As the owner, or future owner, of an eCommerce you must be familiar with certain terminologies related to it. For example, Do you know what the MOQ is and how it is managed?
Don't worry if you have no idea what we're talking about. Below we are going to talk to you about this term and why it is so important to be very clear about it. Shall we start?
What is MOQ
Let's start with the first thing, and in this case it is that you understand what these acronyms mean. To do this, we have to go to English, since MOQ stands for Minimum Order Quantity. In other words, minimum order quantity.
And how would the minimum order quantity be defined? It would be the minimum number of units of a product that a supplier is willing to sell for the order to be fulfilled.
Let's give an example, if you buy a lot on Amazon, perhaps you have ever found that, to order a product, you have been forced to buy, not one unit, but several. In fact, on the page they tell you that the "minimum order" is x units. Well, it would be that minimum quantity that you have to buy in order to formalize the order.
Do suppliers work with MOQ? Well yes, many of them work this way because it is a guarantee that they will be able to recover the expenses they have incurred. Not all providers will do this, but you should be prepared for this situation.
Additionally, as a seller, in your eCommerce you could also do the same: sell under a minimum number of units. The normal thing is to sell individually (one unit) but in lower offers you could request that two or more units have to be purchased.
Is it important to set an MOQ?
To this question, the answer is not easy. Both the suppliers and the sellers (in this case you), face a series of expenses: the storage of products, transportation, handling... Although in the case of sellers you can sometimes avoid all this, other times it is not possible.
The MOQ helps guarantee that the investment you have made can be recovered and thus have a balance between what you invest and what you earn. In fact, many times, by selling "lots", what it does is that the price is lower (than per unit), and although the total profit will be less, it can be a very useful practice to make yourself known. .
How to know what the minimum order quantity would be
Imagine that you are a supplier or have an eCommerce and there is a product that you want to have an MOQ. Now, how do you define that minimum quantity of product? Randomly saying that the minimum order is 5? Of 2? Of 7? In reality, there are factors that will influence this issue. Specifically, the following:
- The demand. Depending on what customers want, you can take advantage of the MOQ or not. For example, if there is a lot of demand, it may be better to sell individually at somewhat higher prices because you can be sure that they will buy from you. On the other hand, when demand is lower or there is a lot of competition, you can use this as a strategy.
- Depending on storage costs. Storing five or ten units is not the same as storing fifty or one hundred. The maintenance cost will be higher and you have to see if it is really worth it for you to face that expense and you will recover it with the sale.
- Cost effectiveness. Related to the above, it refers to knowing if once all the products are sold you will recover your investment and, if possible, one more profit.
With all this you will be able to determine the MOQ that you need or that you must sell to be profitable.
Benefits and drawbacks
So far everything seems very nice, right? However, like anything, it has its pros and cons. And sometimes this practice is not the best for you. Therefore, when analyzing it, you should know that the advantages it gives you are the following:
- You will have more affordable prices. By purchasing more you can lower the price. And as an eCommerce, by selling more, you can assume a lower profit.
- A minimum investment can be estimated necessary that, in the long run, it will increase your profits.
- In the event that the MOQ is used by suppliers, you will have a better relationship with them. Keep in mind that what they want is to remove as many products as possible, and if you help them that will make their relationship with you better.
- You will reduce shipping costs, because you won't have to continually ask. And in the case of clients, the same thing would happen.
But be careful, everything above looks good, but…
- You have to make a major investment, because you buy more products.
- Te You risk not selling everything.
- You should bear a series of costs due to that extra storage of the products.
- You don't have that much variety in products.. For example, imagine they are white t-shirts. But your clients like to have a white one, a black one, a red one... And not all of them are the same, even if the price is interesting.
The MOQ as a strategy for your eCommerce
As we have told you, the MOQ is closely related to the suppliers. But you can also use it in an eCommerce. For example, if you have a lot of glasses in stock, you could place an offer for a minimum lot of 2 for the price of almost one. That will attract potential customers because your price will be different from the competition.
Let's go with numbers. Imagine that you sell a glass for 3 euros. And you decide that, if the minimum amount to buy is two, then instead of selling it for 6 euros you are going to sell it for 4,5. That means that each glass would cost 2,25. You, as a seller, bought it for one euro. That is, you still benefit from it; and your customers don't have to buy those glasses for 6 euros, but they have them much cheaper and that makes them activate the impulse to buy in their brain (because they see it as a bargain that they don't want to miss). Of course, everything will depend on whether they are looking for glasses.
From time to time you can do everything to encourage sales, and at the same time to help you remove items from your warehouse that do not sell much.
Now that you know what the MOQ is and how you should manage it, you have before you a tool that can be very useful. First, because suppliers can use it to sell more quantity and you can buy at a better price (as long as you are certain that you will sell it with a high percentage); and second because you can establish the MOQ as a strategy for your eCommerce. Did you know the term?