How to make money by requiring a minimum order quantity (MOQ)

If you are running or starting E-commerce business, You may have heard the term “minimum order quantity” or minimum order quantity. If you have heard of it, you may feel conflicted.

There are suggestions and oppositions to this approach. This makes it difficult to determine whether it is the right choice for you, especially if you don’t understand how it works and how to make money.

In this article, you will learn what MOQ is, how to set an MOQ that will not put your customers into trouble, and how to use this strategy to increase profits and reduce expenses.

What is the minimum order quantity?

Before we introduce the good things (such as how to make money with MOQ), let us dive into the definition of MOQ.

The minimum order quantity refers to the minimum amount that someone can order from a business.

For example, suppose you are a wholesaler Alibaba. The MOQ you create is 100 units, which means your customers need to buy 100 or more units to start business with you.

You can also set your MOQ to USD. For example, your client needs to spend at least $500.

Why use MOQ? In short, it can protect your business and profit margins. If someone only wants to order five items from you, it is sometimes uneconomical to start the production process. If you do, you will eventually suffer losses.

With a minimum order quantity, it can ensure that you pay for production costs and make a profit.

Does the MOQ only apply to manufacturers or wholesalers? Not possible.You can Directly to the customer This is also the case.For example, you can set a minimum spend to meet free shipping Or products.

Minimum order quantity-example from Alibaba

How to calculate your MOQ

Calculating your MOQ is tricky.

This is a key part of maintaining inventory control, but it varies greatly from company to company. There is no fixed formula to calculate your MOQ, so you need to customize it according to your business.

How do you do this?

Please follow the steps below to create your MOQ formula.

Step 1: Calculate requirements

Forecast demand It is the core of the MOQ formula.

You need to consider different products, seasonality, competition, And any other factors that will affect the number of items you will sell.

The data can help you plan the next purchase order and production turnaround time from the supplier to ensure that you can meet the demand.

Other things to consider include:

  • Total time to ship inventory
  • Shipping time
  • Production time
  • Other delays that may affect your ability to meet demand

example: You sell phone cases and determine that 10,000 units will be moved every quarter. However, your sales are seasonal. In the fourth quarter, due to Christmas demand, you sold 15,000 units. In the second quarter, your sales dropped to 5,000 units. On average, it takes a week for your phone case to be produced and shipped.

Step 2: Calculate your break-even point

Next, you want to calculate your Breakeven point.

This is the minimum number of products you need to sell to recover costs and start profiting.

This is your favorite place Sales revenue exceeds your expenses.

example: If you sell five phone cases, how much revenue will this bring compared to your expenditures on production, wages, and other expenses? You are sure that you need to sell 100 boxes to reach a breakeven.

Step 3: Calculate your cost of holding

The holding or inventory cost is the price it takes to store the product before it is shipped to the customer.

Keeping inventory for a long time will cost you more money.The faster the item moves and the lower the holding cost, the higher your item Profit margin.

However, not all commodities have the same holding cost.

Some may require refrigeration, which will increase electricity bills, while other items (such as mobile phone cases) can be stored at room temperature for months.

example: You are sure that it costs $2,000 per month to store 500 phone boxes.

Step 4: Calculate your MOQ

After all the data has been collected, it is time for the final calculations.

Assume that customers of your mobile phone case currently purchase an average of 200 mobile phones.

You need to sell 100 units to start making a profit.

You can make the minimum order quantity to 200 units. It will cover your break-even point of 100, if necessary, you can lower the MOQ to 150 and still make a profit.

What are the benefits of requesting an MOQ?

As a manufacturer and seller, switch to the MOQ business model to bring many benefits. Improve your bottom line.

The main benefits of MOQ include:

  • cash flow: Worried about investing too much money in stocks and not selling them? The minimum order quantity means you spend less cash on fixed raw materials or products. You can strike a balance between cost and profit and the number of goods your customers will accept, thereby reducing waste and unnecessary expenditures.
  • Low inventory: You don’t want your product inventory to be on a dusty shelf. By implementing the MOQ, you can reduce the number of finished products in the warehouse. The less time you store products, You spend less money on holding costs And get a greater profit margin.
  • Increase in profit: The key to MOQ is demand. You will not guess how many products or raw materials your customers need. You have a clear idea of ​​how much inventory you can actually move. Use MOQ to find a balance between supply and demand, you can mass produce, reduce total costs and increase profits.
  • Mobile inventory: Another benefit of the MOQ module is its inventory capacity. If you are sitting with 100 phone cases and selling them one by one, it may take several months to empty the inventory. By setting the MOQ to 50 or 100, it only takes one or two customers to clear your inventory.
  • Reduce transportation costs: If you continue to transport raw materials or products to manufacture goods, the shipping costs will be high. However, when you set the MOQ to the optimal level, you will ship more products in bulk and reduce the supplier’s shipping costs.

5 tips for making money from MOQ

Well, let’s start learning good things! We have discussed the definition of MOQ, its benefits and how to create a MOQ formula for your business.

Now we will discuss how Start making more money Require your customers to MOQ.

I know that setting one seems daunting. What if you scare customers and no one joins? If your thoughts come to mind, this is my main secret to achieving MOQ and increasing (not decreasing) profits.

1. Eliminate bargain hunters

The minimum order quantity is not only to increase your profit margins. It can help you find the few customers who are willing to spend more money with you.

No matter what type of business you run, it is usually easier to have a few high-paid customers than dozens of low-paid customers. Small or one-time customers mean that you will spend longer time to reach the desired revenue target, and at the same time will spend more time and energy.

The minimum order quantity can help you eliminate all those who want to buy bargains at the lowest price, and make room in your garden for returning customers who are willing to spend more money on your business.

say hello, Recurring income, Say goodbye to unstable income streams.

Why should you care about generating recurring income?

2. Increase order expenses

Want to motivate your MOQ? Encourage your customers to spend the least money by offering discounts.

you could:

  • Reduce unit cost to increase expenditure: For example, the price of selling three bottles of shampoo is $60 instead of $30 each.
  • Provide the lowest free shipping threshold: For example, most online retailers will provide Free shipping on minimum purchase. It encourages customers to spend more money to meet the requirements.
Tips to make money from MOQ-increase order spending

3. Make pricing more attractive to increase inventory turnover

Your MOQ is only valid if the price is right.

You need the price of each order to cover your expenses and make a profit, but you still need to attract customers. If your minimum order quantity is too high, you will not get any orders and you will stay in inventory for a longer period of time, thereby increasing costs.

After determining the MOQ formula, conduct market research. Before you start spending money on things that cannot be recovered (such as warehouses), check your competitors’ products and confirm that the demand is high enough.

4. Use second-hand goods sales to transfer old inventory

What if your inventory does not move? Maybe the season has faded, or you have tried new product changes, but not enough people are biting.

One of the best ways to recover your money and release inventory is Flash sale.

Black Friday is a good example of how flash memory sales work. Sportswear giant GymShark often adopted this strategy during the biggest sales day of the year and broke internal sales records. Generate $400,000 in 60 minutes.

A kind Well-executed sales Not only can you transfer excess inventory, but it can also help you achieve a breakeven on poorly-selling products. If done correctly, in the long run, it can also increase customer loyalty and customer acquisition rates, thereby increasing your profits.

Example of minimum order quantity for flash sale

5. Have a good inventory management system

Automation is an important part of any business. It can help you complete more work in the same number of hours of the day and focus on the action that makes the pointer move forward.

When using the MOQ strategy, your success depends on having a good inventory management system. With just a few clicks, you can set reorder points for specific materials, simplifying the inventory management process.

Other advantages include:

  • Satisfy your customers by maintaining healthy inventory levels and fast order turnover.
  • Track your inventory turnover rate to make better use of your resources.
  • Save money by avoiding spending too much money in inventory and not having enough inventory to complete sales orders.

How to calculate your MOQ

  1. Calculation requirements

    Forecast your sales volume. To calculate this number, please consider the products you sell, seasonality, competitiveness, transit time, and any other factors that may affect your sales numbers.

  2. Calculate your break-even point

    Determine the number of products you must sell to make a profit.

  3. Calculate your cost of holding

    Before sending the product to the customer, figure out the cost of storing the product.

  4. Calculate your MOQ

    Find out how many units you must sell to make money, predict how many units you will sell, and determine your MOQ accordingly.

in conclusion

What is the most offensive thing about starting a business? capital.

Not everyone can get it all at once Investment funds In one thought, the idea of ​​high debts for companies that have yet to see results is frightening.

By adopting a minimum order quality strategy, you can reduce the amount of upfront capital, unit costs, and expenses such as storage costs. The MOQ to work for your business is unique and to find it requires research, planning and understanding of market needs.

However, once you have the MOQ, the MOQ can help you expand the scale, avoid unnecessary expenses, and Run a profitable business.

Capital is not the only condition for starting a successful business; all you need is an appropriate digital marketing strategy. If you need help in this regard, Contact our agent!

Do you think minimum order quantity is a good business strategy? Why or why not?

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