Retail Buyers and Minimum Order Quantities

Minimum order requirements are difficult to get right. For example, a large minimum spend will prevent a portion of potential customers from placing a first order (often a sample order used to test a supplier.) On the one hand, a small minimum spend may attract the wrong sort of customer, or even worse, attract retail buyers who should be buying at much higher prices from dedicated retail establishments.

Having been in the wholesale jewellery business for many years, it's been my experience that a large proportion of retailers behave irrationally when dealing with wholesalers. This is often due to a lack of long range planning on the part of small jewellery business owners, and a lack of understanding of the detailed finances involved in sourcing their stock.

Let me present an example to explain my point further. Some years ago, an online wholesale company I was involved with had a very small order size of 10 individual items. At the time, it was assumed that this would prevent retail customers from placing an order, and this proved to be the case. However, as a portion of the catalogue on offer was quite cheap (with items selling for as little as $1.50), this meant that the minimum spend was often only $15. The sort of customer who placed these orders tended to always buy the cheapest items, and always order only 10 of them - thereby just meeting the minimum requirements. We tried to explain to them that purchasing more expensive items would allow them to charge a correspondingly higher price to their customers, and thereby increase their profits, but we were rarely listened to. These customers invariably went out of business within 6 months.

A year later, we changed the minimum requirements from order size to minimum spend, imposing a minimum of $70. The feeling was that this would shift the focus of the smaller customers away from counting items. What actually happened was that the same proportion of customers who had previously purchased 10 items, now spent $70 or $71 each time they ordered. When this change was implemented, changes were also made to shipping costs, with a flat charge of $15 being charged for each order, regardless of size, and with free shipping imposed on orders above $300. This meant that each small order was charged 21% extra for delivery.

Many of these customers who placed small orders were Jewellery Party planners, and they would place a single order every week. Again, we tried to explain to them that if they changed the way they ordered, placing a single large order a month, they could either substantially reduce their shipping charges, or remove them altogether, but again, they refused to listen, continuing to pay a needless 21% extra every week.

The most recent change made has been to increase the minimum spend further to $100. By this time, we knew what to expect. The same customers who previously had ordered 10 items or spent $71, now placed weekly orders for $101. At times, the items ordered were chosen with such care that the cost of the order was $100.01. We never lost these customers, we simply forced them to change the way they purchased, but we were never able to make them order more intelligently. To this day, and despite the current economic situation, many of them continue to pay a 15% surcharge on each order (shipping) that could be avoided by a little forward planning.

The reality is that a large proportion of these retailers will be out of business by mid year. Our statistics clearly show that it is those retailers who repeatedly place small orders who are most likely to cease trading.