What is MOQ (minimum order quantity)?
MOQ is an acronym for “minimum order quantity”, and it sets the lowest quantity of items a manufacturer requires to accept a production order.
For instance, if a company produces furniture and states that the MOQ for chairs is 70, you need to order at least 70 chairs of the same design to qualify for a single production run.
The exact MOQ can vary significantly depending on what type of factory we are talking about, what they are producing, and where they are located.
What Is the Reason for Setting MOQ?
Even if it is counterintuitive to decline additional customers at first, it makes a lot of sense in wholesale. Namely, when manufacturers or suppliers sell something in bulk, they make less profit per item. With the right MOQ as a requirement for customers, these companies can cover production costs more efficiently.
If a manufacturer or supplier accepted an order below this predetermined figure, they would lose money, so overall, it is a beneficial practice for them.
How Do Manufacturers Calculate MOQ?
There is no one-size-fits-all when it comes to setting the right MOQ. Every manufacturer or supplier needs to face different challenges and address different business needs, and these factors are crucial for counting the right MOQ.
When buying from a manufacturer, a business needs to choose if they prefer a lower MOQ with a higher price or the other way around. The higher the amount of ordered products, the easier it is for them to reduce the costs of individual products, and therefore, this system works well for them.
Even though there is no fixed formula for MOQ calculations, most manufacturers keep a few important points in mind when they count it, such as:
Determining the Demand
With the help of analytics and inventory software, manufacturers can determine approximately how many orders they usually ship at a given time. They know what is the seasonality of their products and whether they have any big campaigns planned that can impact order volumes.
Taking into Account the Necessary Space
Another important factor in counting the MOQ is taking into consideration how much space is necessary for the items not to go out of stock completely but, at the same time, without wasting money on too much empty space.
Identifying the Break-Even Point
This practice involves analyzing how many items a manufacturer needs to sell so as to cover the costs of the supplies. In this way, they know at what point they are starting to make actual profits, which is very important for setting the right minimum order quality.
Confirming the MOQ
To confirm the MOQ, a manufacturer needs to analyze the product performance and order volumes carefully. It is also a good moment for them to think about bulk-buying discounts or selling their products in bundles to improve the average order value.
How Does the MOQ Depend on the Product?
A particular product’s characteristics strongly influence the MOQ – some items are pretty easy and quick to make, and others are far more complex and require more workload and materials.
Small handmade products tend to be available in smaller quantities, but those made on specialized machines (which most of the manufacturers are focusing on), like electronics or advanced toys, may require hundreds or even thousands of units to make it worth programming the device and running it.
MOQ Examples:
As explained above, the exact MOQ calculation requires taking into account multiple individual factors, but if you want to have some overview, here you can see some MOQ in manufacturing:
Electronics
500 – 1000 pcs per order
500 pcs per product
500 pcs per color
Products for Children
750 – 1000 pcs per order
750 pcs per product/material
750 pcs per color
Clothes
750 – 1000 pcs per order
750 – 1000 pcs per color (custom colors)
150 – 300 pcs per color (standard colors)
150 – 250 pcs per size
Watches
750 pcs per order
750 pcs per model (including case size)
150 – 200 pcs per color (dial and case)
Kitchen Items
750 – 1000 pcs per order
750 pcs per product/material
750 pcs per color
Textile Fabrics
3000 meters (custom colors)
500 – 1000 meters per color (standard color)
Does a Manufacturer Have the Same MOQ for All of Their Products?
Usually, manufacturing companies have multiple MOQ requirements, so they may differ depending on what you are ordering in particular.
For example, when it comes to the textile business, the MOQ requirements may look like the following:
Per unit: 1000 pcs
Per size: 250 pcs
Per standard color: 250 pcs
Per custom color (i.e., RAL or Pantone): 500 pcs
Per standard material: 500 pcs
Per custom material: 1000 pcs
A common practice of manufacturers that is reflected in the above example is to sell products of standard colors and materials (so, those with higher turnover) with a lower MOQ.
The more customization a customer wants, the higher the MOQ because it is something requiring more effort and time, and it cannot be prepared in advance and stocked.
What Are the Benefits of MOQ for the Suppliers and Buyers?
If the MOQ is managed properly, it can be beneficial for both the manufacturer and the buyer.
Benefits for Manufacturers
Here are some of the most important benefits of the MOQ for the manufacturers:
Reduced inventory costs: It happens that MOQs keep inventory costs in check. Instead of producing amounts large enough to make a profit and then looking for multiple smaller buyers, some production processes start only when a customer is ready to buy, which will be beneficial for the manufacturer. It can contribute to lowering reliance on warehouse space and minimize inventory costs.
Improved profit margins: If a manufacturer sets their MOQs properly, they can have more control over their profit margins. Namely, in this way, the products are only manufactured when the profits behind the order are sufficient.
Enhanced cash flow: With properly managed product prices and order sizes, MOQs can be helpful for suppliers to provide more stable and predictable cash flow.
Benefits for Customers
At first glance, MOQs may seem like a problematic limitation for a customer, but in fact, they provide them with some benefits as well, such as:
Bulk savings: When your supplier has a MOQ requirement, you can expect to get the best price per item. Interestingly, the savings made on buying in bulk lead to more profit for customers – even with the higher warehouse costs or having to sell products at a discounted price to improve the inventory turnover.
Better relationships with suppliers: It is essential to have a good relationship with your regular supplier. Taking into account the relationship between the customer’s EOQ – economic order quantity (or the perfect quantity of inventory) and the MOQ may be a delicate balance. When it turns out that the MOQ surpasses the EOQ, customers may have a chance to negotiate possible solutions or compromises, such as splitting the orders with other customers.
Find the Best Manufacturer for You With a Suitable MOQ
Numerous companies decide to find manufacturing partners, as, in most cases, it is a great opportunity to save money. However, it is important to keep in mind that in most cases, bulk orders often have a minimum order quantity requirement that needs to be met for the order to be accepted.
It benefits both the supplier and the buyer, as it allows the former to make sure they are making a profit on every order and makes it possible for the latter to get the products at the best price.
