MOQ analysis is important for any business to know what is suitable for use. No MOQ is right or wrong as several factors contribute to the final figure given by a company. MOQs vary from business to business, considering they are set up differently and have needs that differ, like use in varying seasons, competitions, and many more. In this write-up, we discuss a guide on how to set up MOQ
A Guide to Determine the Best MOQ
A set MOQ is ideal for a particular business. The choice for a high or low MOQ is dependant on you; however, going for a higher one requires you to compromise on some aspects. Some supplier MOQs can frustrate you, but you can either choose to use the high MOQ or pay more for each product piece you get. To calculate your comfortable MOQ levels, do the following;
1. Identify the Demand of the Product
Never come up with an MOQ by guessing figures or factors, as this may affect your business immediately or with time. You may have stock worth all your money, with no extra cash to cater to the remaining business needs. Different products have different demands, so some may move faster than others. As a business owner, have an inventory of all your sales, indicating how long they’ve taken to clear from the store. Determining the demand helps you keep enough stock in case of problems with the supplier or an increase in demand.
2. Determine the Point of Breaking Even
A break-even in a business is the point at which the profits match or are equal to the costs spent. Simply, your total revenue is equal to the expenses. The break-even point is vital in establishing the minimum order quantity. Spending too much money to meet a given MOQ isn’t logical, and you can accrue numerous losses if you follow that route. Already, the MOQ is ideal for the supplier and is meant to benefit them and create profits. By taking the selling price of each product plus the cost of any other business-related activities and minus the buying price of each item, you can identify the point at which you break even. You will know your profit margin hence the MOQ you select should be favorable for you.
3. Take Note of Your Storage Costs
These costs are also referred to as holding costs which are the expenses incurred when storing products. Product storage is necessary since they come in bulk and don’t sell all in a single day. However, the cost of storing these items varies due to factors like size, customer demand, storage duration, and warehousing. Understanding these costs enables you to calculate the best MOQ to prevent you from spending money on items that will be in your inventory for a long period.
4. Set Your MOQ
Depending on the three factors above, setting up an MOQ is easy. When you look at the demand of your products and how much you sell on average, choose your MOQ, then search for a supplier that matches or differs slightly from that figure.
Calculating your MOQ enables you to buy wisely and spend money on enough products for your business. It ensures whatever you order will automatically sell within a given time frame and bring you profits.