MOQ Meaning: What Is MOQ?
As a business person, whether you are a buyer or seller, the likelihood that you have come across this acronym is high, but again the chances that you know what it means are low. MOQ is one of the thousand different terminologies that you should be familiar with to aid profitability as a buyer or seller.
Starting, MOQ stands for; Minimum Order Quantity. It is sometimes referred to as MQO, meaning minimum quantity order. It refers to the quantity that serves as the baseline point for orders. In simpler terms, it is that unit of goods that, if sold, would cover the production cost and at least promise a break-even for the producer.
For easy comprehension, below is an example that will do you justice.
You walk up to a furniture maker, discuss the price per unit and make an order of 10 tables, but you do not understand why he insists that he cannot produce anything less than 20 tables at a go.
You have come across manufacturers that state that they cannot produce less than a particular unit of goods. Yea, that is their Minimum Order Quantity.
The Valuation of Minimum Order Quantity – MOQ
There are different ways to value the minimum order quantity that a business can operate with.
Sometimes MOQs are not measured in units of goods ordered, but in the monetary value of the order, for instance, A chef might have among her company policy not to take up jobs that will pay less than a thousand dollars. So sometimes it is not in quantity but the actual value of the order.
Factors that Determine the Value of MOQs
The concept of MOQs is essential to help manufacturers or businesses. Two factors go into the determination of a MOQ. One is the manufacturer, and the other is the cost of production.
· The determination of MOQs based on the cost of production requires that the manufacturer put into consideration all of the expenses incurred in production, make a per head cost, and calculate the number of goods that will be required for him to cover his production cost and get him to break even. Then his MOQ can be set to this figure. For instance, if a manufacturer of sweet incurs an average price of $50 per pack of cute, but requires $700 to get his machinery working, pay labor, pay for distribution and other
fixed costs that he will necessarily incur regardless of the quantity he is producing, then his MOQ will be set at 14 packs to ensure he at least breaks even.
· While the determination of MOQs based on the manufacturers entails a whole lot of other factors. These factors are such that rise and fall on the decisions made by manufacturing companies.
MOQs are very important to guide manufacturers in making decisions that will ensure that they only take orders that are profitable for them.
Types of MOQs
There are two types of MOQs offered by manufacturers and stores. That is the low MOQ and high MOQ.
· High MOQ
A high MOQ doesn’t have a specific value to it, unlike the low MOQ. It varies along with industries and product types. But note that a high MOQ regardless of the industry it is being operated, is a MOQ that allows patronage from just the top 20% of stores. For instance, there are some manufacturers that many large multi-chained stores cannot buy from. This is because their MOQs restrict a lot of large stores, and grants access to only about 20% of the buying population. And the stores within this 20% are usually on the top cadre of buyers. The MOQ can be measured in quantity or value of the order.
· Low MOQ
A low Minimum Order Quantity is stated within the range of 1 to 50 units. Suppliers that set this type of MOQ are mostly start-up suppliers who are just getting into the industry and creating a niche for themselves. Sometimes these MOQs do not guarantee that they will break even, but they rather incur loss than lose prospective customers.
The fact that MOQs is set does not mean that they are not negotiable; sometimes, manufacturers can still tweak these figures to suit both parties. MOQs differ across suppliers. Suppliers within the same industry could have extensive MOQ gaps.
If, as a small store, the manufacturer with whom you are dealing gives a MOQ that is beyond what you can afford, ask for consideration, and if it still doesn’t work for you, try out other manufacturers. As I have earlier stated, MOQs are different across stores.
MOQ is not the only criteria for choosing which store or manufacturer to patronize. Factors you should consider includes:
· The product safety requirements for the business niche you are dealing with.
· The track record of the store or manufacturer, check this in respect to his delivery timing and his business integrity.
· Customer support system.
What is the difference between MOQ and EOQ?
MOQ is the quantity that the supplier is ready to supply at a minimum. This can also be expressed in the minimum number of units that the supplier is ready to supply to the buyer. If you are a supplier then it is very necessary to set an MOQ.
MOQ helps the supplier to at least make a minimum profit. If the supplying quantity is less than the MOQ then the supplier is very unlikely to make any profit from the business.
On the other hand, EOQ stands for the term called economic order quantity. The economic order quantity is very helpful for the buyer. It stands for the ideal purchase that a company must make. EOQ helps in cutting the inventory cost and opening up the profit for the buyer.
What does FOB and MOQ mean?
MOQ is set by the supplier to maximize their profit and the supplier does not supply units below the MOQ.
FOB stands for Free On Board or Freight On Board. There are two kinds of FOB. FOB Origin means that the buyer is liable to pay the shipping cost. FOB Destination means that the seller is liable to pay the cost of any loss that occurs until the goods reach the destination or the buyer.
What is the MOQ on your product?
MOQ is set by the seller of the goods to maximize their profits. It is a minimum order quantity that can be sold by a seller. A seller will not sell the number of goods below his MOQ.
How to Find Manufacturers that offer MOQ that will Suit You?
· Relate well with the industry
Know the industry you are about to commence your business first. Know the big plugs around. Familiarize yourself with the happenings, systems, and forces in the industry. Know well enough before you decide to get into the business.
Research about the stores that are similar to yours in size, scope, and target market. Know the different suppliers that they engage, the deals they take on while getting their supplies, and the reigning prices.
If for you, you have checked around your niche and no MOQ seems to with for your startup store, you can try out with online wholesalers for a start, some of them sell in units. With this for a while, your store will eventually grow and be able to deal with stores offering MOQs.
How do you calculate MOQ?
First, calculate the Average Order Value for your goods by dividing your overall revenue with the numbers of orders that you receive in a particular period of time. You have to set your MOQ just above the Average Order Value.
How is MOQ calculated?
The minimum order quantity is calculated as per the basis of the Average Order Value or AOV. You can easily calculate the AOV by dividing the overall revenue made by you from the number of orders that you have got in that time period.
MOQ is the value just above your AOV.