Understanding MOQ: How to calculate and manage minimum order quantity for business growth in the UK
Samir Kamnani
·July 7, 2024
As an ecommerce business, efficient inventory management is crucial to scaling a successful business. Don’t order enough inventory, and you’ll run into stockouts and frustrated customers who’ll likely take their business elsewhere. Order too much inventory, and you’ll be wasting storage space on excess goods that you may need to liquidate at a deep discount.
Balancing your inventory needs with your suppliers’ or manufacturers’ minimum order quantities (MOQs) can be a tough task. In this article, we’ll cover the basics of MOQs from the buyer’s perspective, so that you can manage your inventory in line with your supplier’s MOQs. We’ll also explore MOQs from the wholesaler side, which is important if you plan to wholesale your products to other businesses.
What is a MOQ?
Minimum order quantity, or MOQ, is self-explanatory: It refers to the minimum number of products that you can purchase from a supplier or manufacturer in a single order.
Whether you’re making a wholesale purchase from a B2B retailer, or placing an order directly with a manufacturer, your supplier will generally set minimum order requirements on your purchase to ensure that it’s worth doing business with you.
While direct-to-consumer (D2C) product prices have margins built in to account for one-on-one customer support, shipping costs, and other expenses, wholesale products are sold at lower prices because the process of selling products in bulk is more efficient for the supplier. By setting MOQs, suppliers are able to save costs by consolidating goods into a bulk shipment, and can benefit from a guaranteed high-volume sale which will support their cash flow needs. If you sell your products wholesale to other businesses, you might also implement an MOQ for your business customers.
On the other hand, if your focus is solely D2C, you likely won’t require an MOQ for your customers—but you may consider implementing a minimum order value (MOV). An MOV serves as a certain price threshold for customers to benefit from special perks or services: For example, with a minimum order value of $50, the shopper can take advantage of free shipping rather than pay a $7 fee. Implementing an MOV can help you ensure that you’re not cutting into your profit margins by spending too much on small transactions, while incentivising customers to increase their average order volume to benefit from special offers.
Dealing with MOQs as a buyer
When placing an order with a supplier, it’s important to first determine whether meeting their MOQ is feasible for your business.
If you have limited purchasing power or warehouse space, it may not be in your interest to place a high-volume order unless you’re confident that you can sell the stock quickly. In these cases, it might be worth exploring alternate suppliers with lower MOQs, or even partnering with other small businesses to place a bulk order and meet the MOQ requirement together. You could also find a wholesale distributor, who will purchase the manufacturer’s MOQ and then split it up into smaller quantities for resale to smaller businesses.
On the other hand, if you are confident in your ability to turn over inventory quickly, you might consider purchasing a higher volume than the supplier’s MOQ. Typically, the higher the order volume, the bigger the discount you are eligible to receive on your purchase. In this case, ordering in bulk can help you save on your expenses and boost your profit margins.
Managing MOQs as a supplier
Now, let’s consider MOQs from the perspective of a retailer that sells your products in bulk to other businesses. How can you determine your MOQ to ensure that you’re driving a sustainable wholesale business?
One important factor to consider when determining MOQs as a supplier is the balance between ensuring profitability and meeting customer demand. While setting high MOQs may seem like a good way to secure larger orders, it can also turn potential customers away if they are unable or unwilling to meet the requirement. On the other hand, setting low MOQs may attract more buyers but could lead to lower profits due to increased costs associated with managing smaller orders.
To find the right balance, consider your production capabilities and costs. Calculating your cost per unit is crucial in determining your MOQ. This includes not only the direct cost of materials and labour, but also any overhead expenses such as packaging and shipping. It’s also essential to factor in potential discounts for larger orders that can offset some of the costs.
Another aspect to consider is the demand for your products. Conducting market research and analysing sales data can help you determine how much product you can realistically sell within a given time period.
You can set different MOQs for different SKUs, based on product cost and anticipated demand. For example, a pair of shoes with a wholesale price of $12 may have an MOQ of 500, while you might set an MOQ of 100 for a winter jacket that you plan to wholesale for $60.
Streamline your inventory management
Whether you’re purchasing or selling in bulk, or both, a real-time overview of your inventory levels is essential for successful planning.
Make sure that you have an integrated ERP that gives you visibility into your entire supply chain so you’ll know when to restock inventory. You should be able to see what products you’ve ordered but not yet received; what you have in stock; and what’s been sold or reserved.
Don’t neglect returns: By using a post-purchase solution like Loop’s online and point of sale returns management tools, you’ll be able to integrate returns data to see when items are being returned to inventory for resale.
With the right data, you’ll have a better sense of how much product to order from any supplier and whether you can easily meet their MOQ requirements or should consider ordering a higher volume. You’ll also understand what inventory you have available to sell, and get alerts around overstocks or low stock on specific products so that you can plan accordingly for restocking.
By getting a holistic view of your supply chain, you’ll be well equipped to build a lean and efficient operation that can scale stock levels up or down quickly based on upcoming needs.
Want to see how Loop can help?
In this article
Stay in the loop
Subscribe for product updates and Loop's biweekly newsletter.
Retain more revenue with Loop today
With Loop, your brand can offer everything from refunds to direct exchanges to shopper incentives and more. Even better? These exchanges build your business.