How to Make Money by Requiring a Minimum Order Quantity (MOQ)

How to Make Money by Requiring a Minimum Order Quantity (MOQ)

If you run or are starting an e-commerce business, you might have heard the term “minimum order quantity,” or MOQ, floating around. If you have heard of it, chances are you feel conflicted.

There’s advice for and against this method. This makes it difficult to decide whether it’s the right choice for you, especially if you don’t understand how it works and how it can make you money.

In this post, you’ll learn what an MOQ is, how to set one that won’t make your customers run for the hills, and how to use the strategy to increase your profits and reduce your expenses.

What Is Minimum Order Quantity?

Before we jump into the good stuff (like how to make money with an MOQ), let’s dive into the minimum order quantity definition.

An MOQ refers to the minimum amount someone can order from a business.

For example, imagine you’re a wholesaler on Alibaba. You create an MOQ of 100 units, which means your customers need to purchase 100 units or more to do business with you.

You can also make your MOQ a dollar amount. For example, your customers need to spend a minimum of $500.

Why would you want to use an MOQ? Simply put, it protects your business and profit margins. If someone wants to order only five items from you, it’s sometimes uneconomical to start the production process. If you do, you’ll end up losing money.

With an MOQ in place, it ensures you’re covering production costs and making a profit.

Do MOQs only work for manufacturers or wholesalers? No. You can apply MOQ strategies in direct to customer circumstances as well. For example, you can set a minimum spend to qualify for free shipping or product.

MOQ - example from Alibaba

How to Calculate Your MOQ

Calculating your MOQ is tricky.

It’s a key part of maintaining inventory control, but it differs wildly from business to business. There’s no fixed formula to calculate your MOQ, so you’ll need to customize it to your business.

How do you do this?

Follow the steps below to create your unique MOQ formula.

Step 1: Calculate Demand

Forecasting demand is at the core of your MOQ formula.

You need to consider your different products, seasonality, competition, and any other factors that will affect how many units you’ll sell.

The data can help you plan out your next purchasing order from suppliers and your production turnaround to make sure you can match demand.

Other things to take into account include:

  • total time to ship your inventory
  • freight transit times
  • production times
  • other delays that could affect your ability to meet the demand

Example: You sell phone cases and determine you’ll move 10,000 units each quarter. However, your sales are seasonal. During Q4, you sell 15,000 due to the Christmas demand, and your sales drop to 5,000 units in Q2. On average, your phone cases take one week to produce and ship.

Step 2: Calculate Your Break-Even Point

Next, you want to work out your break-even point.

This is the minimum number of products you would need to sell to recover your costs and start making a profit.

It’s the sweet spot where your revenue from sales exceeds your costs.

Example: If you sold five phone cases, how much revenue would that bring in compared to what you spent on production, salaries, and other expenses? You determine you need to sell 100 cases to break even.

Step 3: Calculate Your Holding Costs

Your holding or inventory costs is the price it costs to store your products before shipping to a customer.

It will cost you more money to hold your inventory over extended periods. The quicker you can move items, the lower your holding expenses and the higher your profit margin.

However, not all goods carry the same holding cost.

Some might require refrigeration, which will increase your electricity bill, while other items like phone cases can sit on a shelf for months at room temperature.

Example: You determine it costs you $2,000 per month to store 500 phone cases.

Step 4: Calculate Your MOQ

With all the data collecting out of the way, it’s time for your final calculation.

Let’s say your phone case customers currently purchase on average 200 units.

You need to sell 100 units to start making a profit.

You can make your minimum order quantity 200 units. It will cover your break-even point of 100, and you could drop your MOQ to 150 if you need to and still make a profit.

What Are the Benefits of Requiring an MOQ?

As a manufacturer and seller, there are many benefits to switching to an MOQ business model to boost your bottom line.

The main benefits of MOQ include:

  • Cash flow: Worried about investing too much money in stock and it not selling? A minimum order quantity means you have less cash tied up in raw materials or product that isn’t moving. You can balance your costs and profit with item amounts your customers will accept, thus reducing waste and unnecessary expenses.
  • Low inventory: You don’t want your product inventory to sit on a shelf collecting dust. By implementing an MOQ, you can lower the number of finished items in your warehouse. The less time you store your products, the less money you spend on holding costs and the bigger your profit margin.
  • Increase in profits: The crux of MOQ is demand. You’re not guessing how much product or raw material your customers want. You have a clear idea of how much stock you can realistically move. Using your MOQ to find a balance between supply and demand, you can produce in larger quantities, bring your overall costs down, and increase your profits.
  • Move lingering stock: Another benefit of the MOQ module is its ability to move stock. If you’re sitting with 100 phone cases and selling them one by one, it could take months to empty your inventory. By setting an MOQ of 50 or 100, it would only take one or two customers to clear out your lingering stock.
  • Lower shipping costs: If you’re constantly shipping in raw materials or product to create your items, your freight costs will be high. However, when you set your MOQ at an optimum level, you’ll ship more product in bulk and lower your shipping expenses from suppliers.

5 Tips for Making Money by Requiring an MOQ

Okay, let’s get to the good stuff! We’ve gone over the MOQ definition, the benefits, and how to create an MOQ formula for your business.

Now we’re going to discuss how you can start making more money by requiring an MOQ from your customers.

I know it can seem daunting to set one. What if you scare your customers away and no one opts in? If that thought is swimming around in your head, here are my top tips for implementing an MOQ and increasing (not decreasing) your profits.

1. Eliminate Bargain Hunters

MOQ isn’t only about improving your profit margin. It helps you find a small number of customers who are happy to spend more money with you.

No matter what type of business you’re running, it’s often easier to have a small number of high-paying clients than dozens of low-paying clients. Small or once-off customers mean it will take you much longer to reach your desired income goals while taking up more time and energy along the way.

MOQs help you weed out all the bargain hunters who want the lowest possible price and make room in your garden for repeat clients who are happy to spend larger amounts with your business.

Say hello, recurring revenue, and goodbye to an unstable income flow.

Why should you care about generating recurring revenue?

2. Increase Spend on Your Orders

Want to incentivize your MOQs? Encourage your customers to spend a minimum amount by offering a discount.

You can:

  • Reduce the cost per unit for a higher spend: For example, sell three bottles of shampoo for $60 instead of $30 each if purchased separately.
  • Offer a minimum free shipping minimum threshold: For example, most online retailers will offer free shipping if you spend a minimum amount. It encourages customers to spend more to meet the requirement.
Tips for Making Money by Requiring an MOQ - Increase Spend on Your Orders

3. Make Pricing Attractive to Boost Inventory Turnover

Your MOQ will only work if the price is right.

You need your price per order to be enough to cover your expenses and make a profit, but it still needs to attract customers. If your minimum order amount is too high, you won’t get any orders, and you’ll sit with inventory for longer, driving up your costs.

After you’ve figured out your MOQ formula, do your market research. See what your competitors are offering and confirm a high enough demand before you start spending money on things you can’t recover, like warehousing.

4. Move Old Stock With Flash Sales

What happens if your stock isn’t moving? Maybe there is a lull in the season, or you’ve tried a new product variation, and not enough people are biting.

One of the best ways to recoup your money and free up your inventory is with flash sales.

An excellent example of how well flash sales can work is Black Friday. Activewear giant GymShark frequently uses this strategy during the biggest sales day of the year and has broken in-house sales records by generating $400,000 in 60-minutes.

A well-executed sale can do more than move excess inventory or help you break even on poor-selling items. When done right, it can also increase customer loyalty and customer acquisition, which will boost your profits in the long run.

flash sale moq example

5. Have a Good Inventory Management System in Place

An essential part of any business is automation. It helps you do more with the same number of hours in the day and focus on the actions that move the needle forward.

When using an MOQ strategy, your success relies on having a good inventory management system in place. With a few clicks of your mouse, you can set reorder points for specific items, streamlining your inventory management process.

Other advantages include:

  • Keeping your customers happy by maintaining healthy stock levels and quick turnaround on orders.
  • Track your inventory turnover ratio to make better use of your resources.
  • Save money by avoiding tying too much money in inventory and not having enough inventory to complete sales orders.

How to Calculate Your MOQ

  1. Calculate Demand

    Predict the number of sales you’ll make. To calculate this figure consider the products you’re selling, seasonality, competition, shipping time, and any other factors that may affect your sales figures.

  2. Calculate Your Break-Even Point

    Determine the number of products you have to sell to make a profit.

  3. Calculate Your Holding Costs

    Figure out how much it costs to store your products before sending them to customers.

  4. Calculate Your MOQ

    Figure out how many units you have to sell to turn a profit, how many you predict you’ll sell, and determine your MOQ accordingly.

Conclusion

What’s one of the most off-putting things about starting a business? Capital.

Not all of us have access to a lump sum of money to invest in an idea, and the thought of going into debt for a business that isn’t seeing results yet is terrifying.

With a minimum order quality strategy in place, you can reduce your upfront capital amount, cost per unit, and expenses like storage costs. The MOQ that works for your business is unique, and finding it requires research, planning, and understanding demand in the market.

However, once you have it, an MOQ can help you scale, avoid unnecessary expenses, and run a profitable business.

Capital isn’t the only thing you need to start a successful business; you only need a great digital marketing strategy in place. If you need help with that aspect, reach out to our agency!

Do you think minimum order quantity is a good business strategy? Why or why not?

How to Use First-Party Data for Ad Personalization

how to use first party data

Have you ever felt like someone was watching you online? Those shoes you just searched for on Amazon suddenly show up in ads on Facebook. Maybe you start seeing ads on YouTube for a resort you were researching for an upcoming vacation. 

The truth is, you are being watched. In fact, marketers have used cookies to track the actions of internet users for years—but that may soon change. Google announced they are ending the use of third-party cookies. As a result, most businesses will have to rely on first-party data for things like ad targeting. 

What does that mean for your marketing strategy? It might not be as bad as you think. 

Here’s what you need to know about first-party data and how to use it to create targeted paid ads. (Spoiler alert: It might actually be better for your PPC strategy in the long run!) 

What Is First-Party Data? 

Before we dig into what this change means for your paid ads, let’s talk about the different types of data companies use in marketing. 

First-party data is information companies collect from their own sources about their customers. For example, the data from your website tracking tool, your email subscribers, or surveying your audience.

Second-party data is when two or more organizations come together to mutually share their data. Third-party data is collected by one source, often aggregated, and then sold to a third party who has no connection with the original source. 

To summarize:

  • first-party data: data you collect about your customers or site visitors
  • second-party data: data you and someone else pool together
  • third-party data: data collected by one party and sold or shared with an unrelated third-party 

What Is the Difference Between First-Party Data and Third-Party Data?

Third-party data, the type Google is phasing out, refers to data collected from (as you might have guessed) a third-party, meaning a site or entity without a direct relationship with the original source. 

Third-party data is collected, aggregated, and sold to other parties. The problem is the brands buying the data have little idea where it came from. 

There are other issues, too. For example, you can buy third-party data, but so can your competitors. That makes it hard to be competitive. 

This chart helps illustrate the difference between the different types of data. 

What Is the Difference Between First-Party Data and Third-Party Data

Why Is Third-Party Data Being Phased Out?

The main reason third-party data is being phased out is due to major security and privacy issues. 

David Temkin, Director of Product Management, Ads Privacy, and Trust at Google, shared, 

People shouldn’t have to accept being tracked across the web in order to get the benefits of relevant advertising. And advertisers don’t need to track individual consumers across the web to get the performance benefits of digital advertising. 

Advances in aggregation, anonymization, on-device processing and other privacy-preserving technologies offer a clear path to replacing individual identifiers.

Google isn’t the only one phasing out cookies. Firefox stopped using cookies in 2013, and Microsoft made “Do Not Track” their default setting the same year

In addition to privacy issues, cookies aren’t as accurate as some might think. For example, they can’t always track users across devices. 

If you shop on your phone for a pair of shoes but buy them on your laptop, you might still see ads for those shoes on your mobile device—which is terrible for ad spend, as brands waste money targeting users that have already converted. 

How Will Using First-Party Data Impact Ad Personalization?  

As Google phases out third-party cookies, many brands will begin using first-party data to better personalize ads. What does this mean for your paid marketing strategy? 

Don’t worry; you won’t have to rebuild your marketing strategy from scratch. However, there are a few changes you’ll want to pay attention to:

  • Brands will need to focus on collecting first-party data: If you haven’t been gathering data about your audience, now is the time. Consider hosting contests, using website tracking tools, or sending out surveys to collect more information about your audience. 
  • Competitive analysis will get harder: One of the downfalls of third-party data is that you and your competitors are using the exact same targeting data. With the move to away from third-party cookies, it might become harder to understand why your competitors are taking certain actions. 
  • Ads may get more personalized: First-party data is data from your actual site visitors and customers, making it easier to create a personalized experience. 

Day-to-day, the switch away from third-party data is unlikely to impact the marketing world in a massive way. Most brands will begin to rely on first-party data more; however, Google is also creating what they call a “privacy sandbox” to allow brands to target users without invading their privacy. 

Brands that want to succeed shouldn’t rely entirely on Google’s new data plan because there are a ton of advantages to using this type of data?

Advantages of Only Using First-Party Data for Ad Personalization 

Why should you consider moving to first-party data rather than relying solely on Google’s privacy sandbox? 

For starters, most brands are increasing their reliance on first-party data, which likely means they are seeing positive results. According to Google, 87 percent of APAC brands consider it critical to their marketing efforts.  

Google rate of first party data usage stat

Let’s look at a few other benefits to consider.

First-Party Data Is More Accurate 

First-party data is information you collect about your customers. This makes it more accurate because you know who it is about and where it came from. 

Third-party data is sold and sometimes resold, which means brands have no access to the source data and, sometimes, very little idea about where the data is actually from. 

Boost Marketing Performance 

Some people are really concerned about the end of third-party data, but I’m not. Why? Because first-party data isn’t just more accurate; it’s also much more efficient at driving consumers to take action. 

According to a study by Boston Consulting Group, marketers that use first-party data see a lift in marketing efficiency, generating nearly double the revenue from a single ad or placement.

Your Competitors Don’t Have the Same Data 

Standing out online sometimes feels impossible. With millions of companies, billions of internet users, and more content being churned out every day, brands that want to stand out face a ton of noise. 

With third-party data, you and your competitors can buy the exact same data, which makes it pretty hard to be competitive. However, your competitors don’t have access to the data you collect, making it easier to test new initiatives or uncover opportunities about your own traffic and customers. 

You Can Double Down on Personalization 

According to Forrester, 89 percent of digital companies invest in marketing personalization. It’s easy to see why when 80 percent of customers report they are more likely to purchase from brands that offer a personalized experience. 

Using third-party data for personalization was never a perfect match. You might not know when a customer converts from another device or if the data you’re using is skewed. With first-party data, you can dive into personalization, secure in the knowledge that your data is accurate.  

It Is More Standardized 

Imagine asking five people to create a puzzle piece. You give them all the same parameters for height, length, and shape. Even with the same directions, each of those pieces isn’t quite going to fit together. 

The same thing happens with third-party data. Each platform might gather it just a little bit differently, which can make it almost impossible to pull all that data together. With first-party data, however, you gather the data. This means you can ensure it is standardized and works well with all your tools and systems. 

First-Party Data Is Cheaper 

Third-party data is purchased from another vendor, which means you are shelling out cash for data that is less efficient, less accurate, and harder to use. First-party data, on the other hand, is information from your own audience. 

Which means you don’t have to buy it. You will have to pay a bit to collect and store the data, but it’s likely much cheaper than purchasing the data from another source. 

How to Use First-Party Data for Ad Personalization 

We’ve covered what first-party data is, why Google is ditching third-party data, and a few of the advantages of using it. How do you actually put first-party data to use? Here’s what you need to know to use this data for ad personalization. 

Determine How to Leverage First-Party Data 

Before you start collecting data, take the time to figure out how you will use the data to further your marketing goals. How you plan to use the data will impact what type of data you want to collect and how you gather it. 

You might use it to: 

  • build brand awareness 
  • reduce churn 
  • send timely ads 
  • drive more qualified leads 

For example, if the data will be used to send more personalized email marketing campaigns, you could gather the data through an email survey. 

Make a Plan to Gather First-Party Data 

Unlike third-party data, you can’t just buy first-party data; you’ll have to gather it yourself. Luckily, there’s no shortage of ways to gather it.

For example, you can collect first-party data from:

  • website visitor tracking tools like Crazy Egg 
  • your mobile apps
  • offline surveys
  • social media channels
  • user registration for your website 
  • contests

Before making a plan to gather data, think about how you plan the data to personalize your marketing. For example, retargeting ads, personalized product recommendations, or account-based marketing

Ask Permission to Gather the Data 

One of the major issues with third-party data is some web users don’t even realize they’re being tracked. As first-party data becomes more popular (and as privacy laws limit the data we collect about our audiences), it’s important to be transparent about the data you gather

Ensure your audience clearly understands what data you collect, what you do with it, and how it’s stored. Being transparent about the data you collect and how you use it isn’t just the right thing to do, it’s required by law in some places, like the EU’s GDPR.  

Test, Tweak, and Retest 

With third-party data, you get what you get. There is no way to change the type of data you collect or adjust how you gather it.

With first-party data, you can test to figure out the best way to collect data by adjusting how you gather it or test and tweak how you use the data by A/B testing ads to see what your audience responds to. 

Conclusion

Third-party cookies are coming to an end. What does that mean for marketers? It means it’s time to start leveraging first-party data for personalization. The good news is, it is more accurate and cheaper, and it can even improve marketing efficiency. 

The first step to using first-party data is to find a way to collect it through polls, customer surveys, or website tracking tools. Then make a plan for how to use it. If you need help getting it set up, we can help

Are you planning to use first-party data for ad personalization? What are your marketing goals?

B2B Marketing News: Influencer Ad Budgets Rise, B2B Buyer Report, Stellar US Ad Market Spending Increase, Zoom’s Immersive View, & LinkedIn’s LXP

2021 April 30 Advertiser Perspectives Chart

2021 April 30 Advertiser Perspectives Chart

What B2B Buyers Say Sellers Can Do to Influence Their Purchase Decisions [Report]
71 percent of B2B buyers see client desires and needs as the leading influences on purchase decisions, while 68 consider showing what’s possible or how to solve a problem as being the biggest influence — two of several statistics of interest to B2B marketers in recently-released survey data. MarketingCharts

U.S. Ad Market Turns In Best March Ever: Up 25% Vs. 2020, 7% Vs. 2019
March saw the U.S. ad market grow nearly 25 percent since the same time last year, and even managed to increase 7.2 percent from pre-pandemic March 2019 levels, according to newly-released Standard Media Index (SMI) data. MediaPost

Zoom launches Immersive View to unify participants in the same virtual room
Zoom has announced that up to 25 people can virtually co-occupy shared environments using a recently-launched feature, in a move aimed at expanding the video conferencing firm’s traditional participant presentation format of individual square streams. VentureBeat

Study Finds Independent Agencies Make Strong Comeback In Q1
64 percent of independent agencies had increased first quarter revenue year-over-year, while 75 percent said that they expect remote working options to endure into post-pandemic routines — two of several findings in recently-released survey data. MediaPost

LinkedIn Announces ‘LinkedIn Learning Hub’ to Provide More Comprehensive Skills Development Pathways
Microsoft-owned LinkedIn (client) has announced that its forthcoming learning experience platform (LXP) will offer a variety of new community-based learning and other skill-boosting features of interest to digital marketers. Social Media Today

IAB: Ad ‘Confidence’ Has Surged, Less Frequent Reviews Of Budgets
Some 61 percent of U.S. advertising executives are confident or very confident in the stability of their advertising budget for the rest of 2021 — sharpy higher than the 22 percent who expressed the same levels of confidence in November of last year, according to newly-released survey data. MediaPost

2021 April 30 Statistics Image

Reddit unveils its Clubhouse clone, Reddit Talk
Social news aggregator and discussion platform Reddit has launched Reddit Talk — its flavor of the audio-call-based communication app format popularized by Clubhouse, which Reddit has made available for both iOS and Android devices, the firm recently announced. TechCrunch

Facebook Tests New Video Ad Options, Including Updated Targeting Categories and Instagram Reels Ads
Facebook has announced testing of new in-stream ads with a variety of topic-based targeting features, utilizing machine learning to offer what the social media giant expects to be increased response rates. Social Media Today

Microsoft Advertising Unleashes Ad Units And The Ability To Import Facebook Campaigns. What Else Is New?
Digital advertisers can use a new feature being tested by Microsoft to more easily bring campaigns from Facebook Ads into Microsoft Advertising, and the firm also released an array of new ad formats including video ads for search results, Microsoft recently announced. AdExchanger

Ad Execs: Paid Content/Influencers Now The Biggest Share Of Digital Budgets
Paid branded content and influencer marketing have accounted for 20 percent of 2021 digital advertising budgets, while influence marketing was seen as the second most important digital ad option for 2021, according to recently-released survey data. MediaPost

ON THE LIGHTER SIDE:

2021 April 30 Marketoonist Comic

A lighthearted look at “the state of digital advertising” by Marketoonist Tom Fishburne — Marketoonist

How Pixar Uses Hyper-Colors to Hack Your Brain — Wired

TOPRANK MARKETING & CLIENTS IN THE NEWS:

  • Lee Odden — Finding Acceptance and Identity through Trail Running, even though I’m not a Runner [Video] — Tim Washer
  • TopRank Marketing — Using Social Media Polls for Market Research — Utah State University

Have you located your own top B2B marketing story from the past week of industry news? Please let us know in the comments below.

Thanks for joining us for the TopRank Marketing B2B marketing news, and we hope that you will return next Friday for more of the week’s most relevant B2B and digital marketing industry news. In the meantime, you can follow us at @toprank on Twitter for even more timely daily news.

The post B2B Marketing News: Influencer Ad Budgets Rise, B2B Buyer Report, Stellar US Ad Market Spending Increase, Zoom’s Immersive View, & LinkedIn’s LXP appeared first on B2B Marketing Blog – TopRank®.