Minimum order quantities (MOQ) are something that both small and large businesses must factor into their startup plans. As the classic trilemma philosophy goes, you can’t have something that is all at once high-quality, quickly made, and inexpensive.
It is not feasible for large manufacturing facilities to turn out good products in small orders; neither is it within the power of small businesses to order 50,000 of a single product without an enormous amount of capital. In 2019, Vogue business hypothesized that at least $1.5 million was needed to start a beauty brand. The list of promising entrepreneurs with access to that kind of money is, not surprisingly, small.
The internet has no doubt changed the way the beauty industry works. Makeup is available online, meaning a brick-and-mortar store is no longer needed for a successful brand launch. Marketing now revolves around fairly affordable things such as YouTube tutorials, email lists, social media sharing, and personalized messaging. But manufacturing continues to be a high-cost barrier for many indie brands.
These considerations don’t preclude smaller brands from getting started. A little creativity and a broader manufacturing vision are all that are required to work for lean startups and make everyone happy.
By Gavin Collier:
CEO & Co-Founder of Dynamic Blending
October 01, 2020
Creating a long-term relationship with clients is one of the ways manufacturers make money. If you can demonstrate a strategy to grow and scale your business, an initial small order turns into a long-term large order. Entrepreneurs with this kind of vision have a good shot of negotiating contracts with a smaller minimum order.
One of the traits of successful entrepreneurs is the ability to sell themselves and to secure funding from the right resources. A potential manufacturing facility can be thought of as an investor, who needs a full business plan and reasons to grant slack on MOQs.
Along with a strong plan for future growth, it can help to showcase how the business will benefit the cosmetic manufacturer in other ways.
For example, according to JP Morgan Chase, more than 99% of US companies are small businesses. That’s a huge customer base for manufacturers, particularly the businesses planning on expanding once they’ve tested their products on a smaller run. The IRS reports that nearly 40% of all businesses have under $100,000 in revenue, so odds are, there are beauty entrepreneurs out there with dollars to spend on a new venture, but not enough funding to pay exorbitant fees and place huge minimum quantity orders. Opening up to this new market is the future of skin care manufacturing.
Additionally, manufacturers operate on a B2B model. This means that they are selling their services to businesses, instead of directly to consumers. The Incite Group states that 91% of all B2B purchasing decisions are influenced by word-of-mouth. Since entrepreneurs tend to hang out and network with other, like-minded individuals, that recommendation should mean something. It can’t hurt to point out that word-of-mouth referrals are worth up to five times the value of any other form of marketing, and offer a social media post if the results are satisfactory.
Stay on Top of Trends
Finally, requesting a low minimum order quantity doesn’t need to be framed in terms of funding shortages. In the beauty industry, trends are the rulers of the marketplace. Any cosmetics manufacturer that loses the ability to follow spur-of-the-moment trends will lose out. Smaller minimum orders allow the flexibility of brands to capitalize on the hottest ingredients, environmental recommendations and cause-related promotions. They also have the ability to advertise “limited runs” of a product, increasing the appeal.
All of these advantages can help an aspiring beauty entrepreneur broker a satisfactory manufacturing deal. But finding the right fit is about more than just an affordable contract.
Pay attention in seeking out a cosmetic manufacturer. Those completely unwilling to negotiate on order minimums or future commitments are probably not invested in the success of their clients.
A manufacturer is a supplier, yes, but due to the nature of the beauty industry, manufacturers and entrepreneurs need to work closely together to develop the right formula, put together a timeline and packaging options, at the minimum. The best cosmetic manufacturer will understand that the success of their clients leads to larger profits for them.
As technology continues to help the world shrink, business owners have more consumer power than ever. It’s time for manufacturers to recognize that and provide more flexibility. The clear benefits for both parties make a convincing case for lowered MOQs and a greater investment in client success.
About the Author
Gavin Collier began his education at Brigham Young University where he earned his Bachelor of Science in Biology. His major included emphasis in chemistry as well as Molecular, Micro, and Evolutionary Biology. With his scientific knowledge, Collier worked in chemical formulations research and development for several years. Thereafter, he continued his education and attended law school where he earned his Doctor of Jurisprudence.
Collier is a licensed attorney in the State of Utah and practiced in Federal and State Court. He has demonstrated again and again his skill as a trial attorney and skilled negotiator. Collier is also an entrepreneur and has co-founded Dynamic Blending Specialists, NarcX as well as other successful businesses.
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