If you are starting up an e-commerce business or already have one, you'll need to know some things about buying from a wholesale supplier to purchase larger quantities for lower prices so you can make a decent profit margin.
You will need to do the math to determine what is a good minimum amount when shopping wholesale for your business in your particular circumstance. No two businesses are the same, and therefore, there is no one
Wholesale Business Terminology
One of the first lessons owners of small businesses need to learn when starting their stores is wholesale business terminology. Some of the most common terms include:
Minimum Order Quantity -
A minimum order quantity is the number of items a buyer must purchase as their minimum order. Some wholesale businesses won't allow a customer to order less than their set minimum order, while others will allow customers to order less than a minimum order but charge more per unit when they do.
MOQ Terms -
MOQ refers to the terms and conditions of the minimum order quantity. In the e-commerce realm, you'll hear the wording a lot. It simply means the least number of goods wholesalers set that you must purchase at one time to be allowed to order.
MOQ Requirements -
What are MOQ Requirements? The short answer is that it is the calculated minimum order or the fewest number a manufacturer must sell at one time in order to make money. MOQ Terms typically are on the buyer's end whole MOQ Requirements are geared to manufacturers as a rule because it has to do with their production run.
Freeing Up Funds
If you find it necessary to come up with additional finances in order to meet MOQ demands, try carrying fewer items. If that doesn't work for you, cut corners in other areas such as marketing or hiring fewer employees. You may also want to think about going up a little on your prices in order to foot the bill.
Questions to Consider When Searching for a Wholesale Channel
Starting a business can be challenging. MOQs come from the opposite side of retailing - when wholesale companies setting minimums come into play.
But when you think of it from their perspective, it makes sense because they have to make money too. Here are some questions to ask yourself when contemplating your purchase order:
What amount is considered wholesale?
Most wholesalers have a minimum spend required (MOQ). Higher MOQ typically means you have to buy more but reap more savings on the wholesale pricing. Some wholesale businesses allow a higher per unit cost for fewer purchases which works well for some online sellers.
Otherwise, if the minimum order quantity MOQ is not negotiable, you'll need to set your own limit as far as the minimum amount you can spend and still have cash flow.
What is the minimum order amount?
As an e-commerce business owner, you also have to be sure you make money. That means you need to purchase in larger volumes to acquire low-cost items in bulk. There must be a balance, though.
If you use more cash upfront because you're buying large quantities, you may find yourself in a jam financially.
You have to be sure you have an inventory turnover so the money you have tied up and the money you bring in even out.
You should be able to see the minimum number of items you have to purchase when you check into placing wholesale orders. You'll also see the wholesale price.
This information will help you set your retail prices but beware - if your prices are too high, you'll lose some customers. On the flip side, if they are too low, your profit margins won't be enough to stay in business.
In the event that you need to go with a supplier who doesn't have a high MOQ, never sacrifice quality or customer service. The only penalty you should face when ordering less is paying more for the order, nothing else. Some suppliers charge so much extra to allow you to order less than the price turns out to be above wholesale, and that doesn't put you in a good place for bringing in much (if any) profit.
The best way to have the information you need to figure out your financial situation and what amount will work for you is to keep good books. If you aren't skilled in that department, get a program that helps you or hire a professional. It's that important.
How to Figure Your Minimum Order Quantity
There are several different minimum order quantity formulations you can use to determine which wholesale suppliers are possibilities to buy from and which are not.
First off, you'll need to calculate the minimum order quantity judging from your budget. If you can't afford the minimum amount the supplier is demanding, move on. Going into debt over getting a good deal is not advisable.
Secondly, figure out how many units you have storage space for. If you are selling perishable raw materials, you may lose money if you order the minimum order quantity MOQ from some wholesale business suppliers.
Finally, reach a happy medium between your supplier, your own business, and your shoppers.
More Measures to Heed
Shipping costs are definitely worth considering. If possible, you want to benefit from a minimum order-free shipping incentive. Handling costs and holding costs matter too. Calculate the MOQ based on those two things in addition to volume discounts.
What amount is considered wholesale?
Be sure to know your break-even point when looking at wholesaler options. If you look hard enough, you'll find a wholesale channel with lower minimum order requirements or even incentives for new customers that entail a lower quantity requirement in their first-time order volume.
Keep in mind when you calculate MOQ terms that if you go with the lowest quantity at a wholesale company that has a high minimum, you may be able to meet demand, but smaller quantities cost more.
There are other factors to consider when figuring out what amount to purchase and where to set your minimum.
Do you sell small quantities like at trade shows or yard sales? Many businesses operate on slow-moving SKUs and don't have the customer demand that others do.
You might also consider different prices in what you sell according to what your customer spending average is.
While you may sell to bargain hunters at your physical location, you may have a different type of customer spending from your online store. That means how you buy wholesale may vary as well.
You can better afford to shop with a lower minimum if your customers are willing to pay more. If you fill wholesale orders, you may be able to turn a good number of sales quickly.
To do the math, figure out the dollar amount and the number of items you need for your minimum wholesale order as compared to your customer spending habits.
Doing so will help you determine your personal minimum order quantity as opposed to the minimum order quantities your wholesale suppliers set.
Never ignore your profit margin. If you do, you'll find you don't have one. You must make a profit, or your efforts of buying wholesale and selling retail are all in vain.
Building a Better Business Model
As you strive to find a lower MOQ that suits your needs or to order quantity items in a larger quantity to fill massive customer orders, you will find that building a model for your business is imperative in order to meet customers' demands.
Offer Quantity Incentives
Do most customers purchase more than one item when they buy from you? If so, be sure to order enough inventory for your customers. In doing so, you can get lower prices from your wholesale supplier and even offer low prices to your customers.
If your customers don't tend to buy more than one item, consider incentives, so they purchase more at one time. Entice shoppers however you can.
Run sales like buy one get one half off or buy one get one free. Customers are more likely to purchase in higher volume when there is a reason to do so.
Keep Your Eyes on the Prize
Always remember what your goals are and figure out how to attain them. Don't lose sight of where you are going, and you'll do fine.
Don't be swayed by the MOQ of stores that demand too much from you. If you can't afford to meet the requirements initially, you can set your sights on building up to it later.
Ensure Customer Satisfaction
Customer satisfaction is always vital to any e-commerce business and for brick-and-mortar selling too. What matters to your consumers must matter to you too.
If your shoppers are looking for deep discounts, do all you can to provide that for them. If doing so means tying up more money in order to get cheaper deals so you can sell to them cheaper, you may need to cut corners elsewhere so you can accommodate them.
Summing Up Your Wholesale Needs
The more you learn about MOQ and other aspects of your business, the better you will become at figuring out the amount of purchase that works for you and for your customers.
Balancing it All Out
Balance is everything. Once you find your magic number, stick to it and build around it. You will experience success when you get the right formulation flowing.