Retail Dogma

# Minimum Order Quantity (MOQ)

## What is a Minimum Order Quantity?

Minimum Order Quantity (MOQ) is the lowest number of units a supplier is willing to sell to a single buyer at one time.

The MOQ could be set at a total order level, product or SKU level, or even at attribute level, such as per color.

## Minimum Order Quantity Example

For example, if you are ordering outerwear (Hoodies & Jackets) from a manufacturer, the MOQ could be set at 12 pieces per style, per color.

Here, there are effectively 2 minimums to be met; one for each style you pick, and if you want to order different colors from that style, you also need to meet the minimum per color for that style.

This means that for each style you pick, you will need to order a minimum of 12 pieces of each color you choose from that style. You cannot order, for example, 6 pieces from the blue color and 6 from the green color to make the total 12 per style. You still need to meet the minimum of the color variation as well.

So in the example in the above picture, you will have to order 36 pieces for Style A, because you want 3 colors, and 24 pieces for Style B, because you want 2 colors from that style.

## MOQ vs. MOV

Minimum Order Value (MOV) is the minimum amount a buyer needs to meet, in order to place an order with a supplier.

This minimum could be enforced, in addition to the separate MOQs for each product, or it can be a substitute for Minimum Order Quantity.

For example, some distributors do not require any MOQs at product level, and instead require an MOV for the total order. If you meet the final MOV, you can place an order, even if some products are ordered at 1 or 2 pieces only.

## Why Do Suppliers Require a Minimum Order Quantity (MOQ)?

The business model of Manufacturers, wholesalers and distributors depends on selling in bulk, and making money from the difference between the cost of production or sourcing and the wholesale price they charge.

Because the margin at wholesale level is low, this requires a large quantity to be ordered, so that the absolute value in gross profit can cover the operations of the wholesalers and manufacturers, and at the end generate profits for their business.

So wholesalers generally enforce a minimum order quantity (MOQ) or a minimum order value (MOV) for two reasons:

• To make sure they are selling to a qualified business, and not a final consumer
• To make enough money per order to cover operational and production costs and make profits

## How MOQ Affects Retailers?

When retailers set their product assortment strategy, they need to make decisions about the depth & breadth of that assortment, and based on that place their orders with the suppliers.

Sometimes a retailer might find it beneficial to carry a certain product at a lower depth; i.e ordering lower quantities per option, and use the remaining buying budget to buy more options (higher breadth) and give more variety to their customers.

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Problems arise when the quantity the retailer needs to apply this strategy falls below the MOQ of the supplier. If the retailer meets the minimum quantity, he will end up with a much higher volume of merchandise than he actually needs. This is particularly the case with many small or independent retailers, who do not have as many stores to spread the ordered merchandise across.

In this case it might be more feasible for this small retailer to deal with a distributor instead of a manufacturer, because generally distributors can accept MOVs instead of MOQs at product level. However; this might not work for a retailer who wants to manufacture their own products, at their own specifications.

## Can You Negotiate MOQ?

Yes; some manufacturers accept lowering their MOQs, provided that they can pool together a combined order from different retailers, that at the end will cover their own production costs and makes them profit. In this case they have not completely removed the MOQs for their manufacturing, but instead found a way to spread it across different buyers.

## More Resources

Thank you for reading this article on Minimum Order Quantity. We recommend the below free resources as well:

Read more articles on Buying & Merchandising or join the academy for in-depth courses on the processes and reports used in managing inventory and measuring performance.

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