Minimum Order Value
MOV (Minimum Order Value): Definition, Example & Explanation
Do you know those situations where you are shopping, but your cart is missing a certain value in order to complete the purchase? That is due to the MOV – the “minimum order value”. What does it exactly mean? Why is it crucial to implement? How to calculate a minimum order value?
Minimum Order Value: What Does It Mean?
Minimum order value is the minimum amount of money that a customer must spend on products or services in order to complete an order with a business. The purpose of a minimum order value is to ensure that the business is able to cover its costs for processing and fulfilling an order, and to encourage customers to make larger purchases.
Advantages & Disadvantages of Minimum Order Value?
The establishment of a minimum commodity value has several benefits for a business and its customers, as well as environmental positive side effects, like:
- Increasing average shopping cart value – many customers will add more products to their order to meet the specified value, resulting into more sales,
- Simplifies logistics and shipping – only those orders that are worth the effort for a company are processed,
- Sustainable side-effect – instead of making several small orders, customers do one big order, which needs less packaging and less space, reducing CO2 emission.
However, like many things, MOV has a few cons that are important to keep in mind:
- Looking for a certain product – costumers searching for something specific might switch to competition, if the MOV does not fit for them,
- High order value might scare customers away – especially costumers on a lower budget then the minimum order value will tend to leave the shop.
All in all, it is important to find a good balance. The MOV should be high enough to increase the profit, at the same time not too high for the clients' budget.
When Does MOV Shows?
The minimum order value will not always be visible for customers in a business’s ads or free product listings. Here is how it works:
- If the cheapest shipping cost meets the minimum order value, customers will see it,
- Customers will see MOV when the product price is below the minimum order value,
- They will not see the minimum order value if the product price matches or exceeds the MOV.
How To Calculate Your Minimum Order Value?
If you do a lot of online business, you may need a minimum order amount to make shipping costs worthwhile. Even if you are not online, you might want a MOV to ensure reasonable transaction costs to secure a minimum profit per order. There is no standard formula to calculate the MOV, but here is an example how it can be calculated:
Bob runs an online cupcake business and wishes to find out his minimum order value to ensure at least US$10 profit per order. To produce his cupcakes Bob needs US$2,50 per product and sell them for US$5. This means Bob needs to sell at least 4 cupcakes per order, which is equal to a minimum order value of US$20. In Bob's case, the formula looks like this:
MOV = (Target Profit per Order / (Selling Price – Costs per Item)) * Selling Price
MOV = (US$10 / (US$5 – US$2,50)) * US$5 = 4 * US$5 = US$20
To sum up, it depends on a business decision if it wishes or even needs to adopt a MOV. A cupcake online store is more likely to require it than a laptop store with products priced above US$100.
Minimum Order Values: Key Takeaways
- Minimum order values (MOV) have several advantages for businesses, including increased average shopping cart values, simplified logistics and shipping, and reduced environmental impact. However, MOVs also have some disadvantages, such as deterring customers who are looking for a specific product or who have a limited budget.
- Customers see the minimum order value when the cheapest shipping cost meets the MOV or when the product price is below the MOV.
- Companies can calculate a minimum order value by determining the minimum profit they want to make per order and the cost of producing each product. There is no standard formula to calculate the MOV.