If you need to:
- Learn MOQ meaning
- Learn why MOQ matters in the supply chain
- Learn how to calculate MOQ formula
- Learn about MOQ on Alibaba and 1688
- Learn different examples of MOQ (low, high, none)
- Learn how to negotiate a lower MOQ
- Learn how to meet MOQ
- Learn what to do if you cannot meet MOQ
Then this all new, comprehensive guide from Sourcing Nova has everything you need.
Grab a cold beverage, get comfortable and let’s get started!
What does MOQ mean?
You may see the term MOQ as you are looking for new products to sell. This is usually expressed as a number – usually 10, 50, 100, 1,000 and so on.
MOQ means Minimum Order Quantity and is a very important number for suppliers.
Here is a specific example:
You want to start selling your own private label candle. After searching suppliers, you find a suitable candle maker. In their details, you see this information:
MOQ 500 pieces
This means before the supplier will produce your order, you have to agree to buy at least 500 candles. The supplier will not work with you for less than this amount.
They will lose money if they make less than 500 candles.
How does MOQ fit in the supply chain for your products?
The information above explains what MOQ means on a basic level. MOQ in the supply chain is a bit more complex.
Here is what we mean.
Note: Most people believe the MOQ is for the cost of product production and nothing more.
The supply chain is more than production. Every individual link in the supply chain has its own MOQ.
Consider your private label candle’s supply chain MOQ example:
- Manufacturing – MOQ for production costs like running equipment, raw materials (paraffin wax and wicks) and tooling costs (molds for your candle design).
- Wholesale and distribution – MOQ for this link’s profit margin. Think storage and labor.
- Packaging – Similar to manufacturing, this MOQ covers machinery and raw materials like paper, ink and glue.
- Shipping – This MOQ includes document fees in the logistics link along with MOQ of the airlines and shipping companies.
MOQ formulas for air and sea freight is based on weight and volume not quantity.
Take all of the supply chain into consideration.
Any less than 500 candles, and the manufacturer will lose money.
Related: Understanding QDA, Quantity Discount Analysis, is a real benefit when looking at MOQ, particularly as a new business.
How do you calculate MOQ for a product order?
The MOQ is the number of products a supplier must make to show profit. Each considers how fixed and variable costs for each unit of product can change with the specific order quantity.
There are a multitude of considerations: freight, equipment start-up and depreciation, labor, raw materials, energy, packaging, plant and warehouse rent, taxes and other factors that can vary widely by manufacturer.
These calcuations require advanced algebra and calculus for precise numbers. Manufacturers normally empirically round to the closest whole number.
Optimal order quantity differs from MOQ
Optimal order quantity is a formula to determine the most cost-effective amount of inventory a buyer can purchase. The goal is simple: the precise amount to order for customer demand without having excessive stock.
Minimum order quantity (MOQ) determinesthe manufacturer’s cost-effective order quantity. Essentially, for less than this order quantity, the cost of manufacturing each unit will become very expensive.
The MOQ formula will vary by product and industry.
Price changes within the supply chain starting with raw materials affect how to calculate MOQ across the board.
Manufacturers use software or advanced mathematical formulas to calculate MOQ.
What is MOQ on Alibaba and 1688.com?
If you search MOQ on Alibaba or other sites like 1688.com for candles, you will see an MOQ price structure. It will look something like this:
You can see the larger the number of candles you order, the less expensive the candles become.
MOQ Examples: High and Low
There are three MOQ examples to consider.
Note: It is important to note the MOQ is not a fixed amount. The MOQ depends heavily on the specific order requirements of the individual customer.
This is why the product requirement document is so important when placing an order.
Sourcing Nova has continually pointed out how we always source the best products and not always the cheapest. A good example is the t-shirt. We source from the same foundries for brands like: Bobby Jones, Givenchy, Arnold Palmer, Louis Vuitton and Bugatchi.
The manufacturers offer three different MOQ’s depending on specific requirements.
High or Complex MOQ
You are a clothing designer and require a complex customized product: a certain fit, shoulder width, length and/or collar shape.
The MOQ will be 300 pieces.
The clothing manufacturer will make samples by design drawings. Any sample fees will be applied to a future, larger order.
This option is often reserved for fashion brand companies and/or experienced designers.
The MOQ for clothing manufacturers is the best example of a high or complex MOQ. The number of variables in clothing make it very difficult to assign a MOQ pcs number.
MOQ for clothing looks something like this:
- MOQ in fabric quantity – 300 meters (Approx. 360 sq. yards) for each color of shirt
- MOQ in per item – 300 per individual color or size
- MOQ in dollars – 2,000 total shirt order
- MOQ in units – 300 packaged t-shirts
Low MOQ are for small orders of products, usually less than 500.
These products are often large pieces with very small orders. Think furniture as an example.
Low MOQ formulas can be calculated in one of two ways:
- Product – the number necessary to reach the MOQ
Furniture manufacturers require a certain number of pieces before starting production.
- The order – a certain dollar amount necessary to reach the MOQ
Chemical manufacturers require $50,000.00 of product ordered before starting production.
A t-shirt buyer may only need to customize products slightly – a logo or printed pattern – the MOQ is often lower – 100 pieces.
Buyers can select a number of t-shirts, or polos, in a variety of styles, colors, sizes and materials.
This is a perfect choice for custom clothing for corporate employees or a school uniform.
T-shirts purchases with no MOQ are often from the manufacturer’s current stock. The stock on hand does not have a logo, but there is considerable variety to select from.
Even a purchase as low as a single t-shirt, the manufacturer can forward the shirt to any address in China via express shipping.
If you have a Print on Demand business and the help of a top notch dropship agency, you can make custom t-shirts of the same quality as world-class brands.
How to negotiate a lower MOQ
Chinese businesses negotiate all the time – it is a fundamental part of business transactions.
Even as a new buyer, you can negotiate for a lower MOQ.
You just have to know how.
That knowing how can come in a number of different ways, like:
- Be upfront and honest with the supplier –Be ready to share your specific situation, sales projections and business plans. You want to build trust and an eventual partnership with the supplier. The supplier is not just a place to source products. The supplier is your business partner. Your strategy should align with the supplier’s development strategy. Do these things, and many suppliers are much more likely to work with you on MOQ, pricing and your product order.
- Step into the supplier’s shoes – Be willing to work with suppliers to find ways to reduce manufacturing costs of the individual unit of product on the premise of maintaining product quality. Ask about the production schedule. Are there other customers ordering the same products as you are? If so, it is possible two orders can be combined into a single production run. A single order may not meet MOQ, but it may be possible to meet MOQ when combined with other orders.
- Select a less-expensive yet equivalent raw material – These are available, but asking is necessary. It is not the sort of information readily shared.
- Offer to pay other fees in exchange for a lower MOQ – There are a number of options available. Asking never hurts.
- Elect for current stock over private label – Overages are common, and manufacturers want to clear their inventory for fresh.
- Price match company against company – One company will lower a price if you can prove a cheaper price from a rival.
- Give the supplier time – Let the supplier know what you can afford, and ask for an answer within a few days. The results may surprise you.
The dangers of getting pushy with negotiating a lower MOQ
It is tempting to drive costs down with the manufacturer to meet your needs, and it may happen if the manufacturer feels you have potential.
Here is a scenario:
A customer wanted a customized plastic bottle. The supplier would need to design four new molds at a cost over $15,000.00.
This would require an MOQ of 3,000 units.
The customer wanted 100 units and did not want to pay for the molds.
What do you think was the outcome?
Other unintended consequences:
- Subpar products – You may lose product quality. The manufacturer is trying to cover costs lost with the lower MOQ.
- Value – Your manufacturer may not be quite as willing to work with you on returns or much else.
- Lose good faith – Good business partnerships are vital to success. Cheat your manufacturer, and you could be ousted from the industry cluster.If this last thing happens, you may end up driven out of your business niche entirely.
Related: How do you look from the supplier’s viewpoint? Supplier perception is real and can really help your business grow and thrive.
How to meet the MOQ of the supplier
Meeting the MOQ for the first time can seem tough as a starting business owner. You order 500 candles and now have to sell them all.
You can do this.
You need to plan and be ready to ‘tighten your belt’ for the time being. Your profits may be less than you like initially, but that is the cost of doing business.
- Be honest your inventory – What can you do to sell your candles? Can you do a marketing campaign?
- Make deals – Customers love a deal. Even something like ‘Buy one; Get one ½ off’ or ‘Buy two; Get one free’ often sell well.
- Flash sales – Offer your customers a spur of the moment sale similar to what is mentioned above.
- Get creative – Ask about mix/match products. Find out if the supplier has extra inventory they will sell to you at a discount.
- Change product line – Candles that you have that do not sell should be discontinued.
- Look for a new supplier – Sourcing Nova always looks for the best manufacturer. If you are struggling with the current MOQ, contact us about finding a different one.
What if you cannot negotiate a lower MOQ?
There will be times when a supplier will not budge on their MOQ. Many of the better suppliers Sourcing Nova partners with are not willing to change their MOQ.
This can put you in a difficult spot as a new business.
The one thing to know is Sourcing Nova will not push suppliers too hard for a lower MOQ.
Chinese suppliers work very closely with one another – even within the same industry. A buyer who becomes rude and disrespectful when it comes to negotiation will be blacklisted and fast.
Basically, if you cannot come to terms with the first supplier, do not burn your bridges. Let Sourcing Nova find another supplier for you.
MOQ is a standard element in business practices with product sourcing from China. Sourcing Nova looks for the better suppliers, those that work with top businesses across the world, for products.
The MOQ may be higher with the suppliers we use, but the difference is made up in the quality of the product and satisfaction of the customer.
What are you waiting for?
Send us your product idea, link to products you found elsewhere or ask for more information.
We will be in touch in short order, and you on the way to a new successful business!