Are you looking for the best strategy to maximize your selling experience? You might need to learn more about your MOQ.
You know the deal: the more efficient you can make your selling process, the better off your business will be—but did you know that, of all the strategizing you already do, you might still be at the mercy of your MOQ?
What is MOQ?
MOQ stands for Minimum Order Quantity, and it refers to the minimum number of product units that your manufacturer is willing to produce per order, either because that’s how much they need to sell to cover their production costs, or because that’s how many units are produced per run. For instance, if your manufacturer’s MOQ is 500 units, then the minimum number of units you can order is 500—and that means you need to be able to purchase and move 500 units of that product in order for your business to remain profitable.
This isn’t going to be consistent for every product, though. Some products, due to their specifications, can be manufactured in large quantities while others need to be manufactured in smaller quantities. These variations of MOQ are influenced by a number of factors, including:
· Type of product (the cheaper the product, the higher the MOQ)
· Size of the factory (bigger manufacturers have higher MOQs while smaller manufacturers may be more willing to negotiate numbers with you)
· Customization (the MOQ increases if the manufacturer must factor in the cost of creating new molds or custom colors)
· Raw materials (your MOQ depends on the MOQ of the manufacturer's material supplier)
Why do you need to know your MOQ?
Knowing the MOQ of a product is important because it can have a significant impact on your profit margins (and your subsequent business management and optimization). Ultimately, the higher the MOQ, the lower the cost of the product—and the higher your personal profit margins can be. There’s a “but,” though. Having to spend more to get the product before you can sell it requires a significant upfront investment, so while your profit margins may be higher, if it takes too long for you to sell enough to cover the initial payment, it might still be bad news for your business.
Fortunately, the MOQ depends on the manufacturer, not the product.
If the MOQ is too high to be productive to your business, you aren’t necessarily out of luck. Different manufacturers may offer different MOQs. Further, the MOQ isn’t necessarily set in stone. You can negotiate with your manufacturer, as long as you are cognizant and respectful of the fact that they need to be able to cover production costs and turn a profit, too.
If you are looking to negotiate your MOQ, consider following these tips:
· Offer to pay more than half the price. This will show the manufacturer that you're going to be a long-term customer and opens up what could be a mutually beneficial long-term partnership.
· Offer to pay a higher price for a lower MOQ. If you can offer a price that covers the manufacturer’s production costs and expenses, they may let you get away with a lower MOQ. This may sound like it will negatively impact your profit margins, but when you are talking about a difference of 25 cents per item to get the MOQ reduced from 1000 to 500, the hit to your profit margin (or the higher price you’ll have to charge on resale) is minimal compared to a huge upfront cost that could detract from your ability to invest in other products.
· Offer to increase the overall order size. You may be able to order more of one style of a product and fewer of a different style of the same product (especially if one style sells more than the other). If the increase in the overall order still covers all the costs and expenses, your manufacturer may be happy to comply.
· Ask about installments. The manufacturer may be willing to produce the products in one run, but ship them to you in installments, allowing you to pay in installments (i.e.: half upfront and the remainder over a few months). This lightens your initial expense and gives you time to bring in some profits as you are paying for the full order. It gives you a better cost buffer.
Are you looking to maximize your overall selling experience? Wizards of Amazon can offer you a full suite of services to help, including business consulting, PPC management, Amazon FBA selling courses, and more. If you’re hoping to strategize your way to the top, then contact us right now to get a head-start.