MOQs are calculated in order to spread out the fixed costs across all the quantities.
For example : Let's say a take a t-shirt image below,
Fabric type : cotton 160 GSM | Round-neck
Raw material : $0.65 to $0.85
Making cost : $0.50 to $0.65
Printing : $0.20 to $0.35
Trims : $0.05 to $0.10
Total : $1.4 to $1.95
So the total production price for this t-shirt is always going to be under $2
Now if you are looking to buy just 20,000 pcs of this t-shirt (in different prints but same design) and the factory overhead (fixed cost) is $5,000 per month spread across two months of production time:
then the total overhead cost would $10,000
Overhead costs per t-shirt would come out to be around $0.50. So the total cost including overheads in this case would be $2.5.
Assuming a 10% -15% margin for the supplier - this would put this t-shirt costs between $2.75 to $2.90 per unit at 20,000 pcs - which is great if you are retailing at $20 per unit.
However, if you are looking to buy only 200 pcs of this t-shirt - and the factory gets to keep $0.5 per unit for their fixed cost :this translates to $100 : not sufficient to cover even the utility bills for a week for a factory.
So a break-even point is calculated when a factory's overheads at met and every factory operate knows their break even points. They translate their break-even from dollar terms to units (MOQs) for you to be able to relate better.
Note : Hula Global does not own the IP for the image below. The IP belongs to its brand owner. This is for illustration purposes.
