If you want to sell products online or in your local store, then you need to work closely with suppliers. However, suppliers can not have people buy only one or two products at a time. They need customers that buy in bulk. That is where minimum order quantity concept comes into play. The industry of the manufacturer does not matter. All of them want to sell as much as possible to continue producing items. As a result, they restrict the amount of products people can buy from them.
What is the minimum order quantity?
The minimum order quantity is the lowest quantity you can buy from a supplier. Suppliers need to move lots of products fast. In order for you or anyone else to do business with them, you have to understand and respect their MOQ. If you are unable to buy over the MOQ, then the supplier will not be able to offer you products.
Why does the minimum order quantity exist?
Suppliers and businesses that sell in bulk want the minimum order quantity because they want to stay profitable. Even if the sale price is lower, when they sell in bulk they still generate a profit. Plus, they can weed out bargain hunters from businesses that actually need products. This is especially true when products are made to order for a customer.
You can not just create one, you need to create thousands of them. Then there’s also inventory turnover, you want to be 100% sure that you have inventory all the time, and by having a minimum order quantity, you know customers will continue buying in bulk. As a result, you can continue producing in bulk. This is something many Chinese and US manufacturers implement in order to protect their business.
How can you calculate the minimum order quantity formula?
You will notice that a clothing manufacturer has a lower/higher MOQ when compared to an electronics manufacturer. And there’s a reason for that, because there are many different factors to consider. The raw material costs matter quite a bit in a situation like this.
In addition, you also want to study the average order size and compare it to what you need it to be. It’s important to study the average profit per item and you should also implement a worst case scenario MOQ. Based on these things, you will be able to identify what MOQ works for you. Every industry has its different MOQ based on how hard it is to make the product, labor involved and other things like that. Adapting to everything is a crucial aspect, and it can make a huge difference.
It’s extremely important for any manufacturer and supplier to have a minimum order quantity, as this assures his more products can be created and sent to customers. Manufacturing companies rely on the creation of products and they still make a profit when they sell in bulk. However, the minimum order quantity is their safety net, and it’s something that manufacturers from both US and China use all the time to protect their business!
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