Minimum Order Quantity and how to negotiate it

By Barrie / July 20, 2021
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Minimum order quantity (MOQ) lets you get the least number of product units from a given supplier. The minimum order quantity is different across different suppliers. The primary reason for this difference is the varying infrastructure, regions, and management structure across suppliers. Therefore, the MOQ meaning cannot be the same across suppliers.

Minimum order quantity’s primary function is for the suppliers to guarantee themselves a minimum amount of profit for the products they sell. Every supplier goes through a given setup cost, including labor and other factors of production, when preparing to supply products. As a result, they need to cover the setup costs through the minimum order quantity.

The importance of minimum order quantity (MOQ)

Setting up a minimum order quantity helps wholesalers and suppliers to manage their products efficiently. It informs them of the least amount of products that they should have before supplying to retailers.

The importance of MOQ is far-fetched and allows the wholesaler and retailers to drive their sales with effectiveness. Some of the importance of an MOQ include:

Cashflow

A minimum order quantity helps wholesalers manage the amount of money and products that get into and out of their businesses. With an MOQ, the wholesalers and suppliers can maintain a good cash flow in the business.

Profit Assurance

Minimum order quantity guarantees a specific demand of products. As a result, manufacturers and wholesalers can guarantee themselves high profits when retailers purchase the minimum number of units from them. Through the MOQ, manufacturers and wholesalers can issue vast products at a low price without undergoing any loss.

Low Transportation Charges

The minimum order quantity forces the retailers to purchase a certain number of products. Thus, the retailers do not have to incur high shipping costs when transporting the products.

How to negotiate lower minimum order quantity with different suppliers

Combining orders

It is recommended to combine your order with another manufacturer or supplier to negotiate a lower MOQ. Combining orders will help in getting the ability to take bigger orders from manufacturers. In that case, purchasing fewer products will be easier. You will have reduced the minimum order quantity for your business.

High price for Low MOQ

Negotiating to take products at a higher price than the sent price per unit may help you secure a lower MOQ. Manufacturers may set the minimum order quantity at a thousand units for two dollars per item. To lower the MOQ, you may propose to take the same product at three dollars per item and have a lower MOQ than the previously proposed MOQ.

High Order

You may lower the minimum order quantity by increasing the number of units you want to purchase. Increasing the order works well when you need an assorted type of product, though you cannot meet the set MOQ.

Proposing to take a larger number of primary products will help you secure a lower MOQ for the larger product. That means you will work on the finishing part of the product.

Negotiating a lower minimum order quantity needs the balancing of different factors. Once you can balance the business factor and assure the business will make profits, securing a low MOQ can be an easy decision.

About the author

Barrie

Barrie Poeton graduated from New York University, majoring in economics. He currently works as a product manager for a public company. He has a deep understanding of industrial products and business news, which he writes about on his blog.

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