“What is MOQ?”
This is a common question among retailers and dropshippers who source from a wholesale platform like Alibaba. But some of you may still not know what MOQ means, the pros and cons of MOQ, or how your supplier calculates their MOQs.
In this blog, we will cover all the questions above.
Let’s dive in.
What is MOQ
MOQ is short for minimum order quantity. It is the smallest number of the product you buy from a supplier one time.
Here we take an example from Alibaba to explain what MOQ means in detail.
As you can see in the following picture, this T-shirt requires an MOQ of 10 pieces. That means you have to buy at least 10 pieces every time. If you want to design your T-shirts, there could be different MOQ requirements.
The difference between MOQ and EOQ
Though there is only a slight difference in the initial character of the two words, they can be different things.
EOQ stands for Economic Order Quantity. It refers to the ideal quantity of the product you buy. You calculate EOQ to meet market demands while minimizing inventory costs.
Types of MOQ
There are two types of MOQ, that is high MOQ and low MOQ.
If a product is with a high MOQ, the buyer needs to buy hundreds or thousands of the product one time.
A high MOQ signifies the supplier caters to middle or large-scale businesses. They are developing fast or established, and they can purchase a large quantity of products.
Usually, products with a high production cost are set with a high MOQ limit. This is because the seller needs to sell a great number of items to ensure a decent profit.
For low MOQ products, the minimum quantity can be 1 to 100. It is easy to meet the demand even for small businesses. Such products have a low production cost, industrial and beauty products for example.
Whether the product you intend to source is with a high MOQ or low MOQ, the number is negotiable in most cases. When you cannot meet the MOQ requirement, the supplier may charge a higher price per unit.
Pros and Cons of MOQ
An MOQ requirement comes with pros and cons for both the buyer and supplier.
- Earn a higher profit If you buy products with an MOQ required, you can buy them in bulk at a low price. Meanwhile, you avoid buying time and time and save shipping costs. So the chance to earn a higher profit increases once you set a reasonable price for your products.
- Build a relationship with the supplier It is common for buyers to negotiate the MOQ with a supplier when sourcing products. Through negotiation, the buyer is also building a connection with the supplier. It is beneficial to the buyer’s business in the long run.
- Limit the flexibility Given that you were a startup and need to purchase a few products every time. But your supplier requires an MOQ of 100 pieces, which puts a limit on flexibility.
- A surplus of goods A high MOQ suggests that sometimes you have to buy more products than your customers need. As a result, you may get stuck in a surplus of goods and face unnecessary losses.
- Ensure a decent profit Sometimes, it is hard to make profits by selling a product. Especially if the seller has only a few orders a day. By setting an MOQ, the seller can ensure a certain number of sales and a decent profit from an order.
- Increase sales and revenues The supplier may sell out an item with an order if they don’t set MOQs. However, think about what it would be like if there were MOQs required. They can sell multiple or many merchandises one time! So their sales increase and revenues grow.
- Boost the confidence to make products In some cases, it is not worthy and convenient to make a product. Especially if the supplier manufactures the products with machines. But if the supplier sells tens or hundreds of items for one order and has to produce them, they may feel better.
- Loss of a certain group of customers Through setting an MOQ limit, the supplier puts a threshold on who can buy from them. Therefore, they will miss those who are not able to meet the MOQ requirement.
- Potential risk of overstocks High MOQs may also cause a potential risk of overstocks for the supplier. If the supplier makes products with a high MOQ in advance but fails to sell them, they can be caught in a loss.
How the supplier calculates MOQ?
As you can see, MOQ is beneficial to you. Now, you may wonder how your supplier calculates the MOQ.
Well, keep reading and you will find how in this section.
Step 1. Predict the market demand
The first step is to predict the market demand. The supplier looks back at their month or year’s sales and then forecasts which MOQ is proper. This demand can vary due to seasonality, product type, and competition.
In a high-demand season, it does no harm to require a high MOQ. Customers are still longing for your products.
When there is little competition in the niche, whether high or low MOQ is OK. Because it is easy for you to be the choice of your customers.
Step 2. Calculate the incurred costs of the product
In this step, the supplier calculates how much is spent on the product. The spending mainly includes raw material costs, labor fees, inventory storage fees, and shipping costs.
Step 3. Find the break-even point
The break-even point is where the earned revenue just covers the spending. That is, the supplier neither earns money nor loses money. This requires the supplier to find out how many units should be sold one time to break even.
Step 4. Determine the MOQ
After the supplier finds the break-even point, the MOQ can be determined then.
Yet, the number changes with the factors that affect it. Wise suppliers always know to refine their MOQ requirements over time.
Here is an example to help you better understand how to calculate the MOQ.
A supplier spends $3(the raw material and labor fee) on making a paper gift bag, $2 on storage, and $5 shipping it to the warehouse. Then the overall cost of a gift bag is $10. If each gift bag is priced at $0.5, the supplier needs to sell at least 20 pieces per order. So the MOQ would be 20 pieces.
How can Sup Dropshipping help you avoid the drawbacks of MOQ?
As a result, you don’t need to stock excess goods and there would be no risk of unsold inventories. Yet, this doesn’t mean you may fail to satisfy customers’ needs during a peak season or have to pay a higher price.
Our warehouse is free to use. You can preorder inventory to shorten the delivery time on holidays. You just need to forecast the order amount in your store and then make a purchase accordingly.
Moreover, we charge an affordable price for our goods. Even if you buy one piece, the price is competitive. You may get a clue about our price from our customer reviews.
MOQ is the minimum order quantity a supplier sets to ensure a break-even point. It brings benefits to a dropshipping business while it limits flexibility and may cause overstock. To minimize the negative effects of MOQs, the simple way is to work with Sup Dropshipping. We offer you no MOQ products at a competitive wholesale price.
Start your journey with Sup Dropshipping and get your bonus as a new user now!