Why a lower price with a bigger minimum usually isn't cheaper

You use 200,000 cases a year. Two suppliers quote. One is £0.140 with no minimum. The other is £0.128 with a minimum order of 150,000.

The second is 8.6% cheaper per case. It is also, probably, more expensive.

What the minimum actually does

A minimum order does not raise the unit price. It changes how much stock you hold, and holding stock costs money in three ways that never appear on a quote.

• Cash. 150,000 cases at £0.128 is £19,200 committed at once, against £2,333 a month if you could buy monthly. For most small businesses that is the whole argument.
• Space. A pallet of 320×240×180 cases is roughly 1,500 units. 150,000 cases is around a hundred pallets. If you are paying for pallet space, price that in.
• Risk. Nine months of stock is nine months in which the artwork changes, the product is discontinued, or the box gets damp. Written-off stock is the whole saving and then some.

The comparison worth making

Work out the annual cost either way, then add what the stock costs to hold. A serviceable figure for holding cost is 20% of the stock value a year — cash, space and shrinkage together — and for most small businesses that is conservative.

At 200,000 cases a year: £0.140 with no minimum is £28,000. £0.128 with a 150,000 minimum is £25,600, but you are carrying roughly nine months of average stock. Take the average holding at 75,000 cases, that is £9,600 of stock, and 20% of it is £1,920 a year. £27,520 against £28,000.

The 8.6% price reduction is worth 1.7% by the time it reaches you — and that is before a single box gets damaged.

When the minimum is genuinely fine

If the minimum is under about a quarter of your annual usage, it is rarely worth worrying about: you would order that often anyway. The number to watch is not the minimum itself but the minimum as a share of what you use in a year.

What to ask instead of accepting it

A minimum is usually a production run length, not a commercial position. Two questions frequently move it:

• Can you run the minimum and call it off in batches? Many suppliers will make 150,000 and ship 25,000 at a time. You get the price and they get the run length. Ask who holds the stock and who insures it.
• What is the price at our actual volume? Sometimes there is no real minimum, only a price break that was quoted as one.

CostSpring converts every quote to a landed cost per case at your real volume and flags a minimum that exceeds it, rather than showing you a cheaper number you cannot use.