Wholesale distributors put different regulations and restrictions in place to operate as efficiently as possible and maximize profits. One practice that they use is called minimum order quantity, or MOQ for short.
MOQs affect both buyers and sellers in the B2B market place so it is important to know how to use this measure to your benefit, no matter which side of the sale you’re on.
In this blog post, we’re going to unload everything you need to know about minimum order quantities. We will talk about the importance of MOQ for both wholesale suppliers and buyers. To wrap things up, we’ll take a close look at the relationship between MOQs and dropshipping.
Let’s get started by exploring what exactly minimum order quantity means in the wholesale distribution industry.
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Minimum order quantity (MOQ) is the lowest number of units a wholesale supplier allows buyers to purchase at one time. This concept is also often referred to as “minimum order policy.”
Suppliers put this restriction in place so that they are not wasting time and resources on orders that would deliver very little profit. This concept is very straightforward and is used by wholesalers around the globe.
To put this concept into perspective, let’s paint a picture of a clothing retailer, TeeWorld, placing an order of t-shirts from SupplierWorld.
TeeWorld wants to get a new t-shirt style in stock to expand its seasonal collection. They aren’t exactly sure how the collection will go over since they’ve never sold it before. They turn to SupplierWorld, their trusted wholesale distributor, to see the smallest order they can place.
SupplierWorld lets them know that there is a MOQ of 200 shirts. This means that unless they can negotiate a different deal with SupplierWorld, TeeWorld must buy a minimum of 200 shirts per order.
Some wholesale distributors will allow buyers to buy a small quantity sample of this product to make sure it is what they are looking for, but they will likely have to pay the retail price rather than the wholesale price.
The goal for most business owners is to maximize profit. When it comes to wholesale production and distribution, a lot of profit maximization is determined by how many units of any given product is produced and kept in stock.
In order to keep a positive cashflow and grow your wholesale business, you must be strategic with your MOQs.
Wholesale suppliers and producers set minimum order policies in order to make sure they are turning a profit on every single order that they make.
Oftentimes, the more you produce of something the less it costs. This has to do with production components, like costs of labor, raw materials and physical capital.
For example, producers may actually lose money by producing 10 units of a good, so they need to make 30 to break even. If they are going to lose money by selling 10 units, it doesn’t make much sense.
That’s why the minimum order policy is put into place.
There is no set formula that suppliers use to determine their MOQ, but generally, suppliers use the breakeven point on the specific product as a starting point.
Let’s go back to the SupplierWorld t-shirt example for a moment. If they break even at 100 shirts and see a profit at 101 shirts, 100 t-shirts should be the absolute lowest quantity order that they would fulfill.
However, if they only make 100-unit orders, they will never make any money. This means that keeping your minimum order policy at the breakeven point is not sustainable.
If SupplierWorld sets the MOQ of these t-shirts at 200, they will definitely make a profit. Additionally, they will have a little flexibility to offer lower quantity orders in special situations while still maintaining a positive cash flow.
As a supplier, you have the power to set your minimum order policy at whatever you see fit. You have to do what makes sense for your company.
As a seller on Alibaba.com, it is easy for you to define your wholesale pricing rules and set your MOQ using the intelligent product posting tool.
In addition to minimum order quantities, it also allows you to set volume-based ladder pricing and give the flexibility you need to simplify your operations.
Providing detailed services information about your minimum order policy and whether dropshipping is supported on your Alibaba.com storefront is also useful to address any common questions and drive trust between you and your buyers.
As a buyer, you may be wary of purchasing a large quantity of items that you are introducing to your store for the first time. With minimum order policies in place, it may be difficult to place an order with your intended quantity if it’s lower than what sellers are willing to fulfill.
Fortunately, there may be ways to go get around MOQs that are higher than what works for you. You can either find a seller that offers a lower minimum order quantity, or you can negotiate to try to make the order work for you.
If you are a buyer looking for low MOQ sellers on Alibaba.com, you’re in luck. It is possible to find sellers with minimum order quantities as low as 5 or 10 units per order.
Here is a simple rundown on how to find low MOQ wholesale distributors.
Oftentimes, if you check the “Ready to Ship” box, you’ll find plenty of products with lower minimum order quantities and are ready to be shipped out within 15 days.
If you cannot find what you’re looking for with these search filters, raise your “Min Order” criteria until you find the product that works for you. Or, you can also message the supplier directly to see if there is any flexibility in this number.
Another option is posting an open inquiry in the Request for Quotation (RFQ) market with the precise quantity you’re looking to order. That way, the supplier knows the quantity you want from the start and can choose whether or not they fulfill the order
As we mentioned, in some instances, it is appropriate to negotiate MOQs with the seller. It is important to be respectful and professional if this is the route you want to take.
For example, if the MOQ is set at 5000, it is really not appropriate to ask for an ultra-low order quantity of 200 units at wholesale price. You could aim for between 3000 and 4000 thousand units if that is a number you are comfortable with since that is much closer to the seller’s MOQ.
Be sure to explain your situation and ask politely. Many wholesale distributors will be willing to work with you if it makes financial sense for them.
If you want a couple of units to test out, consider asking if you can purchase a few at the retail price. Many suppliers will make this option available on their listings, so it is definitely a reasonable ask.
If a seller does not respond to your request how you hoped they would, thank them and move along with grace. A time may come when you want to work with that supplier in the future, so you don’t want to burn any bridges.
Dropshipping is a business model when a retailer sells a good that they don’t have any inventory of. Essentially, the retailer provides the digital storefront and the order is fulfilled by a third-party distributor.
When it comes to dropshipping, the buyer-seller dynamic changes a bit. It benefits both parties to develop a long-term relationship, so flexibility on either end is ideal.
Dropshipping requires small quantity orders, but the potential of a successful, long-term arrangement could justify the initial investment on the seller’s side.
Note to sellers: Be highly selective with who you work with on dropshipping projects. Make sure that you’re focusing on high-quality buyers with a solid strategy and operation. Since you’ll likely be starting with small quantities of units in each order, you’re likely holding out faith that the arrangement will turn into something that is profitable for both of you.
MOQs are set in place to help wholesale distributors maintain sustainable business models. However, in instances where the buyer and seller have substantial professional history, the seller may be flexible with these restrictions.
The key here for all parties involved is to be respectful of the other’s time, money and resources. Relationships with that mutual respect at the core have the potential to flourish for years to come.
Ready to take your wholesale business to the next level? Contact us now to start selling on Alibaba.com today!