What Are MOQs and How Are They Calculated?

2023-12-27 10:43:35

Commerce businesses are often “side hustles” for the business owners. Therefore, the first question is always, “how much money do I need to start selling online?”. Really, what they're asking is how little can I start out with to sell on Amazon, eBay, etc. New eCommerce business owners often don't take into account storage fees, accessorial fees, logistics costs, and lead times. However, a key factor they also fail to consider is factory MOQs. The question then becomes, “how little can I invest in my eCommerce business while still meeting factory minimums for my product.

What is a Minimum Order Quantity?

MOQ, or Minimum Order Quantity, is the smallest quantity or least amount of a product that a factory will allow being ordered. MOQs exist so that factories can cover their operational overhead costs. These include the MOQs required by raw material suppliers, labor required for production, machinery set up and cycle times, and project opportunity costs. MOQs differ from factory to factory, and from product to product.

FAQs about MOQs

Who determines product MOQs?

Ultimately, the factories do. MOQs that are displayed on marketplaces such as Alibaba are oftentimes the minimums that those factories, usually Original Design Manufacturers (ODMs), have set for a product they already produce. This is oftentimes not the same MOQ if you make customizations to products that may require an Original Equipment Manufacturer (OEM).

How are MOQs calculated?

Minimum Order Quantities are set by factories and are calculated based on a few key factors such as how simple the product is to manufacture, how expensive or inexpensive it is to manufacture, and how large the product is. Small products that are simple and inexpensive to produce a call for higher MOQs due to tight margins.

When factories are calculating MOQs, they must consider:

The size of the product

The complexity of the product

Overhead costs

Molding and tooling costs

Raw materials MOQs and costs

Labor hours

Machinery downtime

Are Minimum Order Quantities Negotiable?

They can be! However, you don't want to start out your supplier relationship by trying to negotiate lower MOQs. (Really, you don't want to start your supplier relationship trying to negotiate anything on your first orders). Your supplier and you will both be feeling each other out to ensure the business relationship is of mutual benefit. Your supplier will want to be sure that you're going to continue doing business with their team, and you have to be sure that their business is worth its salt.