Minimum order quantity is the minimum number of product units required to be purchased at one time.
For example, if you have a Minimum Order Value of 50 units, then your customers must be able to purchase at least 50units to be able to buy from you. MOQ helps you to get a better profit margin by selling larger volumes of your products. You might not have any control over how many units will be sold per order but you can go wholesale and reduce the price of your product if the customer buys the minimum number of units decided by you. This discount makes them buy more and results in more sales per order.
How to calculate MOQ
- Determine demand: You can determine the demand for your products by taking into consideration the product type, seasonality, and competition. This can help you to estimate the units that you can sell. You should also monitor the demands by making sure that you have enough stock for any large fluctuations.
- Calculate your break-even point: When deciding the minimum order quantity of your products, you need to keep the break-even point in mind. You need to give discounts with bulk orders but it should not be in a way that it doesn’t get you any profit. Decide the MOV considering the profit margin that you are expecting.
- Come up with your MOQ- Suppose you have a high demand and your customer purchases 80 units per order on average. If you need to sell at least 100 units per order to be profitable then you can set your minimum order value as 100.
Benefits of MOQ
- Higher profits: Minimum order quantity and demand go hand in hand. Due to heavy demand, businesses will produce larger quantities of products and in turn, make huge profits by satisfying the customers and the retailers.
- Reduction in freight cost: You can experience really high shipping costs when ordering raw material as it takes special shipping charges. You can set an optimal MOQ to get the best shipping rate from the suppliers.
- Better management: When you have an idea about the minimum quantity of products your company needs to have, then you can make the adjustments accordingly. This leads to the efficient management of inventory.