s in the 5-10 range, but the prices drop significantly as you get above 50 units. This is another way the manufacturer can incentivize their customers to help fit in with their own requirements.
If you are purchasing from an overseas factory then you might need to buy a pallet or shipping container worth with 1000 unit MOQ.
It also significantly depends on the value of the individual units. The MOQ of a custom pen from China might be 10,000 units. The MOQ of a German bulldozer might be 1.
MOQ impact on Inventory management
You should always be aware of what the MOQ is on all of your products as this plays into your cash flow and inventory management system.
If you have only sold 30 units of one product last month and the MOQ is 100 units, then you will either need to wait until you have sold more units and risk running out or you will need to order more than you need and lock up more cash in inventory.
You should build the MOQ and the time between placing an order and receiving the products into your inventory management system. This will allow you to forecast your inventory requirements and cash flow going forwards.
Minimum order quantity is a term you will hear often whenever you are working with larger factories or sourcing new products.
I hope this article has explained what s MOQ and highlighting some issues that MOQ can cause and help you manage your business moving forwards.
MOQ is both a pain and an opportunity – if the MOQ for a product is very high then it also prevents your competitors from entering your niche. But when they do they will come with enough inventory to take your share of the market.
ECommerce is a constant battle in one of the most competitive industries around with low margins for entry. But for those of us with the entrepreneur spirit, this is an exciting challenge that can provide huge success for the winners.