Minimum order quantity: Overview, definition and example
What is minimum order quantity?
Minimum order quantity (MOQ) is the lowest amount of a product a buyer is required to purchase from a seller in a single order. It is a common term in sales contracts and helps sellers ensure that they can cover their costs or achieve a reasonable profit on each transaction. MOQs are often set based on production or shipping costs, and they prevent sellers from processing small, less profitable orders.
Why is minimum order quantity important?
Minimum order quantity is important because it helps sellers manage their production or inventory costs. By setting a minimum, sellers ensure that each order is large enough to justify the resources involved in fulfilling it. For buyers, understanding the MOQ can help them plan their purchasing needs and avoid unnecessary overstocking. It also ensures that both parties are clear on expectations before finalizing the deal.
Understanding minimum order quantity through an example
For example, a manufacturer of custom T-shirts might set a minimum order quantity of 500 shirts for each batch. This ensures that the cost of printing, materials, and labor is covered, and the manufacturer doesn’t lose money on small orders. A buyer who wants fewer than 500 shirts might have to either increase their order or seek a different supplier willing to accept smaller quantities.
In another case, a supplier of office supplies might have a MOQ of 100 units for a particular item, like printer cartridges. A company needing only 50 units might not be able to place an order directly with the supplier unless they adjust their order size.
Example of a minimum order quantity clause
Here’s how a minimum order quantity clause might look in a contract:
“The Buyer agrees to purchase a minimum order quantity of 1,000 units per order. Any orders below this quantity will not be processed unless agreed upon by both parties in writing.”
Conclusion
Minimum order quantity sets the floor for the amount a buyer must purchase in a single order. It helps sellers protect their margins and ensures that buyers understand the volume they need to commit to when placing an order. Knowing the MOQ can help businesses plan purchases and avoid surprises during the order process.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.