This is a detailed guide on one of the most important norms of doing an online or offline business: MOQ meaning.
In this ultimate FAQ guide, you will learn about what an MOQ is, its importance, uses, drawbacks, and how you can negotiate on MOQ, etc.
You are advised to stay connected throughout this article so that you don’t miss out on any important information relating to MOQ.
What Is an MOQ?
An MOQ stands for Minimum Order Quantity. While the abbreviation may be self-explanatory for most people, the explanation is always a good idea for complete clarity.
MOQ is the minimum number of products that you must purchase from a supplier in order for the transaction to be processed.
MOQ is a term that is generally used in businesses. This term is especially used in large-scale business models such as B2B where a manufacturer or a supplier arranges or manufactures products in higher quantities and sells them to another business.
Most sellers in the B2B model work on MOQs as this is different from a retail or B2C model where sellers sell as low as one piece to buyers.
MOQs are mentioned in terms of different measuring units. A few of the ways for mentioning MOQs are listed below.
- Square meters
You will also find suppliers who would ask you to spend a minimum amount for an order to be processed. For example, you would have to place an order of above $100 for a purchase to happen.
Why Is MOQ Important?
An MOQ is important for a supplier or a manufacturer due to many reasons.
Chinese suppliers often prefer working on low margins and high volumes. That’s why MOQs are in place by most Chinese suppliers in B2B models.
A manufacturer requires a minimum order so that he can start producing a certain product because producing below that quantity would not be feasible for him.
Additionally, suppliers set MOQ because they do not wish to sell the single pieces due to its lower price, hence bringing them lower margins per sale.
You have to get into the manufacturer’s shoes in order to completely understand the concept of an MOQ.
Consider yourself as a manufacturer for a moment. Suppose you have a machine that manufactures 1000 pieces of organic shopping bags in one run.
Now that you can manufacture no less than 1000 pieces, would you be able to sell the shopping bags lower than 1000 pieces?
If yes, you would have to worry about the rest of the pieces in order to be properly profitable.
While you may be thinking that you can sell the shopping bags in fractions, you may still not want to sell them in patches because it would take more time and hassle to clear the stock that you manufacture in one go.
Nevertheless, manufacturers or suppliers also offer to sell the products in patches.
In that case, you can set an MOQ for your shopping bags as 100 pieces keeping in mind that you can also cover the cost of production and your margins by selling 100 pieces to 10 buyers or 500 pieces to 2 buyers.
But setting up a very low MOQ may adversely affect the manufacturer’s business. If he sets up the MOQ as 1 unit, it might take a lot of time, hassle, and efforts to sell 1000 pieces. That’s more of a retail or B2C business model.
There are suppliers who set the MOQ as low as one piece per order but in most cases, the price of the product would be higher.
This is just one aspect of viewing MOQ from a manufacturer’s perspective. There are many factors that force a manufacturer to produce a specific number of pieces in order to be cost-competitive.
For example, a supplier gets 1000 orders of a product that he can manufacture. He cannot turn on his whole factory that has a manufacturing capacity of producing 10,000 pieces of a product in a day for supplying only 1000 pieces.
This will make his factory less profitable and the supplier will soon be out of business line.
It totally depends on the supplier’s business strategies how they want to set their MOQs.
Some suppliers tend to keep their business model simple and straight-forward. Whatever they manufacture in one go, they sell those items by setting up a single MOQ.
They do that because they prefer to sell to businesses rather than consumers or individuals. That’s why higher MOQs come with lower costs per item.
For a clearer understanding of the importance of MOQ, we have jotted down the important points in the following.
Importance of MOQ for a Seller
- Less hassle.
- Simple operation handling.
- Smooth manufacturing.
- Decent profit margins.
- Long term business relationships.
Importance of MOQ for a Buyer
- Special prices with a low cost per item.
- Saving on shipping costs due to bulk buying.
- Long-term business relationship with sellers.
- Ensuring the same quality for every product in a single batch, at least.
- Opportunity to sell the products locally on smaller MOQs or as single units with high margins.
The importance of MOQs will be discussed in detail in the coming p of the pros and cons of MOQ.
What Does Low MOQ Mean?
A low MOQ means a lower number of items or pieces per order. Buyers are not always interested in buying larger quantities at once.
Some businesses work on a small scale and require low amounts of orders as opposed to other businesses that work on larger scales where low MOQ does not suit.
A low MOQ incurs additional costs per item. Larger MOQs come with smaller costs per item. Businesses that are in the early stage of development generally prefer low MOQs.
This may be because they just want to check if the products work out for them or not. Such businesses are in search of suppliers who are ready to either sell with low MOQs or are willing to negotiate the MOQs as per their request.
This is where the manufacturers or suppliers who sell in segments come in. A supplier who has manufactured 1000 pieces of a product may be selling to 10 businesses with 100 MOQ per order.
In this way, the supplier will also get rid of his manufactured stock, and businesses that prefer smaller MOQs are also accommodated. So, it’s like a win-win situation for both.
What Does MOQ Mean in Dropshipping?
Dropshipping has many colors. It totally depends on the dropshipper how he wants to take the dropshipping business forward.
Most dropshipping businesses work on B2C models where there are no MOQs defined. But there are dropshipping stores where MOQs are specified.
There are stores where low MOQs are specified i.e. 2 to 10 pieces per order.
You will also find some dropshipping stores that run on a mixture of B2B and B2C models. There will be products where MOQ would be as low as 1 piece per order along with products with higher MOQs.
Such dropshipping stores tend to attract every kind of customer including the businesses.
If a product is unique, new, and trendy, businesses including online and offline businesses along with consumers or end-users would all be interested in buying that product.
So, the dropshipping store may either mention MOQ for that product or can offer special pricing for the buyers who buy that product in larger quantities.
In that case, you would have to buy a certain number of items for availing a special price per item.
There is another aspect to having an MOQ in dropshipping. Established dropshippers move on to arranging their own supplies by ordering from a wholesale supplier.
Such orders come with MOQs. So the dropshippers obey those MOQs and keep the products in their own inventory but sell them via their online store as single pieces.
They would obviously sell those items on higher profit margins of course and that is the essence of every business.
Alibaba dropshipping is generally popular in terms of MOQ in dropshipping.
What Is the Purpose of MOQ in the Supply Chain?
MOQ is an important part of supply chain functions. As the supply chain is a complete process starting from the raw material and going up towards manufacturing and delivering the product to the end-user, MOQ may involve several times during this process.
The main purpose of MOQ in the supply chain is to keep the whole process of demand and supply smooth and steady.
If a buyer is not willing to fulfill the MOQ requirements of a seller, the whole process of the supply chain may get disturbed.
Similarly, if a seller is intolerant about his MOQ and is not ready to be flexible with his MOQ conditions, the supply chain process for that product may eventually get disturbed.
In order to experience a smooth supply chain function, both suppliers and buyers have to be on the same page.
As we said that an MOQ may be involved several times during a supply chain process, let us try to understand this with a simple example of a supply chain process in dropshipping.
Suppose you are running an online business of private label dropshipping and you are sourcing your product from a manufacturer in China.
The manufacturer would definitely have a certain MOQ in place for you.
Not only that, the supplier himself may have to face MOQs in terms of purchasing raw material for your products and shipping your products to the destination of your choice so that you may be able to sell online via your dropshipping store.
That is because the shipping or logistics companies also often have a minimum number of parcels to be shipped.
If an MOQ condition is not fulfilled at any stage of this supply chain, the whole process of this Private Label dropshipping will be adversely affected.
So, you must have understood by now how MOQs play an important role in the whole process of the supply chain.
For a better understanding, the typical MOQ stages in the supply chain process of general businesses are mentioned below.
MOQs in Planning
Planning is an important part of the supply chain. And proper planning involves the ideal or optimum number of goods to be kept in the business inventory.
In other words, the planning department properly plans the minimum number of goods to be sold and for that, they also plan the minimum amount of products or number of products to be kept in inventory.
This ultimately leads to the introduction of MOQs in terms of buyers and sellers.
MOQs in Procurement
The procurement department of any business is also responsible to procure the optimum number of products so that the business does not have to face shortages or excess of products.
So ideally, they set an MOQ to be procured after a regular interval.
MOQs in Manufacturing
We have already discussed MOQs in manufacturing. The manufacturers have to set a certain MOQ of the products to be manufactured in order to be able to keep their production smooth and cost effective.
MOQs in Shipping
The shipping or logistics also follow the principles of MOQs. If a business has to get the products shipped via a logistics company, it generally has to follow the minimum number of products to be shipped as the specifications of the logistics company.
MOQs in Warehousing
Warehouses or fulfillment centers are important parts of the supply chain, especially in the online field. Most warehousing facilities have a certain number of products to be stored in their facilities or fulfillment centers.
In a nutshell, MOQs may come in different shapes and forms but no business can survive without this necessary condition of having an MOQ.
How Do You Negotiate a Minimum Order Quantity?
This is the trickiest part. Negotiating a minimum order quantity is an art known to very few businesses.
You would either have to be in the good books of a supplier or you have to be his regular customer to be in a position to negotiate the minimum order quantity.
But fortunately, there are more ways you can bring a supplier to the negotiating table for the purpose of negotiating an MOQ.
Some of the trips and tricks to negotiate the supplier MOQs have been listed below. A few ways you can fulfill the MOQ conditions without having to order a full MOQ have also been discussed below:
Ask for Sample
Asking for a sample of the product is considered as the right of a buyer especially if the buyer has a higher demand. Obviously, no business would risk buying a product in large quantities without physically seeing and checking the product.
So, if you want to negotiate the MOQ of a supplier, asking for a sample of the product might be a good idea. Suppliers generally tend to hesitate in sharing samples with every other buyer.
You have to talk to the sellers in a very professional way to request samples of the products. Tell them that you would want to check if the actual product would adhere to the quality you want for your business.
If you feel that the supplier is showing some resistance in sharing samples of the products by telling his history of credibility and showing real pictures or videos of the products, it is the right time to ask him to lower down the MOQ.
This trick works for many suppliers but if a supplier is still intolerant about the MOQs, try other tricks.
Make Them Realize about the Size of Your Business
Sometimes, making a supplier realize the size of your business does the job. It is up to you how you win the trust of a supplier by telling them about your business in detail and letting them know how big are your company’s operations.
If a supplier is convinced that they would be receiving larger repeat orders of the products from your side, they may want to lower the MOQs just to start a business with your company.
Be Strictly Professional
Remember not to throw a loose ball at the supplier. You have to talk very professionally to the suppliers so that they know that you only mean business with them and you are not here to waste their time.
The moment your supplier feels that you are not taking things professionally, they may count you as a starter and may not agree to negotiate on the MOQs.
Check the MOQ from Other Sellers on the Same Platform
You need to do your homework prior to negotiating the MOQs with the supplier. Generally, there is more than one supplier of the same product on the same platform.
Look at the highlighted MOQs in the picture above. Both products look the same but are offered on a different MOQ on the same platform: Alibaba
Check all the MOQs offered by other suppliers. You may be able to find a supplier who is offering a lower MOQ. Calculate the differences and mention them to the supplier you are interested in working with.
Tell the supplier that other sellers are offering lower MOQs for the same product. In that way, a supplier would be compelled to think again regarding the MOQ he is offering in comparison to the MOQs that other sellers are offering.
Check the MOQ from Other Platforms
There are multiple platforms or wholesale sources that are offering lower MOQs as compared to the seller you are interested in working with.
Check maximum suppliers who offer lower MOQs and mention them to your target supplier.
The basic purpose of purchasing a product is to buy in the optimal quantities along with competitive pricing. The supplier on a platform that offers you the best package should be your call.
Clearly tell your target suppliers about the differences in quotes you have received from other suppliers on different platforms.
Check for Products that Don’t Require Fresh Production
Look out for the products that don’t require fresh production every time. You would be able to do this by carrying out soft research or talking to the suppliers.
Another method to check for the pre-produced products is to approach the wholesalers of that product. Wholesalers buy the items in bulk quantities and sell them in patches to different buyers.
But they may still have MOQs in place. You would be able to get the MOQs lowered by talking to them but this could possibly increase the price of a single product.
Ask for a Combined Production
Ask the manufacturer to do the combined production of your order with someone else who wants the same product. Possibilities are always there. You just have to give it a try.
Most probably, you would not be the only one in the world who would require that specific product. There is always a competition. This is the point where you would see the hidden benefits of competition.
You can try requesting your supplier if he could manufacture the product along with the products that other buyers have ordered.
If the supplier agrees, he may ask you for extra time for the production till he receives the minimum total order that he can produce. It would be up to you how much you can wait for that product to be manufactured.
Go for a Combined Procurement
Check your competitors for combined procurement of the same product. This is another benefit of having a competition. You can contact your competitors and coin your option for a combined placement of orders.
It is quite possible that your competitor might also be facing the same issue. So, you can create a beneficial situation for both of you by placing a combined order to your supplier that fulfills the prerequisite of MOQ.
Fun Fact: Sometimes, a higher MOQ may also be in your favor especially in terms of pricing. Check the price per product in a low MOQ and high MOQ. Calculate the difference and decide for yourself.
It may be very much possible that a lower MOQ would be costing you much higher in comparison to a higher MOQ where you can earn more profit margins.
Important Tip: If you still cannot get your MOQ lowered after following the above-mentioned techniques, go to local wholesalers who sell similar products in your area and try to make a deal with them.
You can sell the extra quantity to them at a wholesale or indent rate to get your additional costs reimbursed.
This will be a win-win situation for you and your local wholesale partner.
You would get rid of the excess quantity of the products without having a loss at least. On the other hand, your wholesale partner would also get the products at the cheapest price even without having to import them.
But you have to do this working prior to placing an order to a seller so that you can agree to the MOQ with confidence.
What Are the Pros and Cons of MOQ for Suppliers and Customers?
There are certain pros and cons of having an MOQ in business. The benefits and drawbacks of MOQs vary for a supplier and a customer or a buyer.
That is why we have discussed the pros and cons of MOQ in terms of suppliers and customers separately.
The pros and cons of MOQs are mentioned below:
Pros of MOQ for a Seller
1. Gives a Clear Room for Mass Production.
Mass production is heaven for a manufacturer. That is one of the basic reasons why manufacturers set their MOQ.
2. Easy Sale of Larger Quantities.
Setting up an MOQ brings in the possibility of large-scale selling without much hassle. They don’t have to be worried about the sale of single items as the retailers do.
3. Easy Shipment of the Products in Batches.
With an MOQ in place, it is always easier to get those products shipped to the desired locations. These products are shipped in batches and require easy handling because of being the same in size and volume.
4. Long-Term Business Relationship with Buyers
B2B deals come with the hidden benefits of enjoying a long-term, smooth, and steady relationship with bulk buyers, stockists, and wholesalers.
This is in opposition to the B2C model where customers generally buy a few products and go away.
Cons of MOQ for a Seller
1. May Not Attract Many Buyers
Suppliers tend to get fewer orders where MOQs are in place. It is obvious that only businesses would be interested in procuring those products from the sellers. That is why the MOQ system does not attract many buyers in comparison to B2C selling.
2. Consumer Sales Not Achieved
Another drawback of setting up an MOQ is that consumer sales are almost turned into zero. Obviously, an end user may be requiring more than one item of a certain product but still, it is not a regular practice in B2B.
Even the customers who require more than one item would prefer to go to a B2C platform to place an order with higher quantities.
3. Lower Margins Per Product as Compared to B2C
Suppliers with MOQs work on lower margins per product as compared to the suppliers in B2C platforms. This is because they have a focus on quantity as compared to the margin per product.
4. Buyers Ask for Samples
Buyers who would have to place an order with a higher number of minimum quantities would need samples to place such orders. That is where the manufacturers don’t feel very comfortable as it would be hard for them to ship one or two products as samples.
Pros of MOQ for a Buyer
1. Special Pricing
The prices of the products in bulk buying are always set to be lower in comparison to retail prices.
2. Good Stock Keeping
When you purchase a product in higher quantities, you would be able to keep your stocks upright. Properly maintaining your own inventory will support you to bring regular customers.
3. Avoiding Product Shortages
Purchasing a product in bulk quantity would not let you run out of stock every other day. This is sometimes one of the main reasons why new businesses fail so quickly. A steady number of orders require a steady delivery of the products.
Ordering a minimum quantity and keeping that in your inventory would build the trust of your business with your customers. This is what we call a business essential when it comes to running your business in the long-run.
4. Special Campaigns Avenues
The higher number of products available with you would make your mind tick faster. This will bring the possibility of launching sale campaigns for the specific products that you have ordered in bulk quantities.
Obviously, you would order a higher quantity for a product that has regular orders. Keeping that product in bulk quantity would bring in the possibility of running a sale campaign on different occasions.
5. Competition Knockouts
You can also knock out your competition by lowering down the prices of those products that you’ve bought in bulk quantity on special prices. Buying with MOQ would certainly benefit you in terms of price per unit.
So, you have a huge margin to lower down the prices of the product in order to knock out your competition while still being profitable.
6. Cross-selling Opportunities
The benefits discussed above come with another linked benefit for your business.
Attracting traffic by either running a sale campaign or by knocking out your competition will not only get more sales for the same product but the sale of your other products will also increase.
It would definitely make your customers think that the prices of other products that your business offers are also very cost-competitive.
This would bring the opportunity to cross-sell other products along with the ones that you are especially promoting.
7. Business Initiator
If you have just started your business, receiving an MOQ of any product may be a blessing in disguise for you.
Sometimes, you need a kick from external and intangible sources that keeps you rolling towards the emblem of success.
If you have bought 1000 pieces of a product because of its MOQ, your brain will automatically start working on how to sell the additional stock.
This will bring more focus to your business. Otherwise, you may end up trying out different products in order to decide which product to sell. This is how most businesses fail due to the lack of focus on a product.
There is no denying trying out different products but having an MOQ of certain products would definitely make you more focused on selling them on first priority because you have already invested in them.
Cons of MOQ for a Buyer
1. Higher Business Capital Injected
Smaller businesses, especially the ones in the initial stages, have limited budgets to keep their business rolling. If they are stuck in buying MOQs, a major portion of their investment may be involved in purchasing higher quantities of the products at once.
So, they might run out of other business expenses like advertising, managing, and marketing their business portfolio.
2. Increased Business Fatigue
Buying more than required products may increase business fatigue. Smaller businesses would have to handle larger quantities in case of adhering to buy MOQs which they might not yet be in a position to do.
The increased fatigue may involve additional staff and additional capital to handle their products.
3. Increased Inventory Maintenance Costs
Additional items come with additional costs of inventory management and warehouse charges, etc. Such costs also vary from product to product but there would definitely be a certain cost to keep the products somewhere until they are sold out.
In addition to the storage charges, there would be maintenance charges to keep the products unharmed and avoid them from getting damaged or wasted.
4. Limited Options to Try Different Products
When you keep a larger inventory of a certain product, you are left with limited options to try out selling different kinds of products to check what sells best.
That is why it is always advised to carry out the testing phase prior to ordering a larger quantity of certain products.
Still, product testing is a continuous process and you may have to compromise on that if you get your investment stuck by ordering a few products in bulk quantities.
5. Opportunity Cost to Miss out on Trending and Seasonal Products
There are always new, trending, and seasonal products that sell well at certain time periods. These trending products sell like hotcakes and give a decent profit margin to the businesses that make good use of them at the right time.
This especially happens in ecommerce business or dropshipping.
Having your product diversity blocked or limited by keeping an MOQ may affect your chances of making use of such trending products.
Suppose a businessman could not make use of selling fidget spinners when the world got crazy over them because he had his money stuck with some other product that had decent daily orders but obviously not like fidget spinners.
So, you have to have a certain amount of investment in hand so that you can make use of such sizzling and enticing items that take the internet and social media by storm from time to time.
MOQs are the part and parcel of any hardcore business especially one that runs on larger scales. We have tried our best to explain the MOQ meaning in detail with examples in this article.
We really hope that most of your questions would have been answered in this ultimate FAQ guide regarding MOQs.
If there is anything that is still not clear about this topic or you want us to elaborate on any other point regarding MOQs, please let us know in the comments or send us a query.
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