SALES & MARKETING
MOQs (Minimum Order Quantities) Are a Game-Changer Analytics-based policies & price breaks change everything. BY RANDY MACLEAN, PRESIDENT OF WAYPOINT ANALYTICS
C Randy MacLean is the founder of WayPoint Analytics, the inventor of LIPA, and best-selling author of a series of profit practices books. For more than a decade he’s been analyzing company results, thinking about, writing about and advising on profit issues in distribution and manufacturing. WayPoint software is used by hundreds of companies to control their profits, and their destinies.
ompanies with deep analytical capabilities are seeing massive gains from MOQ implementation. These initiatives reduce small orders, increase warehouse efficiency, reduce inventory write-offs, make money-losing small accounts into money makers, increase sales, and significantly boosts profits. For almost half a century, it's been broadly known that small orders eat profits. Put simply, your organization has costs to cover to move product through your system. At peak performance, you'll incur a certain minimum cost to procure, handle and deliver something to a customer. If there isn't sufficient OpCash in the order to cover this cost, you're taking profits made elsewhere to subsidize losses in your fulfillment process. This is the "death by a thousand cuts" problem that prevents companies from achieving superior profit rates. In almost all companies, more than 60% of orders fall into this category, and changing this is the ONLY way to industry-leading profits and cash-flow. If you can't fix this, you can't get there. Period. For the same half-century, the industry has been attempting to address this known issue with – to be generous – mixed results. Order minimums and small-order charges have had some effect, but haven't moved the needle very far. Sales-driven efforts have almost universally failed. MOQs, however, are highly effective in addressing this pernicious issue and, for a broad swath of industries and customer relationships, are the best answer.
Simply put, MOQs are the minimum quantities you're willing to sell for each product and to most of your customers. I'm qualifying this because there are customer relationships that are NOT helped by MOQs, and these need to be excluded. We've been providing MOQ analyses for our clients for a while now, and they can result in highly-targeted changes that really produce significant results. With a detailed analysis of the profit rates at each pick quantity for every product sold, our clients can set minimum sell quantities for all low-value items, cutting huge swaths of transactions out of their small-order envelope. Let's look at a single item from an MOQ analysis. The report shows unit revenue, gross profit, expenses and NBC (profit) for a single SKU at each pick quantity during the year. It also shows average margin, average profit rate and number of times the product was picked at each quantity level. (To explain where the MOQ numbers come from, our online system integrates all the costs from the client’s G/L into their invoice data, costing every sale down to the line level.) continued on next page
First Quarter 2023 • 109
