Have you heard the term ‘minimum order quantity (or ‘MOQ’) being thrown when learning about dropshipping?
If you’re not entirely sure how this fits into dropshipping, then read on.
This article goes through what it is, whether you need it or not, and how to negotiate with suppliers on the MOQ.
1. What is a Minimum Order Quantity?
A Minimum Order Quantity, or MOQ for short, is the amount of a given product your business needs to purchase from a wholesale supplier to do business with them.
This term is mainly used in large-scale business models such as B2B.
However, the same logic applies to pretty much any supplier with a MOQ.
A MOQ is a great way to go further up the supply chain to get the best prices per unit, but it also requires you to pay for products you may not ever sell.
So the next question on your mind may be, ‘how does buying in bulk fit into the dropshipping model?’ And it’s a very valid question, so let’s go over that now:
2. Is there a Minimum Order Quantity for dropshipping?
If you’re familiar with the dropshipping business model, you may have been wondering why you would ever want to buy products before you’ve sold them. It seems counter-intuitive, right?
Usually, there is no MOQ for dropshipping as a drop shipper does not need to buy anything from any supplier to sell products from it. This is demonstrated in the infographic below:
When dropshipping with a MOQ, you should ensure that your would-be supplier facilitates drop shipping first and foremost.
The only difference between this method and the conventional is your supplier will require you to purchase the MOQ upfront. You will still not physically hold the stock.
So to what benefit would you ever want to take on such a risk? Stay with us, and we’ll dive into that now.
3. Why a seller would want a Minimum Order Quantity
First, let’s examine why a seller would require a MOQ to do business with someone.
You will typically find better prices with sellers requiring a MOQ because they have a smoother manufacturing process, resulting in higher efficiency and less waste.
Easier for logistics
Logistically, this is a much easier process than a seller processing hundreds of times more individual orders daily. The seller can also benefit from better rates when shipping in bulk.
Decent profit margins
As mentioned, manufacturing and logistics are much more efficient when dealing with definitive numbers, reducing redundancy and waste. This bolsters the sellers’ profit margins; these savings are usually passed onto the buyers.
Benefit from better prices when buying with MOQ’s
Long-term business relationships with buyers
MOQ deals come with the additional benefits of enjoying a long-term and steady relationship with bulk buyers.
This is opposed to individual orders where customers generally buy only a few products and do not turn into repeat customers.
4. Why a buyer would want a Minimum Order Quantity
A more thought-provoking question would be why the buyer would ever want a MOQ?
Surely there can’t be many benefits to doing so, more so within the dropshipping business model.
However, there are a few big reasons to do so:
Saving on shipping costs
The larger suppliers tend to enjoy preferential rates with their couriers and will not usually profit from this deal’s aspect. They will also know which couriers are the most cost and time-effective.
Additionally, when buying from B2C suppliers, some can be pretty wily with the pricing and often seek to profit solely from the shipping. This could also fluctuate and thus be difficult for buyers to price their products accordingly.
Ensuring the consistency and quality
For example, will frequently be shifting between different batches of products which may vary from one another. This can be a huge problem when you advertise a product in your store and a different one is delivered to your customer.
When buying using a MOQ, you buy directly from the manufacturer or their distributors. You ensure that consistency and quality don’t vary by buying at the source.
Branded products and packaging
Branding is what sets your product apart from the others; it projects the company’s image and is incredibly underrated.
On the contrary, when purchasing from a supplier requesting MOQ’s, this is possible in most cases as you are committing to the order upfront.
Long-term business relationship with sellers
As with the seller’s perspective, the buyer can benefit from the long-term business relationship when purchasing a MOQ. This shows the seller that you are serious, and they will appreciate that.
Remember, suppliers’ credentials are usually out there for everyone to see, but they know nothing about you.
As relations strengthen over time, you will find yourself being offered better rates, newer products, and even a better level of service.
It’s important to note that the seller wants you to succeed because when you do, so will they. MOQ’s are typically flexible for this reason and can be lowered just by asking. The supplier will likely take a slight chance of future business prospects.
5. Do you need branding?
When ordering with a MOQ, many suppliers will offer additional branded products and packaging services.
A well-branded product can practically sell itself
If they offer branded products, they will likely request a one-off fee to cover the cost of the equipment.
Without branding, your product will likely be delivered in a plain box. However, your supplier will offer several packaging options with your company logo printed on it with branding.
This will cost a little more than the plain box packaging, and you should expect to commit to a MOQ for this as well, as they will generally have to go outside their organization for this order.
6. But what if you can’t meet the Minimum Order Quantity?
So if you’ve asked around still can’t meet the lowest MOQ, what other options do you have?
There are still a few things that you can do:
Sometimes your small amount of business is not worth the extra accommodations needed from the supplier.
In this scenario, you could still check out other suppliers, who would still be able to offer steep discounts on bulk purchases but not have a MOQ in place to worry about.
Setup a pre-order system
Pre-order systems are another pretty good solution to this very problem. By having a pre-order system in place, you only place an order with your supplier when you have enough demands on your end.
Pre-order systems are a great way to meet MOQ’s
In doing so, you also remove the risk of being left holding inventory that you may not sell.
Additionally, you can use this purchase method to create hype and exclusivity with your customers.
You may have stumbled upon this article wondering how MOQ’s and dropshipping would ever come together. We soon learned that dropshipping with MOQ’s is not only viable but doing so comes with so many benefits.
We first took a look at why a MOQ is essential to a supplier as it helps with smoother manufacturing and logistics. Not to mention the savings they make, which will likely reflect in the price they gave you.
From a buyer’s perspective, MOQ’s open the doors to perks such as better product and shipping pricing, quality consistency, and a better relationship with suppliers.
We also went through some things to consider when negotiating with your suppliers, such as flexibility on the MOQ, shipping, and branding. Branding will only ever be available on a B2B basis but is crucial in setting your business aside from the others.
Finally, we explored other options if you cannot meet the (usually high) MOQ’s requested. These were to look at other supplier platforms or plug a pre-order system into your store.