MOQ Meaning: Definitions, Types, Pros & Cons
Diving into the world of sourcing? You might have seen the acronym ‘MOQ’ pop up every now and then. MOQ refers to Minimum Order Quantity, and it is what most manufacturers will institute so that you will commit to buying enough of a type of product to make it worth their while to manufacture it. Think of the eggs you’ll pick up at supermarkets – it is simply not efficient to sell eggs individually when you think about transporting the product, packaging costs, and so on. The same logic applies to the MOQ. Here, we take a closer look at MOQ and what you should know about it.
Types of MOQs
Simply put, the MOQ is the least number of units that a supplier is willing to accept an order of at a single time. Factories can institute different MOQs for different order types. For example, a supplier might have an MOQ of 1000 units. You will be unable to buy less than 1000 units of inventory at a time, no matter what, because of this MOQ defined by the supplier.
Coming up with an MOQ
There is no standard MOQ amount, given the large variance in products and markets. The steps below can help you with calculating an appropriate MOQ for your product.
- Determine the demand of your product. What is its competition, what seasons does it sell the best in, and how well does it sell in general?
- Calculate your break-even point. What is the lowest dollar-amount you are willing to charge per unit in exchange for a higher order value?
- What are your holding costs? Certain products might be more expensive to store than others. You will need to figure out how much space you need to store your products and how long you can expect them to be in storage before you can sell through them. You will then need to determine if the MOQ your merchant is offering is feasible and cost-effective to hold.
- Track your past trends. If you are negotiating your own MOQ with your supplier, track your past trends to estimate how much you can sell. Perhaps you need to sell at least 150 units to make a profit? Are you able to sell 200 units of your product easily? Take a look at your past performance to inform your next steps.
Pros and Cons
The pro of an MOQ is that it provides both you and your supplier with a very clear standard to work with. An MOQ should be the most cost- and labor-effective option for both of you. A con is that if you are unable to sell through the units you purchase (or sell enough to make a profit), you will be at a loss, and your products may sit idle in holding spaces that will cost you more money. If negotiating an MOQ for private labels and branded products sounds daunting, you can contact East West Basics to help you navigate the process.