As a business we recently announced we are increasing our minimum order charge to £50 to all of our clients, unsurprisingly this generates a certain level of resistance. Some clients consider minimum order charges to be a bad business decision, but upon analysis it can be seen it is in the client’s best interests.
Firstly we must clarify that we are discussing a minimum order charge and not a minimum order quantity. For example, if a repeat bulk order of 100 parts is charged at £1 each, you will be able to order only 1 part as a single item, but it will cost £50.
There are certain circumstances where the minimum order charge can be waived, but these situations are often rare due to the politics involved. For example, we may agree to waive the minimum order charge if the part in question is either a prototype or is part of a repeat order.
“… However, it isn’t simply a case of not charging the minimum order, what we would offer is to charge the minimum order initially then credit the difference when the bulk order for the remaining parts is received. This is to protect against situations where a bulk order doesn’t actually exist.”
Minimum order charges are required to ensure the business remains profitable (at the end of the day, that’s the whole reason anyone is in business.) Each order processed requires a certain level of resources regardless of the order size. There will always be a requirement for someone to answer the phone, calculate prices, organise materials and confirm drawing details. Then the order needs to be quality checked and processed in the workshop the same way as any other order. The order requires invoicing and following up. All these processes cost resources whether the part value is £10 or £1,000.
Even once this problem is explained, some still feel a minimum order charge is unfair. Often this is because they may be a long term client, and whilst we appreciate repeat business from any client regardless of order size, this problem becomes exacerbated by the ‘Many-to-one’ relationship a client shares with their supplier (in any industry).
Whilst to the client a demand to waive the minimum order “just this once” seems like a reasonable request, to the supplier it can be a daily occurrence.
Applying the policy to Yorkshire Profiles
In terms of the laser cutting and waterjet cutting services we provide, waiving minimum order fees is not only damaging financially but is also very disruptive to the production in the workshop which in turn, hits all of our clients.
“Generally we set the machines up on production runs of certain materials and certain thickness ranges. This allows us to ensure the machine setup is optimal for what it is cutting with minimal disruption. To break off this production schedule to produce a part which is below the minimum order value would be very costly and inevitably lead to the failure of the business…”
To give an idea of the scale of this problem, 25% of the orders received through 2011 were within the minimum order bracket and yet they counted for less than 2% of the annual turnover.
“…that’s a huge demand on resources with little reward. This is unfortunately why we have to increase the charge from £30 to £50, still keeping us competitive in the industry.”
The Benefit To Clients
In conclusion, the minimum order charge is not a get rich quick solution nor is it greed; it’s to ensure the business model is sustainable so we can supply a top quality service year after year. By continually ensuring that losses are not made on low value / high resource orders, it secures the availability of discounts on larger orders and mass produced parts.