Irrespective of whether you are running a B2C company or one that deals in B2B transactions, you are probably someone who likes ordering in large volumes. This is when it becomes very important to consider the Minimum Order Quantity (MOQ). Having a good understanding of MOQ can help you ensure that your orders stay profitable, more inexpensive and enjoy a steady gross margin. If you are yet to learn about how MOQ can help, this article is a perfect read.
What Do You Understand By MOQ?
Short for Minimum Order Quantity, MOQ is basically a system used by most manufacturers to stay profitable and sell enough products. It helps determine the minimum order amount a buyer is allowed to place. More so, it says the least amount of products a manufacturer is ready to produce or sell. In these digitized times, a manufacturer or supplier uses the MOQ to make their production run more efficiently. Nevertheless, a retailer can also benefit from this, where there are a number of different kinds of products.
How Can Implementing This Help?
Calculating the MOQ can help wholesalers manage their inventory in a much more proficient manner. It will help them understand the least amount of products their enterprise should have, in addition to several other benefits. Here are some common ways calculating the MOQ can help your business.
- Better Profits:
Perhaps the first use of MOQ is understanding the balance between demand and inventory holding cost. By effectively managing this, you can produce high quantities since there is guaranteed demand and gain higher profits. MOQ is directly related to demand.
- Lower Shipping Costs:
When compared to the shipping cost of goods, shipping raw materials is often more expensive. You also have to consider handling costs as well as other associated costs. You can set the best shipping rate from suppliers by ensuring a minimum order amount. This way, your freight costs will be much lower, and no product will be wasted.
- Build Better Relationships:
Having consumers buy more than the average quantity is not the main goal of your business since most of the unsold products will likely be returned. In addition, these customers are more invested in your business as they are spending more. However, with an MOQ, you will also be saving them some of their money, in turn, building a better relationship, just like Alibaba has ensured.
How to Decide the Minimum Order Quantity?
While there is no specific way or average MOQ, you can follow, understanding your business needs can surely help you with this. Here mentioned are some starting steps you can follow to make your calculation a bit easier:
- Determine the demand for your products
- Understanding how much you are spending on holding costs
- Calculate your business’s break-even point
- Build an effective strategy with this information
Now that you know how you can benefit from calculating the right MOQ and how you should go about calculating it, you will surely see better profit margins for your company. Rest assured, minimum order quantity is an important aspect of running any such business that believes in ordering large quantities of products.