What is MOQ?
Updated on March 16, 2020
The business world is filled with TLAs (three-letter acronyms), and MOQ, or minimum order quantity, is another one that you need to know.
What does MOQ mean? It’s the minimum number of units you need to order of an item to get the manufacturer to make it or get the supplier/distributor to agree to sell it to you. MOQs are set by the manufacturer (or supplier) based on the company’s internal operations.
Some of the factors that can determine MOQ include the following:
- Machinery set up time
- Manufacturing cycle time
- Cost of raw materials
- The number of units that go in a case
- Labor and other expenses associated with production
Typically, MOQ is expressed as a unit number (as in 2,000 units), but it can also be a dollar figure. For example, a supplier might specify an opening order value of $1,000. This ensures that the business’s transaction costs are covered.
Why Suppliers Use Minimum Order Quantity
MOQs help manufacturers establish a baseline and cover the cost of production for each order. By setting a minimum order quantity, they can ensure that each transaction with a customer is profitable. Depending on the manufacturer or supplier you’re working with, MOQs can be as low as 1, though you’ll typically find that factory MOQs start in the hundreds.
In general, buying in bulk ensures you get the best pricing, so the higher the MOQ, the lower the unit cost. Therefore, if you work with a company that has an MOQ of 1, you’ll likely pay more per unit than if the MOQ was 1,000 units.
As you evaluate suppliers, keep in mind that there’s usually a maximum order quantity to consider as well. A manufacturer cannot supply an infinite number of units, and the company likely has other clients and products to work with.
In some cases, you’ll find out what the maximum order quantity is at the same time you find out what the minimum order quantity is. If you’re just starting out, this figure probably won’t be relevant, but it’s something you’ll want to know when you eventually scale up.
The Pro and Cons of Using MOQs
The main advantage of MOQs is the low cost per unit that becomes even cheaper when you order more products. Larger e-commerce businesses who order large quantities of products can enjoy even larger profit margins.
On the other hand, you’ll need to pay for the products in cash upfront. This can be a high barrier to entry especially for newer e-commerce businesses or small businesses that are still figuring out the right amount of product they can sell to break even or make a profit.
MOQs also don’t include shipping fees and other administrative costs like paperwork to satisfy customs requirements. These hidden costs can drive up the expenses if you’re not aware of them.
Finding out MOQ Requirements
There are a couple of ways to find out what the MOQs are for a particular product:
1. Check the Company’s Website
If you’re ordering pre-made goods or dealing with a company that has a catalog of items, you’ll usually see the minimum order quantity published near the product name.
In some instances, however, you’ll need to fill out an online form to get a specific quote, and there might be a field for you to select the quantity you want. For example, clothing manufacturer Oasis Bags asks you to specify whether you’re looking for an amount “above 500” or “below 500.”
Oasis Bags also has a message field where you can ask questions about the lead time, private label options, product details, etc.
2. Ask Directly
The company might not have MOQs listed directly on their website, especially if you’re looking to create a custom item. Whether the supplier is in your home country or overseas, we recommend starting the conversation via email.
To increase your chances of a response, present yourself with authority, get to the point (especially if the person reading your email doesn’t speak English as a first language), and ask only for the information you need to determine whether this supplier is a good fit. You can get into the logistics later.
Here’s a sample email to find out a manufacturer’s MOQ:
Hi {Name of Vendor},
My name is {Your Name} and I’m a purchasing agent for {Your Company Name}, a {store/website/etc.} in {Your Country} that sells {Name Your Product Category}. We are interested in carrying several items that you offer.
Specifically, I would like to find out pricing and availability for the following items:
– Item 1 (include photos if available)
– Item 2 (include photos if available)
Please send pricing in unit quantities of 500, 1,000, and 5,000. Also, if you could send us your product catalogs, manufacturing lead times, and MOQ, we would greatly appreciate it.
Thank you,
{Your Name}
Even if you’re not in the market to buy 5,000 units, asking for a quote in this quantity shows that you’re serious and can increase your chances of a response. Now that everyone with an Internet connection is trying to become business owners by starting an Amazon FBA or e-commerce business, you can imagine that these companies are getting bombarded by tire kickers daily.
What to Do If You Can’t Meet a Supplier’s High MOQs
If you’re a creative problem solver, there are ways to still get your item in production and delivered, even if you can’t meet the supplier’s terms at face value. Some of these options are not ideal, but they’re worth discussing to see if they could apply to your situation without hurting your bottom line.
Pay the MOQ Price for Fewer Units
In this circumstance, you would pay the supplier their MOQ fee but receive fewer units. For example, the minimum amount to order might be 500 units at $1.00 per unit. This means that the company needs to make $500 in revenue to justify turning on a machine, sourcing materials, etc.
You could offer to pay the $500 and request 300 units for a per-unit cost of about $1.67. Though you’ll end up paying a higher unit price, this might be a smart option if you cannot hold a lot of inventory.
Pay More Upfront
If you’re working directly with a manufacturer, the typical arrangement (at least overseas) is a 30/70 agreement. This means you pay 30% of the invoice upfront and 70% after production is complete.
In some cases, a manufacturer might agree to lower the minimum order quantity if you offer them more cash up front. You could offer to pay 60% of the invoice in advance and 40% upon completion of the production run.
Request Delivery in Installments
Another option is to ask the supplier to ship in installments. If your warehouse space is limited, but you’re confident you can sell the items, then ask the supplier to store some of the units at their facility.
While not every supplier will agree to this, some will if they have the capacity and believe that you’ll be a viable long-term partner.
Compromise on Quality
You might have a maximum budget you can spend on inventory. In our earlier example, we discussed a situation in which the MOQ was 500, and the price was $1.00 per unit. If the supplier’s quote is outside of your budget, you could ask if the price could be lowered by using a lower quality material or adjusting something on the product or in the manufacturing process that would reduce the cost.
Proceed with caution if you go this route because being stuck with a bunch of second-quality goods that you can’t sell is infinitely worse than selling out of items that didn’t quite meet your margin expectations.
Take Pre-orders
If you have a loyal customer base or you’re selling something that you anticipate will have a lot of demand, consider taking pre-orders. That way, you can collect the cash up front from your customers and have enough money to pay your supplier.
Remember to manage your customers’ expectations. Be transparent that the items still need to be manufactured, provide an estimated delivery date, and communicate regularly as the delivery date approaches.
Start a Crowdfunding Campaign
This tactic is similar to taking pre-orders, but it’s more public and can generate more buzz about your product. As long as you generate enough interest among the community, you’ll collect enough cash to satisfy the MOQ. Again, we recommend being transparent about delivery dates.
Move On
If an MOQ is far above what you can realistically accommodate, don’t try to force it. There are other avenues to get your products in a cost-effective way, whether you seek out a different supplier or work with a trading company.
As you evaluate your options, remember the adage of “the more you buy, the cheaper it gets;” however, also keep in mind that every company is structured differently. Company A might be at a peak time and reluctant to take on new customers. Thus, they inflate their MOQs and unit costs to discourage new projects unless they’re insanely profitable. Company B might be in a lull and willing to take on a less profitable project to keep the lights on.
Don’t feel pressured to go with the first company that comes back to you with a response. Shop around and find a manufacturer, supplier, or trading partner that you’ll feel comfortable doing business with again and again.
Think Twice Before You Negotiate
You’ve heard the phrase that “everything is negotiable,” and while that may be true, don’t be too quick to try to negotiate the supplier’s MOQs.
Keep the following in mind:
- It costs money for a manufacturer to turn on a machine, tweak a production process, source raw materials, package and ship goods, and have the staff to manage a relationship with you.
Like you, these companies have to make a profit. If you ask them to lower their MOQs or per-unit price, you are asking them to accept less money. If you’ve ever been insulted by someone coming into your business or emailing your company asking to pay less, you probably weren’t eager to do business with this person.
Look at this way: have you ever sold anything on Craigslist and gotten those emails where the buyer asks, “What’s the lowest you’ll take?” While you may be able to close this deal on a one-time basis, don’t expect to forge a long-term, mutually beneficial partnership.
- You might get what you want, but with a catch. Yes, some companies might be desperate for your business. They know that to be profitable, they need to sell at least 1,000 units, but you’ve persuaded them to make 500 instead.
This company doesn’t want to risk losing your business, but they also can’t afford to go negative just to fulfill your order.
Often, the company will accept your order and look for ways to cut corners so that they can still turn a profit. They might use a cheaper material, an older machine, skip the double-stitching or a finished hem, or short your order.
They might decide to take your money and put your order at the back of the line because it’s the least profitable. Your 45-day lead time all of a sudden becomes 90 to 120 days, and your cash flow suffers or you miss a critical holiday.
Either way, ask yourself if it’s worth trying to negotiate. Remember, you can always take your business elsewhere if a quote doesn’t fit your budget.
While we do recommend being creative to make the deal work, we rarely suggest asking the supplier to lower their MOQ or unit price.
Find Manufacturers and Suppliers with Low MOQs
As you look for a supplier with a lower MOQ that suits your business model, you have several options in the supply chain. One of the first things to consider, especially if you’re a new entrepreneur, is whether you should work with a distributor, wholesaler, trading company, or manufacturer.
We haven’t talked much about distributors or wholesalers yet. With few exceptions, you would be buying off-the-shelf merchandise without any of your own branding. If you plan on retailing several brands, then this could be an ideal setup to build out an online store and curate items that cater to your customer.
MOQs for wholesalers and distributors vary but are typically expressed in case quantities. For example, if supplements come in a box of 12 bottles, then the MOQ might be one case (12 units). Wholesalers and distributors will sometimes offer discounts for high order quantities, especially if you order consistently.
New entrepreneurs may also want to begin by working with a trading company instead of directly with the manufacturer, especially if they don’t have large enough MOQs to be taken seriously. A trading company doesn’t manufacture anything. Instead, they partner with a network of manufacturers to create your products.
If you want to create a product overseas, but don’t want to travel back and forth to China or hire a representative, then a trading company may be the best route. Trading companies can help also keep MOQs at reasonable levels, but the price per unit will be higher. Also, going through an intermediary can make the process less efficient, but it’s not a bad way to get started if you want to learn the lay of the land.
There are also several online resources you can visit to connect with manufacturers directly.
Alibaba – Alibaba is a top resource for new and seasoned entrepreneurs alike. Think of it like a B2B eBay in China. You can connect directly with the manufacturers, order in reasonable quantities, and even customize the products. Once you establish a relationship with a manufacturer, you might also be able to work with them on a new product or collaboration.
The MOQs are listed directly in the search results, so you don’t have to sift through endless pages of data to find an MOQ that fits your budget:
Once you click on a listing, you’ll be able to see the manufacturer’s profile, including how many transactions they’ve completed, how satisfied their customers are, which markets they serve, how much money they’ve made, and which product options you can customize.
You’ll also be able to find out if they provide free stock samples, determine the lead time, and see pictures of their factory.
Before you can place an order, you do need to contact the manufacturer directly, but Alibaba has a ready-made form that’s easy to fill out. There’s also a new chat feature that allows you to open up an online chat for a real-time discussion.
AliExpress: AliExpress is the consumer version of Alibaba. While Alibaba is restricted to wholesalers, anyone can buy on AliExpress, and the MOQ is usually one unit. AliExpress isn’t going to be your best solution for scale, but it’s a low-risk way to try some products, and it’s also an easy way to get started with drop shipping.
Thieve.co: If you’ve searched the Alibaba and AliExpress databases, you might have felt overwhelmed by the sheer amount of items. Thieve is a curated marketplace where tastemakers bookmark their favorite items from AliExpress, and you can order directly from Thieve. Product prices start as low as $0.01 with MOQs of one unit.
ThomasNet.com: If you’re looking for a US manufacturer with reasonable MOQs, ThomasNet has a complete database. You can even search by location if you prefer to work with a factory that’s within driving distance.
ReferenceUSA – This free online resource is home to one of the most comprehensive and up-to-date directory on the Internet today. There are a few caveats, however. First, it contains all types of businesses, not just manufacturers, so you’ll have to tailor your search queries. Second, it’s only US companies (as the name suggests).
Third, and most unusually, it can only be accessed from a library computer. Weird, right? Apparently, the company is marketing it as a way to get more people to go to libraries. Don’t try to wrap your head around it. Let’s move on. As an aside, though, this resource is worth the trip to the library.
Conclusion
Though our discussion has centered on MOQ from a manufacturer and supplier perspective, it’s helpful to determine your own MOQ before placing an order. Consider how many units you need to order at once to turn a profit. Think about how much space you have and how much risk you are willing to take on, as well as what happens if you don’t order enough.
Too often, we see entrepreneurs get hung up on ordering in quantities that fit the manufacturer’s business model, but don’t forget to consider your own needs first.
