The MOQ Fear.
But why? If dissected properly then the Minimum Order Quantity is in reality trying to do you a favor.
When looking for a supplier the first thing they will ask you is how many do you want. This question is just as valid at the trade counter of Plumbase while your buying some copper compression elbow fittings for your weekend DIY “Project” as it is in a factory boardroom in China. Don’t be annoyed to be greeted with this question, I mean put yourself in their shoes. They need to know how many you want in order to know how to deal with you in the best way. If you only want 10 then you don’t need to be speaking to the factory boss, in fact you don’t really need to be speaking to the factory at all.
The quantity you want will have a direct impact on the price. There are a lot of factors to determine why this is, most of them very obvious, but the main very obvious one is that the more you order the more your supplier can potentially make thus it is worth there while to bend a little to get your business. Yes its not rocket science but believe me, every day I get people confused as to why they cant find anyone willing to give them a decent price on an order of twenty LED Television Sets. If you don’t make it worth there while then really they wont be too bothered in trying to work with you.
A growing economy here has meant that a lot of Chinese products have just as strong retail market value here as they do outside of China. This means that a cheap Hwyundina DVD player made here in Shenzhen can sell in the UK for 20 GBP and also sell in China for pretty much the same price. Even in supermarkets here the pricing is getting on par with the UK and is a lot more for certain items. 3.80 GBP for a pineapple!?
The long and short of it is that the factories are far from desperate for business anymore and China is becoming very self sufficient as its factories now supply its own people. Pretty neat economic situation for a country to be in right?
I am talking completely in theory here but say for a minute you owned this DVD player factory. As Mr (or Mrs) Hwyundina you know your factory has a monthly production rate of 30,000 DVD players. Increasing production is not really an option, perhaps you really like golf? Perhaps you already employ the whole village? Well would you rather sell those DVD players to large retailers in China in batches of 3000 and give them 30% margin or sell to small exporters in pallets of 300 and have to give up 70% margin? Given the choice I know what I would do. Times are changing here.
So from this completely made up Scenario Mr Hwyundina has taught us one thing. Its not really worth his time to sell his DVD players to you unless you want to make it worth his time. So with this in mind he informs his sales staff to put “MOQ 2000 Pieces” on his Alibaba listings. Does this mean you must buy 2000 units? Well no, but it also means you can’t expect to buy 20 and make any money.
So the MOQ on this level basically means how low a supplier or factory is willing to go in order for it to be worthwhile for them. It’s often a sliding scale and can depend on things like the rapport you have with the sales person your dealing with, how slow there week has been and how many cancelled orders they have sat in there inventory. All really common sense stuff that I am sure you all had tucked in the back of your heads already.
What I want to talk about is how we can use MOQ to make sure we think about potential returns on investments. This is after all what we are buying from China for. Again yes obviously if you buy more it’s going to be cheaper but I am repeating myself here for a reason. The reason is that there are still people out there wanting to buy 20 tablet PC’s to sell on eBay. How on earth do you expect to buy 20 tablets and compete on perhaps the most competitive online market place against a guy who is buying them by the thousand direct from a factory he’s been working with for years via an aged and best match ranked eBay listing from a TRS account? So if the MOQ covers the common sense end of how many you have to buy lets come up with something that covers if for how many you should buy. The MPQ. Minimum Profitable Quantity. Is it really annoying for me to make up new phrases?
When I first moved here I was also one of these guys. I wanted to sell tablet PC’s and live on noodles. I quickly learnt that I don’t overly like noodles and for me to sell tablet PC’s successfully i’d probably need to rob a bank. So, if you like your welcome to learn from me a little about tablet PC’s.
I spent perhaps a month tracking down a good medium sized factory making tablet PC’s. I bought a lot of them, from a lot of different places. They now make great tea trays in my apartment. Like anything in China you can get really cheap ones and some ludicrously expensive ones. I sampled pretty much all of them.
The factory I found was ideal for me and I spent a lot of time with them going through models, specs and negotiating on pricing. After all of this and more green tea than I care to remember they still insisted I had to order at least 1000 units to get near the pricing I wanted.
I wanted to buy a small amount to “test the market”. A great phrase that pretty much boils down to not having a great deal of confidence in the market research done or ability to sell. Regardless its sensible not to go crazy on the first order but instead order a steady amount.
At the time a fairly decent tablet similar to an iPad in size, form and function was about 130 GBP on eBay. So already in my head I was thinking right ok ill buy a load at 50 quid and sell them for 100. No problem. Well I came across a couple of problems. Firstly it would appear that like a lot of things on eBay tablets are a bit of a flooded market meaning the price its selling for is already super competitive with a low margin. And secondly the decent ones are just not cheap. Really to compete on quality and get the usability of a decent tablet you need a multi point touch screen like the iPad and you need a decent processor chip. Both of which are the sticking points on the price of the unit. In China they call the iPad like screen a 5 point touch screen and its good, it feels and works like an iPad screen both on sensitivity and accuracy. Its also not cheap but after using my little tool kit to take apart and play with a good few of these tablets I decided that I had to buy this screen.
Like I said this factory was not a huge production outfit which was ideal for me as they gave me the time of day. This also had a downside that they were not stocking or buying this part in huge numbers. Here came my first MOQ stumbling block, I had to buy 5000 of these screens. This wasn’t some kind of sales ploy by the factory making the tablets, I was speaking to the screen manufacturer in Taiwan directly. If I wanted to buy the screens from them at a factory direct cost then this is how many I had to buy. End of story.
I didn’t want to buy 5000 so I could not buy them direct from the manufacturer. Instead the sales guy at my tablet factory found me a larger tablet factory that did have some in stock and I could buy a small number from them. Great, but the price was almost double. This little issue coupled with a similar scenario on the processor chip meant my tablet was going to cost me around 85 GBP to manufacture. Without packing cables or the battery. Ouch. If I could go to ordering 5000 units it would cost around 48 GBP which would put me right on the money but there was no way I was about to put a quarter of a million pounds into tablet PC’s. After weeks of running around and sourcing various components from various factories I had boxes of parts and still could not get the margin I needed.
So this is what I mean by the MOQ really meaning the MPQ. The minimum amount of Tablets I could buy to make this profitable at the level I needed was 5000. That’s a lot. Maybe at 2000 I could make a fair margin but that margin at this level of investment is just not exciting enough for me. In this instance the MOQ quoted was an indication of the MPQ I needed, I should have listened and saved myself a month.
So after all that rambling what can you learn? MOQ is there for a reason. Here are the base points
How many units do you want?
A supplier needs to know this so they can best know how to deal with your enquiry and who you need to be speaking with. Want to buy 10 units? You need to be speaking to a wholesaler, want 1000? Then you are in factory territory.
What is your target purchase price?
If you want to buy a 32” LED TV for 70 GBP sure is possible but it wont be very good. Giving your target purchase price allows your supplier to know what type of quality your looking for. Its also a good idea not to lie too much. If you tell them you want to pay 30 quid for the LED TV you are not going to get a very helpful reply, remember these guys get hundreds of sales inquiries each week, if they feel your wasting there time they just wont give you it. You want to establish an honest relationship here with someone you can trust right? So try being honest. Realistically if you can sell that TV for 250 GBP then you should be really pleased with a 50% margin after shipping tax and fees. Paying 95 GBP for that TV would be awesome so to keep a little in the tank your target price should be quoted at 85 GBP.
How much margin do you need for each sale.
This is for you to think about. If you want to make 100% return on each sale I think your going to struggle on eBay. 20-50% margin high turnover items are more realistic. A sure fire way to increase your margin is to increase the order volume. So decide how badly you need that 50% margin, is it worth increasing your order from 1000 to 3000 units in order to reach it? Well do it then. Can you make this work at 30% margin without having to stretch cash flow? Well take it easy on the numbers for this one.
You want to take a small order of 30 units as a sample.
Think about why you need to do this. Is it to check the quality? Then why not just take 1? Is it because you want to see if you can trust your supplier? Well what happens when you order 1000 and they don’t send it? Is it to test the sales? Well then it doesn’t matter how much you pay for them, sell them at a breakeven to test the market. Small sample orders more often than not make a supplier think your not serious about the order.
I guess the long and short of this is that if you want to buy only a handful of items then it is going to be difficult to do that from China and still make a profit. You have to take some calculated risks. I really think that anyone can buy from China, its still a great opportunity with plenty of room for newcomers but you have to approach it in a realistic way. You need to do the research, have some funds available and take time to learn how it all works. Your first few orders are an education more than anything.
When I first started importing at 19 I was serious about it, I decided to sell my car, then I decided to sell my bikes and to keep me from dipping into those funds I worked a part time job. My university studies suffered but I was committed to finding a way of making this importing gig work. It’s a constant learning curve and I’m still very much learning now but I learnt something important early on. In order to start making money seriously you have to start seriously.
So before you make that order inquiry to Jenny at WuShu tablet trading ask yourself, are you being serious?