Wholesale suppliers and distributors apply various requirements in order to run their businesses as efficiently as possible to maximise revenues. One of these requirements is called minimum order quantity, MOQ for short.
MOQs impact both buyers and sellers in the B2B market, so regardless of whose side of the transaction you’re on, it’s critical to understand how to use this to your advantage.
In this blog post, we’ll go over all you need to know regarding minimum order amounts, along with the importance of a minimum order quantity (MOQ) for both wholesale suppliers and customers will be explored. Finally, we’ll look at the relationship between drop shipping and minimum order amounts.
Let’s begin by looking at how the term “minimum order quantity” is defined in the wholesale distribution sector.
What is the minimum order quantity?
The minimum order quantity (MOQ) of a wholesale supplier is the fewest number of units that can be purchased at any one time. This method is straightforward and implemented by distributors all over the world.
Some wholesalers will allow buyers to purchase a smaller amount as a sample to ensure that the product meets their expectations and needs, but they will most likely have to pay retail rather than wholesale.
What factors should you consider while determining your minimum order quantity?
There is no formula for determining a supplier’s minimum order quantity; however, most wholesalers start with the breakeven threshold for the individual product.
For example, if a t-shirts company breaks even at 100 shirts and makes a profit at 101 shirts, 100 t-shirts should be the smallest order they will complete.
They will never make any money if they just make 100-unit orders. This indicates that a breakeven minimum order policy cannot be maintained long-term.
They will undoubtedly make a profit if the MOQ for these t-shirts is placed at 200.
You have the authority as a provider to set your minimum order policy to whatever you choose. You must do what is best for your business.
You may be thinking that retailers always want to purchase as many products as possible in bulk (and you’d be right), but there are good reasons for establishing a minimum order quantity.
Large orders can put stress on small businesses; if they don’t have enough cash flow, it could push them into closure before they even start. Most start-ups only get one shot at success – so having just a few orders coming in can help ensure success from day one. Of course, too high of a MOQ will keep even more people from ever being able to sell your products. If your MOQ is too high and no one has ordered any of your goods yet, go back and revise these numbers.
Will MOQ scare off potential retailers & stockists?
The short answer is NO.
Established retailers understand that MOQ is needed for both businesses to profit. Some start-up retailers may ask or negotiate a lower minimum amount due to limited start-up costs. In this case, it’s entirely up to the supplier to determine whether lowering the minimum order for this particular retailer will be possible and profitable.
However, it’s important to remember that the point of wholesaling is selling in bulk. Don’t get into the habit of scrapping MOQ or lowing it, as this will do more harm than good.
Think of it this way – the process of packing a small wholesale order still requires the same amount of labour as you would packing a large order, but the downside is you make less money.
In terms of profit, you’ll always make more money when selling in bulk – this means that retailers that can’t meet MOQ will often be out of business before they start. So yes, small orders may have their place in business but not when it comes to wholesale.
Your goal is to sell a product, and at times you need to let go and say no as much as you want to say yes. Focus on finding buyers who can purchase items in larger quantities than just one or two units; we’ve all seen cases where sellers desperately try cutting down MOQs and their prices just because they don’t want stock leftover – how do these end up working? Do yourself a favour and build relationships with people that will sell your product for longer-term success!
Start-up retailers sometimes get away with lower MOQ; however, if you’re thinking about scrapping MOQ because it’s too high for specific retailers, think again about whether or not lowering your goals would benefit your brand image.
Remember, every time a buyer places an order, there is a chance that other shoppers will see it online and become interested in doing so themselves. The higher value of orders helps create credibility, which grows trust within potential customers. You will have to weigh up the pros and cons and make a judgement on a case by case to determine whether lowering MOQ for some will be equally beneficial for your business and brand.
Benefits of MOQ for wholesalers
Besides profit margin, there are other benefits to enforcing a minimum order quantity.
- Encourage serious buyers and retailers with long term business goals.
- Sell large volume in one transaction
- Turn over inventory quickly
How to set MOQ as a seller on wholesale marketplace platforms and websites
Using the marketplace platform intelligent product posting tool, you can easily specify your wholesale pricing criteria and set your MOQ as a vendor.
It allows you to specify volume-based ladder pricing in addition to minimum order amounts or quantities, giving you the flexibility you need to streamline your operations.
Minimum order quantity is established to assist wholesalers in maintaining long-term business strategies.
It’s essential to understand your costs and the product market to determine the right MOQ for your brand.
Minimum order quantity that is too low or too high could have a negative impact, so it’s crucial to come up with an amount that will benefit your brand and the retailer.