If you are a new businessman or you are operating a small business, especially for e-commerce business, MOQ is important for you. You may need diverse products to conduct a test in the market before you choose a kind of product to operate. Or there are a lot of SKUs in the products you want to operate, such as diverse colors, varied models and sizes, etc. But suppliers will set MOQ for each SKU. As you lack abundant funds, you will have a lot of fund pressure caused by large upfront investment.
A healthy cash flow is vital for your business. It is important for you to achieve a suitable MOQ from suppliers, otherwise, your business will be seriously influenced by large inventory in the early stages of entrepreneurship. Many small businessmen usually have this idea: they want to get low MOQ at the lowest price. This is totally wrong！
In my today’s blog, you will learn about，
- What is MOQ definition? Why do wholesale suppliers/ factories set MOQ?
- Whether MOQ is good or not, if not, how to overcome it?
- For some daily goods, what are the MOQs of different suppliers?
- How to negotiate lower MOQ with suppliers? (5 practical tactics), What if you fail?
- MOQ analysis in different kinds of some daily goods.
Without further ado, let’s jump into the article, I bet you’ll benefit a lot!
1. What is MOQ meaning? Why do wholesale suppliers/ factories set MOQ？
What is MOQ definition?
MOQ is short for “Minimum Order Quantity”, which means the least amounts of products that a manufacturer is willing to produce or the minimum quantity that a wholesale supplier is will to sell. In real business, if you want mixed batches, many suppliers will convert MOQ into a certain amount of money. For example, a led lights supplier will allow you to purchase their products unless your order reaches $1,500 regardless of styles.
Why do wholesale suppliers/ factories set MOQ?
Unlike retailers and dropshippers, as wholesale suppliers or manufacturers, they make money by selling products in bulk. That is because the profit per unit is very low. As manufacturers, the most important reason for setting MOQ is to cover their cost of production. If quantities are too small, it is difficult for them to operate the production line and purchase certain quantities of raw material or packaging material.
There is an underwear factory we have been cooperating with. They are specialized in manufacturing menstrual period underwear. Their MOQ is at least 20,000 pieces. As the product is a kind of one piece underwear, which is made by machine completely. And the cost of the machine is very high, once they operate the machine, 20,000 pieces are the least quantities needed to cover their cost and make a profit.
So, if your quantity is just several hundreds or thousands, it is the best choice for you to purchase existing products from wholesale suppliers instead of manufacturers.
Suppliers such as trading company or wholesalers, they’re acting like a middleman, the 2nd middleman or distributor. Their MOQ depends on the condition that they buy products from factories.
For example, as a small-scale wholesaler, they can get goods from factories in small quantities or the factory they cooperate with is small-scale. MOQ of such suppliers might be lower. On the contrary, for capable trading companies, they can purchase large quantities of products from factories at a lower price. Hence, the MOQ will be higher accordingly. But MOQ varies greatly in different product categories, I will analyze it below.
But in some special period, some manufacturers will also increase their MOQ temporarily to orient their target customers. For example, Dasheng, one of the few manufacturers with NOISH N95 mask production qualifications, adopted the approach during the period of Coronavirus. As they received many inquiries about N95 masks every day, however, some inquiries are true orders, and some are fake inquiries. Hence, they increased their MOQ to $1,000,000.
In a word: all types of suppliers set a MOQ to meet their threshold.
2. Whether MOQ is good or not, if not, how to overcome it?
It is difficult to identify whether MOQ is good or not absolutely, which is subjective views from supplier or buyer.
For suppliers, they hope you can buy products as much as possible. But on the contrary, purchasers will hold a different view on MOQ. It is unfriendly to those small businesses or some startups.
To comply with suppliers’ MOQ, buyers will have a large inventory that perhaps can’t be digested in a short term, which will cause a higher risk of investing. Besides, there are limited styles for you to choose from. For example, you intend to buy 3500 pieces in 10 styles. But once suppliers set MOQ per pattern, perhaps you just can buy 4 styles even fewer patterns.
Hence, I will advise our clients who run Amazon business to choose some necessary products with less SKU to operate the business, such as pulley block. This kind of product just has 5-6 models. By doing so, the direct benefit for them is that it can relieve inventory stress, as they needn’t prepare stock for many SKUs.
An Amazon seller, one of my customers, wanted to sell flower girl dresses on the Amazon. Let me help him to find children-wear factories to cooperate with. Afterwards, he chose 5 styles of flower girl dresses, and every style has 7 colors and 8 sizes. Supposing he wanted to have a stock of 30 pieces, how many skirts did he need to purchase? That will be: 5*7*8*30=8400, right?
Hence, as a new enterprise, especially for e-commerce business, when you choose the best industry you want to operate by comparing different products industry, there will be fewer choices within your budget range because of MOQ in the early stage of your business.
After you operate business smoothly, or you can identify which kind of products can be profitable steadily, You can get goods at a large MOQ with a lower price from manufacturers, which usually lower than buying products from wholesalers. Then your products can be more competitive in the market.
Or you can choose to operate customized products. Usually for some customized products, manufacturers need to invest more funds in making mould. Accordingly, fewer importers will choose to customize their own products because of high investment. The direct benefit to you is you will be more competitive in such kind of product market.
3. For some daily goods, what are the MOQs of different suppliers?
MOQ varies from different types of suppliers. I will list some MOQ information in the following chart for your reference. (mainly analyzing from daily necessities)
Then I’ll tell you some practical tactics to help you choose the right suppliers according to your business mode.
As I mentioned at the beginning of the article, many small businessmen or startups may have a misunderstanding that they can purchase from factories to get the best price. However, in real business, you’ll never get a low MOQ at the lowest price.
Hence, if you are new to e-commerce business, you couldn’t take a risk of holding a large inventory. But you need products to operate market tests, then a small factory, a reliable wholesale supplier or even a dropshipper is your right supplier option. As you can get small MOQ from such kinds of suppliers. You can find such suppliers from Alibaba, Made in China, Globalsources, Dhgate, or Aliexpress easily.
After your business can work steadily, you can accept higher MOQ, and then you will be able to choose a direct factory to cooperate with. After all, many wholesale suppliers or dropshippers usually go to many different factories to purchase the same product. Hence, the product quality cannot be guaranteed. It is not beneficial to your long-term business.
4. How to negotiate lower MOQ with suppliers? What if you fail?
In this most important section, I will teach you how to get lower MOQ from suppliers, and how to deal with it if you can’t get lower MOQ. Some startups will be discouraged by the suppliers’ MOQ. Actually, MOQ usually can be negotiable, but the premise is that it should meet the suppliers’ profit margin.
5 practical tactics to negotiate MOQ with suppliers:
The following 5 tactics are precious experience I seldom share with others, and you should bear them in your mind. Why I call it “tactic”? MOQ negotiation is a soft skill to get a win-win solution, just like a business game between you and your suppliers.
Communicating with suppliers frankly and sincerely
Many e-commerce courses will teach you a solution, that is, you can pretend to be experienced or a veteran. For example, if you negotiate with suppliers about the unit price at the quantity of 10,000 pieces, but actually in the end, you just want to buy 1,000 pieces. I think such a method is useless. As suppliers contacts many different purchasers, and it is easy for them to identify whether you are a veteran or a newbie.
And on the other hand, many Chinese suppliers are willing to decrease MOQ to a certain extent in the first cooperation with you. Of course, MOQ also should be within their cost controllable range. But if you adopt such a method, they will think you are not a reliable cooperation partner.
Hence, you can tell suppliers it is your first order for this kind of products. You want to place a small order to test the market, and the order quantity is about 30-45% MOQ. But the suppliers’ quotation may be 10%-30% higher than the previous unit price in the end. Of course, if you think it’s OK, you can place an order.
If suppliers are reluctant to lower MOQ to a certain extent, you can try the next tactic.
Consider and communicate with suppliers from their perspectives
Many people won’t consider problems from the opposite party’s standpoint, remembering it, business is always built based on the win-win cooperation. You shouldn’t let suppliers compromise unilaterally. You can say some words to let suppliers think you can understand his difficulties. Besides, you can tell them that they won’t lose money from the business with you. And you want to build a long-term business relationship with them.
At the same time, you can communicate with suppliers about your business mode and situation. For example, if you are an Amazon seller, you can tell them why you will choose this kind of product, your marketing plan, advertisement budget and so on. It is enough for you to be sincere rather than show how professional you are.
Exert a certain pressure on suppliers
After the above two steps, you can tell them one thing: despite they are the best suitable supplier for you, but you also have other suppliers to choose from. If they couldn’t meet MOQ you propose, you will give up them and find another supplier to cooperate with.
Don’t act like you’re rushing to place your order, just wait
You can tell them that they can consider if they can decrease MOQ and tell you the result in about 2-3 days. During the period, you should wait for the suppliers’ reply patiently without urging them.
Negotiation on other expenses
If suppliers still think it is not worthwhile for them, you can communicate with them to know what difficulties they have.
- Costs on starting the machine
Just like the menstrual period underwear factory I mention in the above, the cost for starting the machine is very expensive. It is not worthwhile for them to start the machine unless the product quantities reach 20,000. Hence, if suppliers tell you that the cost for starting the machine is very high, you can tell them you are willing to undertake a certain proportion of the costs.
- Specific components
If you want to customize products, the possible reason for them to set high MOQ is that they need to purchase specific partial parts to customize products or they need to make a new mould. Under such a circumstance, you can offer to pay for partial parts or undertake costs for mould making.
- Increase your prepayment proportion or even full payment immediately
The common payment method is 30% prepayment when you place an order, and 70% balance after you receive goods. And you can propose that you are willing to arrange 60%-70% payment or even full payment immediately, which will let suppliers think you want to cooperate with them sincerely.
What if you fail?
The key to negotiate is the price you can accept, or a balance point between you and suppliers. If you cannot make a deal, you can try another way. For example, if you are a newbie and need products to operate the market test in advance, you can cooperate with relatively small-scale suppliers at first. And after your business develops steadily, you can find another medium or large-scale supplier to cooperate with. After all, it is a truth: Rome is not built in a day.
Caution: when you negotiate with suppliers, you had better not let the negotiation end unpleasantly. That is because you may negotiate with them again in the future.
5. MOQ analysis in different kinds of some daily goods.
Actually, I want to show you a chart including MOQ in different industries as many of my overseas friends also ask me if I could provide such information to them. But in fact, as there are great differences in different categories’ production processes, material cost, labor cost and so on, and I can’t give you a concrete MOQ range.
But our sourcing specialists often help our foreign friends to negotiate MOQ, so I list some common products’ MOQ information we dealt with before for your reference as follows: