One of the key components of managing your inventory is ensuring you always have the right amount of materials, components, or products on hand to meet your demand.
Having too many of these things can create problems as you’re spending money you don’t need to on carrying costs, storage, and so on.
Having too little inventory means your customers may want a product only to discover it’s not in stock (and then go to another retailer).
Securing the right inventory levels is crucial to the success of your business, but it’s not just a matter of making sure you have the right amount of product or materials on hand. Sometimes you’ll have to deal with suppliers who have their own rules about ordering.
One of the most commonly encountered issues when ordering more stock is the dreaded minimum order quantity.
What is minimum order quantity and how can you use it to your advantage? That’s what we’re going to discuss today.
What is MOQ?
What does MOQ mean? It’s an abbreviation for minimum order quantity. This can also sometimes be referred to as a minimum purchase quantity.
A minimum order quantity is the smallest amount of a product a supplier will sell to you.
In other words, if you need less than the minimum order quantity you have two options: order more than you need, or wait until you need at least the minimum amount they’re willing to sell before placing your next order.
Minimum order amounts will vary by supplier – and often by product.
Higher end items that are generally more expensive will often have a lower minimum order quantity. The company doesn’t want to risk losing sales by making you put out an exorbitant amount of money for supplies.
Lower cost items will generally have a higher minimum order quantity because of things like profit margin, cost of shipping, and so on.
So, now that we know what minimum order quantity is, let’s talk about how it affects you as both a supplier and a buyer.
How do Minimum Order Quantities Help Wholesalers?
At this point, you may be wondering, “Why would someone actively prevent a sale by requiring a potential buyer to purchase more than they need?”
This is a legitimate question. Sales people are taught to close deals above all else.
But in instances where wholesalers are selling things, sometimes selling fewer items actually winds up costing them money in the long run. Exorbitant shipping prices and low profit margins can make it detrimental to actually sell some things in small amounts.
Minimum order quantities help wholesalers:
- Increase profits
- Turn over inventory at a faster pace
- Remove “bargain hunters” from the mix.
So, how does a minimum order quantity work?
Say you’re selling widgets. When you sell your widgets in a store or online to a retail customer, your widget sells for $20.
However, you decide you want to wholesale your widgets and blow out your entire inventory quickly. How do you do this?
You start by finding a selling price that’s a deal for the customer, but still allows you to turn a profit. Then we add a minimum order requirement to speed the process along and weed out the “little fish.”
So, in our example, we might sell the widgets for $10, but with a minimum order quantity of 100 widgets.
This way, we give a discounted price to our volume customers, and we sell through our inventory more quickly than with traditional sales while still turning a profit.
Not all sellers love using the minimum order quantity approach, but sometimes they’re forced to buy more than they need with their own minimum order quantity limits from retailers.
How to Deal with Minimum Order Quantities as a Buyer
Generally speaking, minimum order quantities are set up by companies looking to sell to other businesses – and as such, you’ll sometimes see requirements (particularly on sites like Alibaba) requiring a purchase of thousands of units.
The logic behind this is that the wholesaler or supplier is looking to sell to a company, and companies often have the financial resources to buy items in these large quantities.
But what if you’re a small company? What if taking on an order for a thousand or ten thousand units of a product or material is beyond your budget? Are you doomed?
Like so many things in life, minimum order quantities are guidelines, and not etched in stone. A savvy buyer can actually find better deals or even circumnavigate the MOQ in the right circumstances.
Here are some ways you can attempt just that.
1. Negotiate on Price
Right out of the gate your first move is to try and negotiate a better price on the quantity of items you’re looking to purchase.
Remember, the wholesaler or supplier is setting minimum order quantities so they can move large amounts of inventory and still turn a profit (believe it or not, no one’s in the business of giving things away or selling for a loss…at least not for long). As such, price, like everything else, is potentially negotiable.
Creating an established relationship with the seller will make the process of negotiation potentially easier (even if you don’t have history, it’s worth a shot).
Negotiating on price can be beneficial, particularly if you’re a smaller company worried about having to pay for thousands of units.
Simply ask if the seller is open to negotiation on price. The worst that can happen is they say no.
2. Consider Purchasing Online
We live in the internet age, where almost anything is a few keystrokes away – and it’s no different when it comes to ordering from suppliers and wholesalers.
If you’re having issues making minimum order quantities work for your business, consider moving to an online B2B marketplace like Wholesale Central or Alibaba.
Using these sites will allow you to shop around and compare prices from a wide variety of retailers, and may help you find a seller with what you need with a lower MOQ or none at all. Competition in cyberspace can be fierce, which is great news for you as a buyer.
Of course, going through a marketplace doesn’t mean you don’t have to do your homework. You’ll still need to make sure anyone you’re doing business with is legit and on the up and up. These services can save you time, money, and headache.
3. Use a Trader
If all else fails, you can always get around minimum order quantities by using a trader.
Traders are basically intermediaries who will broker a deal for you and other clients. This is particularly useful when you’re dealing with a minimum order quantity as the trader can combine all of the clients’ separate orders into one, thereby getting around the minimum order requirement for each individual.
There are multiple benefits to using a trader – you aren’t stuck buying more than you need, and you save money by not being forced to over-purchase items.
4. Be a “First Time Buyer”
As mentioned earlier, nothing is set in stone when it comes to pricing or amounts with minimum order quantities. You can often negotiate terms on order amounts by up to 30% if you’re a savvy dealmaker.
But even if you’re not the Monty Hall of inventory management, there’s one trick that will regularly work in your favor: telling the supplier you’re a first time buyer.
The key here is to not be a returning customer (obviously). But if you’re a first time buyer, you can actually often convince wholesalers and suppliers to lower the MOQ by sharing this information.
What should you tell them?
The easiest way to make this work is to explain this is your first purchase with them and that you’d like to “try them out” with a smaller order to make sure they’re a good fit for your business.
Oftentimes, they’ll agree on the spot. A sale’s a sale, after all.
The one thing to be aware of here is that you’re not likely to dramatically lower the MOQ amount. Meaning, if the minimum order is 1,000 units, don’t expect them to drop down to 10. Remember that 30% figure and use that as a guideline.
Beyond that, the other thing to be aware of is that they may charge you slightly more per unit for a smaller order. Discuss that in advance, and make sure the financial aspect is okay before committing.
Most of the time, this effort will be successful.
Whether you’re a wholesaler trying to move inventory and turn a profit or a business looking to obtain products and materials, odds are you’ll eventually encounter minimum order requirements.
The good news is that while MOQs are common, they’re also flexible. Always try to negotiate for a better deal if you’re a buyer. Companies want to make sales and will definitely haggle a bit to achieve that goal.
If you do find yourself at a dead end, remember that inventory management software can help you better navigate these situations by monitoring your inventory levels so you know not only when to re-order, but when you might actually need enough product to make ordering at the MOQ level worthwhile.
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