Does the surcharge increase my per-unit price?

Yes, the surcharge increases your price per unit — but only by a small amount in most order scenarios, and in a lot of situations, it is still more cost-effective than either committing to full MOVs or giving up high-quality premium factories.

What is most important to understand is that the MOV surcharge is a fixed cost divided by your total order quantity. Therefore, the more units you order, the less of a per unit cost is. The fewer units, the more you will feel this cost.

So, what does this mean practically?

We can consider a real-world example of men’s beach board shorts, similar to Boatrider’s beach shorts. Let’s say, for example, the retail price of this product is AED 269, which is about $73 USD based on the exchange rate at the time of this calculation.

Therefore, we have a useful point of reference to assess whether the higher costs of manufacturing still permit healthy margins at retail.

Considering this scenario, imagine the factory unit price is $6 USD per unit, FOB India. The brand chooses to buy 2,000 pieces per color across three colors, resulting in a total order quantity of 6,000 units.

The total product cost, therefore, would be 6 x 6000 = $36,000 USD.

Under the Co-Pilot program, there is an additional fixed MOV surcharge of $12,000 USD for this purchase order. Adding this to the product cost, the total purchase order value becomes $48,000 USD.

Calculating the total value of the order and the total cost of 6,000 units, the effective unit price is $8 USD each.

This indicates that the factory price, in this case, is $6. With the addition of the Co-Pilot surcharge, the cost per unit is increased by just $2.

Relative to the factory price of $6 and retail price of $73, this is a relatively small increase.

For an emergent brand, this is an acceptable trade-off in order to access organized production, effective manufacturing service, and quality assurance, as well as manufacturing service at lower MOQs.

The total order quantity decreasing shifts the dynamics considerably. Since the MOV surcharge is a fixed value, a lower number of units shifts the distribution of the same $12,000 value to a larger unit, producing a significantly larger per-unit effect.

To illustrate this, let us consider the same product and reduce the quantity to 50% again.

For the second example, we can consider the brand buying 1,000 pieces per color, across three colors, giving a total of 3,000 units. At the same factory price of $6, the total product cost is $18,000 USD. Adding the same fixed Co-Pilot surcharge of $12,000, we get the total purchase order value of $30,000 USD.

Therefore, $30,000 USD divided by 3,000 units leaves us with an effective unit price of $10 per piece.

Here, instead of $2, the surcharge raises the per-unit cost by $4, a much larger effect.

In this instance, the Co-Pilot program fee accounts for almost 40% of the total unit cost.

It is apparent why the Co-Pilot program fee is most affected by order volume, underscoring the greater importance of order volume for the financial feasibility of the Co-Pilot program for the brand.

Co-Pilot surcharge showcases a fundamental principle.

It is not based on random selection. It is fully dependent on order volume. For brands that order just below the standard MOV, the Co-Pilot surcharge is justifiable.

For smaller orders, the Co-Pilot surcharge can increase per unit cost, which makes it imperative for brands to analyze their pricing strategy.

Even under high-cost circumstances, where units are sold for $10, the brand makes a profit, with the end product priced at $73.

This is especially helpful for early-stage brands that need flexibility, as high profit margins, marketing, shipping, duties, and overheads are built into the product cost.

Another way of framing the surcharge would be one covering risk and infrastructure: it is the trade-off that allows brands not to overproduce just to meet high MOQs but to produce smaller quantities with still professional manufacturing support. The surcharge pays, so to speak, for this flexibility.

It also ensures that factories remain financially viable when handling low-volume orders. Without this fee, most factories would simply refuse to work with small brands, and a startup's choices would be limited to either unreliable suppliers or expensive domestic production options.

The surcharge is not worth looking at in isolation; from a business standpoint, brands should look at it in the context of overall unit economics. What are the most important things to consider?

The base factory price, the final landed cost, and the retail price. If the final unit cost still allows for strong margins and competitive pricing, then the surcharge is justified.

As the brand continues to grow over time and places larger orders that meet and exceed the standard requirements of the MOV, the surcharge will not be in place, thus reducing the overall cost per unit compared to the original situation.

So to sum it all up, yes, we do charge a surcharge on the MOV price, but it is dependent upon the total quantity that you are ordering.

The higher the quantity, the less the impact of the price increase, and it is certainly worthwhile for the advantage that it affords. The lower the quantity, the higher the price increase may be.

Nevertheless, it still offers startups a way to get into the professional world of manufacturing. But the true test is simply whether your price per unit still allows your retail pricing to be correct, and in many instances, it indeed does.

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