What is MOQ?
MOQ is an acronym for Minimum Order Quantity which refers to the minimum amount you can order from a supplier or what the supplier is willing to supply at any one time. These MOQs are generally set by each manufacturer based upon the minimum order quantity that ensures they are making a profit and/or the small orders their own suppliers are willing to make.
How is MOQ calculated?
The quantity defined by a supplier or manufacturer is sometimes calculated based upon a product’s manufacturing and production processes. The production costs include raw material, labor, factory overheads, consumables, shipping and then there is the profit to be added. All these factors are taken into consideration to determine how large an order needs to be in order to be profitable.
For some suppliers, the MOQ will be higher than other suppliers for the same product, this is often because of the factory size and cost to produce the product.
You can often negotiate with a supplier for a lower MOQ, but don’t be surprised if they increase the unit cost to compensate for the lower quantity to be produced. You can always negotiate an initial lower MOQ and an increasing volume production quantity over time; this strategy often works with suppliers in China as they are keen to secure new business.
How suppliers set MOQs
From a supplier’s aspect, setting their MOQs can set out their business intention and filters out the smaller buyer simply by having larger MOQs. At the same time, smaller workshops or prototype style manufacturers would be happy to have smaller MOQs, often as low as one-off; however, the price will reflect the low quantity and you can expect to pay between 3 and 10 times more than you would for mass production quantities. Some contract manufacturers will also charge extra services (a flat setup fee, for example).
Another common reason is simply the inability to procure some materials or components in small quantities. In China, high-quality suppliers are often larger suppliers, and they are not interested in a 5,000 RMB order. The same thing with component batches that need to be imported from overseas – one often needs to order a full container of coils.
So in summary, when looking at MOQs, make sure you are looking at suitable suppliers for your business needs, remembering to take into consideration your growth plan. There is no harm in using smaller suppliers for prototypes and trial products, but ensure you select the right supplier for your production.
If you need any help with supplier selection, contact us to discuss your needs.
In addition, you may find this blog post helpful if looking for the right contract manufacturer in China: List of Contract Manufacturers in China – Top 13 Factories