What is MOQ? Minimum order quantity for your first order

MOQ (minimum order quantity) is the smallest number of units a supplier or manufacturer will accept in one order. Below it, they refuse the order or charge more per unit. On a first order, the MOQ sets how much cash you put at risk before anyone has bought anything. Choose your quantity by that cash and the sales it takes to earn it back.

The steps below assume you have one or more quotes from a manufacturer. If you are still looking for one, start with where to find a manufacturer, then send an RFQ so the quotes come back on the same terms.

What does MOQ mean?

MOQ meaning: minimum order quantity. A quote that says "MOQ 500" means the factory won't make fewer than 500 units in one order, or will only do so at a higher price.

Factories set one because every production run has costs that don't depend on how many units come off the line. A machine or mold has to be set up and tested, and materials often come in minimum batches, such as a full batch of a custom glaze color. The set-up cost is "roughly the same whether the factory produces 200 units or 20,000", as Cosmo Sourcing puts it. The MOQ is roughly where the run starts paying for itself.

An MOQ often applies per color, size or design, so a range of three colors at an MOQ of 300 is a first order of 900. One-off costs such as molds, tooling and samples usually sit outside the MOQ and are charged on top.

A worked example: two factory quotes

The numbers below are invented and round. A founder is launching a ceramic pour-over coffee dripper at $45 excluding tax. Two factories have quoted:

• Factory A: MOQ 1,000 at $6.00 a unit.
• Factory B: MOQ 300 at $7.40 a unit, or $6.90 a unit at 600.

Before looking at the quotes, the founder set a loss limit: $5,000, the most they could lose on this order without it changing their plans. Set yours first too, so the quotes can't talk you into a bigger number. Marketing to win customers is budgeted separately.

1. Compare quotes on first-order cash

Factory A has the lower unit price, but its first order costs far more. Multiply each MOQ by its unit price and add any one-off costs (none in this example):

• Factory A: 1,000 × $6.00 = $6,000 at the factory.
• Factory B: 300 × $7.40 = $2,220 at the factory.

Factory A's order ties up about 2.7 times as much cash, and on its own it is already over the $5,000 limit. On a first order, a higher unit price at a lower MOQ is often the better trade, because the extra $1.40 a unit buys a much smaller order. It stops being the better trade when the higher price leaves too little margin on each sale, which step 3 checks.

Check that both prices are on the same shipping terms first. A price quoted FOB includes getting the goods onto a ship at the factory's port. One quoted EXW means you collect from the factory gate, which costs more to get home. Comparing an FOB price with an EXW price makes the second factory look cheaper than it is.

2. Cost every option landed

The landed cost is what one unit costs once it reaches your door. Take the factory price and add the unit's share of freight, insurance, customs clearance, import duty, any import tax you can't claim back, a pre-shipment inspection and the fee for paying the factory.

Many of those costs are charged per shipment, not per unit, so they weigh far more on a small order. In the example, with invented freight and duty figures:

Factory B's 300-unit order costs $7.40 a unit at the factory and $11.40 at the door. Get real figures for each quantity from a freight forwarder. Send them the factory's address and port, the carton size, weight and units per carton, and the product's customs code (HS code). Don't estimate freight or duty yourself. The landed cost guide splits the $1,200 this example adds between factory and door into each charge. The inspection has a published price: V-Trust charges $268 a person-day in China's main manufacturing regions, travel included.

The cash also leaves in stages. Factories usually take a deposit when you order and the balance before the goods ship, with freight and duty due later. The whole order cost goes out weeks before any stock arrives.

3. Work out the break-even for each option

Next, work out what each sale leaves after selling costs: payment fees, packaging and postage to the customer, and a returns allowance. Then subtract the cost of winning the customer through ads or other marketing. In the example, selling costs are $9 a sale and winning a customer is assumed to cost $15. Each sale brings in $45 − $9 − $15 = $21 toward paying back the order.

Divide each landed order cost from step 2 by $21, and round up:

The bigger orders make more if everything sells. They also need more sales in total, and more cash out, before you get your money back.

Then find your ceiling: the customer cost at which each sale only covers its own unit. In the example it is $45 − $9 − $11.40 = $24.60. If winning a customer cost that much, every one of the 300 units would have to sell just to get the money back. The closer your expected customer cost is to the ceiling, the smaller your first order should be.

4. Default to the smallest order

Order the smallest quantity the factory will make, unless the small order leaves too little margin per sale and a bigger one fixes it. A low MOQ can also make the next tier worth it. A factory with an MOQ of 50 might cut the unit price sharply at 200 for a modest increase in cash.

Either way, the bigger order has to pass two tests. The landed order cost fits your loss limit, and the break-even is a number of sales you can realistically make on a first order.

In the example, 300 units from Factory B is the right first order. Moving to 600 cuts the landed cost by $1.91 a unit but adds $2,275 to the order, taking it past the $5,000 limit. Factory A's 1,000 units would need $8,200 out before a single sale. Factory A's $6.00 price is worth going back to for later orders, once the product is selling.

5. Ask what sets the MOQ, then negotiate it

If the MOQ you want is over your loss limit, ask the factory what sets it. The answer is usually a set-up cost, a minimum material purchase, or simply the order size the factory prefers. Each one moves differently, and factories rarely volunteer which it is.

Then make one clear request to the factory you want to work with: a smaller trial order now, and a larger reorder once the first batch sells. Factories are often more flexible on terms than on price, and on a first order the MOQ decides how much cash you risk.

6. Order after the pre-orders are in

The safest time to place a first order is after people have paid. Take pre-orders first, with a clear delivery date, and order once you have enough to reach the break-even. The pre-order campaign also tells you what winning a customer really costs. Rework step 3 with that figure before you commit.

Leave room for the factory to run late. Ethan Mollick's study of Kickstarter projects found that over 75% delivered later than expected, so promise a date with slack in it.

Most quotes are valid for a set period. If pre-orders beat your target, you can still move up a tier before the quote expires.

To get pre-orders, put the product in front of buyers before it exists, usually with a simple page and a small ad budget. That is also how you test demand before you build.

When order size matters less

• If the MOQ is tiny or there isn't one, as with white-label products, print-on-demand or dropshipping, you can buy a small amount of stock for a test outright. You still need to check the landed cost leaves enough margin on each sale.
• If customers buy again and again, as with refills and consumables, a first order that only just breaks even can still be a good business, because repeat orders don't carry the cost of winning the customer again. Leave them out of the first order's break-even and judge them separately.
• If even the smallest MOQ is over your loss limit, don't place the order. Look for a factory with a lower MOQ, a simpler version of the product or stock materials, and keep testing demand while you do.

Related questions

Finding the factory comes before any of this: where to find a manufacturer covers telling a factory from a middleman, and why the first quote isn't final.