When I first started importing products I kept seeing the term MOQ everywhere and I just wasn’t sure what it meant.
There’s actually a whole glossary of terms in the importing business that I needed help defining.
In this article I’m going to completely cover MOQ and give you a better overall understanding of the term so you can quickly get back to learning how to build your online business.
If something stays unclear make sure to let me know in the comments…
Let’s jump into it.
What Does MOQ Mean?
MOQ stands for “Minimum Order Quantity”. It’s used to signal the minimum order someone can place with a manufacturer. It also tells you the minimum amount of product the manufacturer is willing to produce.
Let me give you a quick example.
You decide you want to order tables to sell in your store so you go out and find a table manufacturer. After talking to the table manufacturer they tell you their MOQ is 20 tables.
The manufacturer is telling you that to do business with them you have to order at least 20 tables otherwise you should go find another company to work with.
So, MOQ is decided by the manufacturer and what it costs them to create something. It could be that the MOQ is their break even point. Meaning they lose money running their machines for anything less than 20.
MOQ varies between every single product and every single supplier. If you run into a manufacturer with a high MOQ then you can find another with a lower one you want to work with.
Later in this article we’ll cover negotiating with suppliers to lower their MOQ and possibly getting “free” samples instead of placing small orders.
Why MOQs are Important?
MOQ’s are important for two people:
For the buyer a MOQ means there’s a lower barrier to entry and they don’t need to spend much money on inventory.
It also means that the buyer can test products and reduce the risk of ordering a large amount of defective products if the supplier turns out to be untrustworthy.
You can move slower and make sure the supplier is great to work with before committing to a large order.
For the manufacturer a MOQ is important because they can use it to filter out low quality buyers and people that aren’t serious about starting or growing their businesses.
Suppliers also use their minimum order quantity to make sure they aren’t losing money on the products they make. If a supplier needs to make 5 products to break even and they set a MOQ at 10 then every order guarantees a profit.
It gives them more room to negotiate with people and take a loss on an order if they want to.
What is a Low MOQ?
A low “Minimum Order Quantity” is anything between 1 and 50 units. But it depends on your business and how much you’re selling. “Test Orders” can range from 50 – 200 if you have significant demand and want to see how a manufacturer does with a larger order.
Once a manufacturer is asking for a minimum order over 200 units then you know you’re dealing with a supplier that only wants to deal in large quantities. It’s possible to negotiate with the supplier but they might not budge.
Why Do Suppliers Use MOQs
The main reason suppliers use MOQs is because they want to control the costs to create a product.
Suppliers want to be able to create the product, cover the complete cost of making it and also have profit left over.
To do that they calculate every expense and come up with a number that can work for them and their customers.
There are suppliers with a minimum order quantity of 1 unit. And that doesn’t mean the supplier is making money off their single unit sold but they’re willing to take on some loss to get a customer.
If you find a supplier willing to have an MOQ of 1 then most likely they are new and are trying to generate business.
Advantages & Disadvantages of MOQs
You’ll notice on Alibaba there is a range in the price of a product. For example, if you look at a product listing it will say $4-$8, that means the more you order the more you can save.
The smallest order can cost you $8 per unit and the largest order can cost you $4 per unit.
The advantages of having a MOQ is that you save money per unit the more you order.
And it gives you room to negotiate with the supplier to get a better deal for your business since you know the range they work with.
On the other hand, the disadvantage of having a large MOQ is that you might be required to place a large order upfront to save money on the product you want to sell.
There’s a possibility that you won’t be able to sell everything you bought and lose money because you mismanaged demand.
A smaller MOQ can reduce the possibility of having too much inventory on hand.
How to Meet MOQs
Depending on what stage of your business you’re currently in, finding a manufacturer with a MOQ you’re comfortable with is important.
Here’s how to filter suppliers based on their MOQ:
If you can’t meet a suppliers MOQ and you tried negotiating with them then the next step is to find another supplier.
Every product has multiple suppliers that are willing to meet your requirements. And the truth is that it’s possible to use one factory for your small orders then when you grow you change suppliers.
What’s important is that you keep your options open and don’t buy more units than you’re comfortable selling.
We recommend staying on Alibaba when looking for more suppliers but there are a few places you can use to find additional suppliers:
DHgate is similar to Alibaba. It’s a wholesale marketplace where suppliers sell their products directly to small businesses.
The difference between DH Gate and Alibaba is that DHgate normally has smaller MOQs.
Something we love about DHgate is that the supplier only gets paid once there is a confirmation that the goods were received. It takes a large part of the risk out of the equation.
Global sources helps connect businesses with reliable factories. They pride themselves on their customer service and trade shows to grow their network of reputable factories
Aliexpress is the only one of these 3 companies that’s a business to consumer website. The site is small businesses selling products directly to customers. Sometimes the factories themselves are small businesses as well but not always.
It’s not a traditional sourcing website but because of the very low minimum order quantities small businesses use Aliexpress to validate a product idea before jumping into Alibaba and placing a larger order.
According to China Checkup: “Unlike on Alibaba.com, sellers on AliExpress can be either companies or individuals making supplier verification difficult and leading to some scams.”
How to Negotiate MOQs
We have an entire video on negotiating with Chinese suppliers:
Wrapping this up
When you’re starting to look for products to sell online MOQ is important because you don’t want to spend all of your money. You want to place the smallest order possible, validate your product and slowly increase your order.
Understanding minimum orders is the first step in making sure you don’t get scammed or lose all of your money early in your business. Make sure to always negotiate and never buy more product than your comfortable with.
If you have any questions at all don’t hesitate to ask!
MOQ’s and negotiating prices with suppliers are a huge part in our brand new Amazon business course that teaches first time entrepreneurs how to launch their very own physical product Amazon business. If you want to check that out and see if it’s right for you click here…