In this post, we discuss the nitty-gritty MOQ details so you can restock your inventory like a pro.
If you’re in the business of hawking products online (A.K.A, an e-commerce entrepreneur), one of the core concepts to learn is Minimum Order Quantity (MOQ).
To keep costs low, most top manufacturers won’t let you purchase tiny portions at a time. Large orders let them slash administration, packaging, and shipping expenses—bulk buying power pays big dividends in the e-commerce game.
Believe it or not, the concept is common with everyday purchases as well. Ever tried buying one single egg? Supermarkets set a six-pack MOQ to ensure profitability.
In this post, we discuss the nitty-gritty MOQ details so you can restock your inventory like a pro.
Let’s kick things off with a plain English definition. Minimum Order Quantity is the smallest amount of units you can purchase at any one time.
Imagine you’ve found an excellent off-shore supplier who stocks your ideal product at the perfect price. That’s awesome. But if their MOQ is high (say, 1,000 units), you won’t be able to purchase any fewer, and that could hurt your bottom line.
Some suppliers might set a specific value threshold instead—for example, $500. That means you’ll need to spend at least $500 per order to do business with them.
Retailers typically have low MOQs, often just one—exceptions include eggs, among other things. That’s because their profit margins are large enough to do business this way.
On the other hand, wholesalers need to set high MOQs to remain profitable. Razor-thin margins mean it isn’t worth the expenses to process and ship a few units at a time.
There’s always a trade-off between unit cost and MOQ, and it’s up to the entrepreneur to find the sweet spot.
Choose a low MOQ with a high unit price, and you’ll struggle to shift stock as your bulk-buying competitors can easily undercut you. Unless your online marketing is superb (or your product has a unique selling point), it’ll be tough to compete.
Opt for a high MOQ with a low unit price, and you’ll need to invest more capital and then factor in storage costs. Bulk orders can be risky for the entrepreneur, especially in untested markets. If you go all-in with a massive initial order and your brilliant business idea turns out to be a flop, you could fail to regain your investment and get stuck with a giant warehouse full of unwanted goods.
Unfortunately, there’s no magic MOQ number—it all boils down to your unique situation.
However, there are several factors you can consider to determine an appropriate MOQ.
If you’re testing the market with a brand new product, it’s wise to aim low. The last thing you want is to overestimate demand and get stuck with excess stock.
Many e-commerce entrepreneurs begin by making small orders and re-selling the product with slim profit margins. They might not earn much on their first order (if anything at all). But if a product proves popular, they could bulk order on subsequent shipments to bolster profit margins.
It’s equally worthwhile analysing demand for established products you know will sell well. Seasonality, competition, the economy, and ever-evolving trends all affect market demand. These factors can be tricky to predict; some demand forecasting expertise can go a long way.
Bulk orders may entail higher processing and shipping times. And even if you’re ordering small, it’s smart to consider your timelines.
If a flagship product is selling like hotcakes on your online store, you need to ensure you’ve got a consistent supply. Factor in all the essential timeframes: lead times, shipping logistics, warehouse administration, third-party providers, and unforeseen delays.
If the demand is there, making high-MOQ orders early could be the key to keeping your supply in check.
Work out how much it costs to store your product until it sells. This figure is known as your inventory holding cost (IHC), and it’s a key consideration when buying in bulk.
The IHC varies depending on your storage facility and the product itself. Small, sturdy goods are cheap to store.
Temperature-sensitive or perishable products, on the other hand, require expensive storage solutions, while larger products take up a lot of real estate. Unless you’ve got a super cost-effective storage solution, try not to let them linger in your inventory for too long.
If you’re going down the high MOQ path, it’s crucial to aim for a quick turnaround time. Failing to offload your products promptly leads to elevated storage costs and keeps your capital tied up in one spot.
Consider the following strategies to on-sell bulk orders.
MOQ’s aren’t just for massive off-shore manufacturers. Small entrepreneurs such as yourself can also take advantage of this age-old inventory-cleansing trick. Like a supermarket selling eggs, you can incorporate an MOQ into your online store.
But first, consider whether your consumer actually wants multiple units. A wine connoisseur, for example, might jump at the chance to snag three bottles of premium plonk for a rock bottom price. A uni student shopping for graduation gowns, on the other hand, doesn’t want more than one.
Rather than insisting your consumers purchase in bulk via an MOQ, you could offer them an incentive to buy multiple units at once.
One classic e-commerce tactic is to offer free shipping on orders over a certain amount. You’ll need to examine your postage costs and profit margins to pinpoint the precise figure.
Another approach, which is common on online marketplaces (eBay, Amazon Australia, etc.), is to give a discount for purchasing multiple units at once. Consider using a tiered pricing structure—the more units they buy, the more they save.
As you’ll have significant capital invested upfront, a large MOQ should motivate you to optimise your inventory turnover ratio.
This standard industry term refers to the rate your stock is sold or replaced. To work it out, divide the cost of the goods by your average inventory.
Tracking your turnover rate helps you make more strategic purchases, especially when dealing with high MOQs.
One of the best ways to move stock quickly is to ramp up your marketing efforts.
Targeted email marketing and social media campaigns can help you reach new audiences, while flash sales appeal to spontaneous buyers and bargain hunters alike.
The tricky part is determining how much you should invest and where. Factor in the associated capital, profit margins, inventory turnover rate, and storage costs.
If you’re dead keen on a specific supplier but can’t stomach their high MOQ, it doesn’t hurt to negotiate.
Some may be willing to lower the minimum limit straight away. Others could offer to let you “mix and match” orders, purchasing various different products to hit the threshold.
And remember, it’s easier to snag a sweet deal if the supplier sees you as a reliable, lucrative customer. Prompt payments, courteous communication, and proven sales (or a solid business plan) will motivate your supplier to cut you a favourable deal.
If your supplier still won’t budge, either bite the bullet and accept their terms or start looking at alternatives.
A sky-high MOQ is a big turn off for the budding entrepreneur, as the required capital and associated risk could outweigh potential profits. But go too low, and you’ll spend too much per product and could struggle to break even on your order.
Whether you need to determine the best MOQ for your business or want help negotiating with a foreign supplier, Epic Sourcing is here to help. We’ve got a vast network of trusted, pre-vetted suppliers in China and throughout Asia, all of whom offer competitive prices and reasonable MOQs.
Drop me a line for a FREE consultation to discuss how we can help you source from Asia like a pro.
Until next time, TK.
