Why "What's your MOQ?" is a bad question
The Business of Food
by Jennifer Barney
Why "What's your MOQ?" is a bad question
3-min read
I have to admit I’m guilty of sending startups a list of co-mans (contract manufacturers) and telling them to ask what their MOQs (minimum order quantities) are.
And it stands to reason. Startups know they can’t sell 100K units, or they don’t know what they can sell, or have been coached by advisors (like me) to stay nimble and grow in small increments. So asking what the minimums are right off the bat seems to be a good idea.
I was convinced otherwise when I visited with Jeff Greenberg, Founder and President of The Kitchen Coop, a co-man in Broomfield CO, and I have to say, he made a lot of sense.
This is a bad first question to a co-man because it leaves out what I described as the third step of R&D: process. When you are moving to a larger facility or finding someone to make your product for you, they have to know how to make it without error time and time again. The way to know if a co-man is a good fit is not by asking what the MOQ is, but by asking what steps they take to develop a process for manufacturing. How do they work with their clients to develop a fail-safe process and what does that process look like? How can they scale with you over time to both allow you to get started AND reduce costs as volumes increase?
“If I’m asked what my MOQ is I’ll sarcastically answer, I can make one and it’ll cost you $5500” – Jeff Greenberg, The Kitchen Coop.
When I was at Big Food we would run at these larger facilities and we’d build in time and budget for plant trials: full scale production runs for every new SKU. It seemed rather excessive. Tens of thousands of dollars just in testing, then all that product would get thrown away.
It doesn’t have to be this way. Commercial kitchens that offer expertise such as food safety plans, qualifying ingredients, and recipe development also offer help developing your process, (see last week’s post).
The Kitchen Coop is one such facility in Colorado and KitchenTown is another in NorCal.
Shopping on price
Startups that ask about MOQs are looking to know how much cost per unit so they can build the P&L accordingly and stay above a certain Gross Margin. The problem that founders run into when they shop on price is many co-mans that quote cheaper have larger run minimums. This is because the way co-man’s bring costs down is by driving out labor. They mechanize. Adding equipment means they have to do larger runs. That’s why to stay nimble it’s generally better to pay more but make less (supply chain bottlenecks limiting inventory availability notwithstanding).
Why not to balk at startup production costs
Regardless of your product, you should budget for process engineering. How much to budget depends on the complexity or novelty of what you want done. If not too novel, it could take the form of a small test on the back end of someone else’s production run. You’ll want to do it even when the process is the same but the ingredients are different. Time, temperature, pressure, speed… these are all variables in a production process that need to be isolated and tested. And it is WAY less expensive to learn all this BEFORE you have the mounting pressure and larger scale of your first orders and before you’ve locked yourself in by printing labels.
Next week: comparisons of R&D cost impacts on the P&L.
All my best,
Jennifer
Hey D2C brands!
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I'd love to hear from you - get in touch at jennifer@3rdandbroadway.com