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.
In this article, we go through what it actually is, whether you need it or not, and how to negotiate with suppliers on the MOQ.
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 especially used in large-scale business models such as B2B.
To make it easier to understand, let's take a look at an example; Alibaba, the largest B2B supplier out there. (And yes, you can do dropshipping with Alibaba)
However, the same logic applies to pretty much any supplier with a MOQ.
Using the above example from Alibaba, this supplier does not sell less than 10 units. Furthermore, their prices are tiered based on how many units are purchased.
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:
Is there a MOQ 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 kind of counter-intuitive, right?
Normally, there is no MOQ for dropshipping as a dropshipper 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 dropshipping 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.
Sure, you can find most products listed on Alibaba, for example, listed on AliExpress without needing a MOQ.
So to what benefit would you ever want to take on such a risk? Stay with us, and we'll dive into that now.
Why a seller would want a MOQ
Let's first examine why a seller would require a MOQ to do business with someone.
Smooth manufacturing
One of the reasons you will typically find better prices with sellers requiring a MOQ is that 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 saving can and usually are passed onto the buyers.
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 in opposition to individual orders where customers generally buy only a few products and do not turn into repeat customers.
Why a buyer would want a MOQ
A more thought-provoking question would be why the buyer would ever want a MOQ?
Surely there can't be much of a benefit to doing so, more so within the dropshipping business model.
However, there are actually a few big reasons to do so:
Better prices
Sellers on AliExpress are most likely buying from Alibaba. The only difference is the price, which is astonishing.
Furthermore, a large number of stores on Amazon also do this. Take a look at the price differences below:
Now compare the above prices to the quote below, and it'll soon become obvious why many dropshippers would want to deal with a MOQ supplier:
As you can see, the price per piece is way less if you purchase 30 instead of 15 at the same time. (This is also called a volume discount)
Also, keep in mind that this is not even comparing it to buying only one piece at a time!
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 quite wily with the pricing and will 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
Suppliers on AliExpress, 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 are buying 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.
When buying products from suppliers such as AliExpress, this is purchased on a B2C basis, so branded products and packaging will rarely be provided. This is because it wouldn't benefit the supplier to hold your branded and unpaid products that may never sell.
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, supplier's 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 here 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 small chance of the prospect of future business.
How do you negotiate with suppliers?
You may now be wondering how to go about approaching suppliers to make your first MOQ purchase. Perhaps you've seen a well-priced product but can't make the MOQ.
Not to worry, we've got you covered, so read on!
Do they cover dropshipping?
This is the first question that you should be asking your supplier. Not every supplier will facilitate dropshipping. From their perspective, it's a lot of extra work, and perhaps the juice just isn't worth the squeeze for them.
Many suppliers that don't facilitate dropshipping will point you in the direction of a reliable fulfillment center or a dropshipping agent; try to remain open to the idea.
If you're using Alibaba, then don't forget to take a look at the Alibaba Dropshipping Center.
Ask to reduce the MOQ
Perhaps you can't meet the MOQ due to your own financial limitations, or you just are not too confident about being able to sell such a large amount of products to begin with.
Many suppliers will agree to a smaller MOQ on the first order with the hope for future business. Suppliers typically perceive this extra bit of work for little gain as a longer-term investment.
So ask around, message multiple suppliers with your counter-proposal on the MOQ; you'll be amazed how flexible they can be.
Discuss the shipping
Without keeping your shipping costs in check, you could soon be eating into your profit margins without even knowing it. Additionally, logistic dynamics are forever changing, so it's more important than ever to know the best shipping method for you.
Once you think you have found a suitable supplier, you will need to ask them how much the shipping will cost and how long deliveries will generally take to your target countries.
Suppliers should be able to back up their claims on delivery times. You can request this by asking for tracking numbers on fulfilled orders and seeing the orders' full journey, such as above. This is not an unusual request, so don't be shy to ask.
Do you need branding?
When making an order with a MOQ, many suppliers will offer an additional service of branded products and packaging.
If they do offer branded products, they will likely request a one-off fee to cover the cost of the equipment to do this.
Without branding, your product will likely be delivered in a plain box. However, with branding, your supplier will offer several packaging options along with your company logo printed on it.
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 normally have to go outside their organization for this order.
But what if you can't meet the MOQ?
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:
Alternative suppliers
Using the same example as before, Alibaba suppliers are B2B, and sometimes your small amount of business is not worth the extra accommodations needed from the supplier.
In this scenario, you could still check out suppliers on AliExpress, who would still be able to offer steep discounts on bulk purchases but not have a MOQ in place to worry about.
If you're interested in seeing more suppliers, check out this big list here.
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 orders on your end.
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.
Final thoughts
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 important 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 to plug in a pre-order system into your store.
Now that you know the benefits of going with a supplier with a MOQ when dropshipping, do you think you will do so? Let us know in the comments below.
