Minimum purchase requirement: Overview, definition and example
What is a minimum purchase requirement?
A minimum purchase requirement is a clause in a contract that sets the least amount of goods or services a buyer must purchase from the seller within a given time frame. This clause is often used to ensure that the seller's business remains financially viable by securing a certain level of sales.
Why is a minimum purchase requirement important?
The minimum purchase requirement is important because it ensures that the seller’s business can cover its costs and remain profitable. It also creates a commitment from the buyer, ensuring that they will not make sporadic or minimal purchases. This type of clause is common in long-term agreements or wholesale deals, where the seller expects consistent business.
Understanding minimum purchase requirement through an example
Imagine a retailer entering into a contract with a supplier to purchase electronics. The agreement includes a minimum purchase requirement of $100,000 worth of products per year. This ensures that the supplier has guaranteed sales and can continue producing goods at the required volume.
In another example, a software company offering a subscription service might require a minimum purchase of 500 licenses per year. This ensures the company maintains a steady stream of income and justifies the infrastructure needed to support the customer.
Example of a minimum purchase requirement clause
Here’s how a minimum purchase requirement clause might look in a contract:
“The Buyer agrees to purchase a minimum of $100,000 worth of products from the Supplier annually. If the Buyer fails to meet this minimum, the Buyer shall be liable for a penalty equal to 10% of the difference between the minimum purchase and the actual purchase.”
Conclusion
A minimum purchase requirement ensures that businesses have predictable sales and that buyers are committed to buying a certain volume of goods or services. This clause is crucial for managing supply chain operations and setting expectations for both parties. By understanding this requirement, businesses can plan for profitability while maintaining strong relationships with their suppliers.
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.