February 12, 2020
The Importance of MOQ: An Overview for Ecommerce Sellers
This blog post was originally published by Deliverr, which is now Flexport. The content has been adjusted to fit the Flexport brand voice and tone, but all other information remains unchanged. With the merging of Deliverr’s services (DTC fulfillment, B2B distribution, and Last Mile delivery) into Flexport’s existing international freight and technology services, we’re now able to provide merchants with true end-to-end logistics solutions spanning from the factory floor to the customer’s door.
MOQ, or minimum order quantity, might not be a term that you come across often. However, as an eCommerce seller, MOQ can affect your products, purchases, and profits, making it an essential term to understand and a vital figure to negotiate. If your knowledge is a little rusty on MOQs, then read on as we explain the importance of MOQs for eCommerce sellers.
What Is MOQ?
MOQ stands for minimum order quantity and refers to the smallest amount of products that a supplier will sell you at one time.
Suppliers use MOQ for eCommerce sellers to ensure that they cover their costs of production and meet their own profit margins when supplying products.
The MOQ set depends entirely on the product, production process, factory capacity, and industry competition. This means that MOQs differ significantly between suppliers and industries, but are usually defined by units or price.
Why MOQ Is Important for Ecommerce Sellers
MOQ is an important figure for suppliers to calculate, but it’s also an essential figure for eCommerce sellers to consider. This is because the MOQ of the product you want to sell online affects more than just the number of products you must buy. Minimum order quantities also affect the following:
The MOQ that you can afford to purchase and store, determines the suppliers that you can and cannot work with. This makes MOQ an important consideration as part of your product research.
2. Cash Flow
MOQ also directly impacts your cash flow, since it determines how much of your money is tied up in stock. If your supplier has a high MOQ, then you’ll likely be asset-rich and cash-poor, and this can affect your budget for other matters such as marketing, advertising, and growth.
Low MOQs allow you to order fewer products, but depending on how quickly these products sell out, you can find yourself wasting time and money on frequently replenishing stock levels.
MOQs enable suppliers to run profitable and effective businesses, and this often results in higher-quality products and good supplier relationships. If a supplier has an unusually low MOQ, it’s good practice to question why.
The minimum number of products you must order also affects how much warehousing space you require to store these products. This, in turn, can affect staffing, security, and insurance costs.
Finally, the MOQ of a product affects how many sales you must make to produce a profit and your product pricing strategy. This can have other consequences for how much time and money must be spent on marketing, advertising, multi-channel selling, fast shipping, and so on.
How To Navigate High MOQ
If you’re new to online selling or you’re expanding to a new product line, MOQs can be frustrating, costly, and even prohibitive. However, there are ways to navigate and manage high MOQs successfully.
Nothing is stopping you from negotiating with a supplier on their MOQ. This might include an initial small MOQ, a longer-term commitment, or even higher single-unit prices. Calculate what you can afford and what your supplier’s competitors are offering, and present this information to your supplier in a compelling business case.
If you can’t negotiate a high MOQ down, but you’re still eager to use the supplier, consider asking for a small sample of products before you commit. This enables you to check product quality, ensure the items are as described, and even conduct market research with potential customers before investing your full budget into the product.
3. Outsourced Warehouses
If warehouse space is a concern, then you can research outsourced fulfillment providers to distribute your stock across the country. Not only does this negate the need to invest in additional warehouse space and staff, but by locating your products in multiple locations, you can reduce your delivery speeds and costs, making your products more attractive to potential customers.
4. Buy Now, Receive Later
Alternatively, some suppliers will allow you to place and pay for a MOQ now, but receive the stock in batches throughout the year. This can help you to reduce the cost of warehousing, but be wary of the additional risks of product damage or the supplier ceasing trading before you have received the final shipment.
If you’re unsure about the demand for a particular product, you can test the water by enabling customers to pre-order the item. This allows you to gauge initial consumer interest, predict demand, and receive money towards the MOQ costs. If you can’t do this, then some simple market research and competitor analysis should help.
Things To Watch Out For
Once you’ve planned and prepared to meet a MOQ from a supplier, there are a few matters to consider before fully committing yourself to the order. These include:
Maximum Order Quantities
Should the product prove a phenomenal success, you want to ensure that your supplier can meet high order demands in the future. Ask your supplier whether they have a maximum order quantity and how quickly they can turn around repeat orders.
If you’re looking to negotiate the MOQ, be careful how low you go. Suppliers must make a profit to continue trading, therefore by reducing their MOQ, you may be compromising on quality, safety, or customer support. If you do negotiate down, find out how your supplier will cover these costs.
And last, but not least, watch out for any hidden costs. Minimum order quantity isn’t the only fee you’ll pay your supplier. Ask them about the shipping, freight forwarding, and processing costs per order, and whether any other fees, such as insurance, will be payable. If you can, get these fees written into your contract.
The Verdict on MOQs
Minimum order quantities aren’t necessarily a bad thing. They help ensure that your supplier remains in business and that they can afford to produce products of satisfactory quality, accompanied by outstanding customer service. But that doesn’t mean you can’t save money in other ways by following these handy tips.
The contents of this blog are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. We do not guarantee, represent, or warrant the accuracy or reliability of any of the contents of this blog because they are based on Flexport’s current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This blog has been prepared to the best of Flexport’s knowledge and research; however, the information presented in this blog herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this blog.