Managing inventory efficiently is crucial for eCommerce businesses, but stockouts can seriously hurt your bottom line! 😩 Stockouts don't just mean lost sales—they can also lead to unhappy customers and a damaged brand reputation. That’s why, in this post, we’ll explore stockout costs, how to calculate them, and share actionable tips to reduce the chances of running out of stock.

What Exactly is Stockout Cost? 🤔

Stockout cost refers to the financial hit you take when a product runs out of stock. It’s not just about losing potential sales—it also includes long-term damage like frustrated customers, brand reputation issues, and the extra cost of damage control. Let’s dive deeper to understand how problematic stockouts can be.

Why Are Stockouts a Big Problem for Your Business?

Stockouts can have a negative effect on your entire operation. When your best-selling product is out of stock during a peak demand season, customers may look elsewhere, and you lose revenue that could have been yours. Did you know 69% of online shoppers will abandon their purchase and shop with a competitor if their desired item is out of stock? Once customer loyalty is broken, it’s hard to win them back.

Stockouts come with more costs than just lost sales. Here are some significant problems they create:

🛒 Stockouts Cost You Customers

When your best-selling products suddenly and unexpectedly go out of stock, your customers may continue their shopping with another seller. Especially during periods like BFCM, people may not want to wait for their desired products to be replenished and might prefer to take advantage of discounted prices elsewhere.

📌 If you’re unsure about the popularity of your products and are struggling to plan your inventory, read ABC Analysis for eCommerce Inventory.

⏰ Stockouts Cause Urgent Need of Last-Minute Purchase Orders

Stockouts can require urgent purchase orders, which is especially challenging during high-demand seasons. When products unexpectedly run out, businesses often rush to restock, which can create inefficiencies and increase costs. This rush can also damage relationships with suppliers, who may not be ready for the sudden demand. Over time, this can make it harder to collaborate effectively and impact your supply chain operations negatively.

📌 Here, you can find a ready to use purchase order template to fasten your ordering process.

📉 Stockouts Prevent You from Maximizing Profits

Being out of stock during busy seasons means you’re wasting the most profitable time of the year. Therefore, experiencing stockout during such high sales periods can significantly impact your annual revenue and your store’s profitability.

Stockout issues can negatively affect your eCommerce store in many ways and lead to financial losses. Let’s explore the financial implications of these costs.

How to Figure Out the Real Cost of Stockouts? Here is Stockout Cost Formula 💰

To get a clear picture of the stockout cost, here’s a simple formula you can use:

For example, if your store sells 50 laptop cases daily at $30 each, and you run out of stock for 10 days, you could lose $15,000 in potential revenue. In fast-moving industries like fashion or electronics, this can have a significant impact on your overall profits.

To sum up, being out of stock is costly, but it’s not inevitable. First, let’s identify where mistakes might be happening that lead to stockouts, and then we’ll explore how to avoid them.

Why Do Stockouts Happen? The Common Reasons Behind Stockout Cost 🤔

Stockouts don’t just come out of nowhere—there are several common reasons like lack of forecasting, limitations of manual solutions, inefficient supplier relationships. Let’s see in detail why your inventory might be running dry:

Inefficient Forecasting Leads to Stockouts 📉

Inefficient sales forecasting means you’re not using your historical data effectively to plan future inventory. This can be due to not keeping your data organized and accurate, lacking detailed data analytics, or not having the right forecasting tools. Relying on daily sales to assess product popularity and ordering “estimated” quantities can leave you stranded when demand spikes. As a result, you'll end up with either stockouts or excess stock.

However, by using accurate historical data and analytics, analyzing market trends, and considering seasonal fluctuations, you can make more informed decisions about how much inventory to stock. For example, a spike in demand for winter coats can be predicted based on previous seasonal sales, allowing you to plan inventory accordingly. The same applies to BFCM sales. If you have an inventory forecasting tool like Fabrikatör, you can analyze last year’s BFCM sales and factor in your current growth rate to easily calculate how much inventory you’ll need for the upcoming BFCM. In this way, you can be sure that you’re always stocked to meet customer demand without experiencing stockout.

Unexpected Customer Demand  🛍️

Sometimes, customer demand can spike unexpectedly, often triggered by trends or viral moments on social media. For instance, a product could gain sudden popularity if it’s featured by a popular influencer or if it trends on platforms like TikTok. When this happens, managing the demand for that product can become challenging, often leading to stockout as inventory runs out faster than anticipated.

However, with an inventory management solution like Fabrikatör, you can manage such demand spikes more effectively. You can accept backorders, allowing customers to keep purchasing when stock is temporarily unavailable. This way, you can still capture the demand and avoid missing out on sales until the stock is replenished.

Additionally, by using Fabrikatör and Klaviyo integration, you can keep customers inform during this period. Through this transparent communication, you can notify them about expected restock dates, confirm backorders, and even offer updates on shipping. This proactive approach helps manage customer expectations and maintains trust and minimizes lost sales due to stockout.

Supplier Problems and Delays Result in Stockouts 🚚

Even with the perfect inventory plan, if your suppliers can’t deliver on time, you can still experience stockouts in your eCommerce store. Unreliable or slow suppliers can leave you hanging without the products your customers want, especially during peak demand seasons like BFCM. By building strong relationships with your suppliers, you’re less likely to face delays and can keep your stock levels in sync with demand.

On the other hand, working only with one supplier is also risky. Supply chain disruptions, factory shutdowns, or logistical issues with that one supplier can cause stockout and high stockout cost. Having multiple suppliers gives you the flexibility to pivot if one can’t deliver, keeping your inventory steady and your business running smoothly.

📌 Suppliers, customers, and operational struggles make BFCM a challenging period to manage. To ensure you handle your inventory smoothly before, during, and after BFCM, read: Inventory Planning Playbook for BFCM.

Relying on Manual Tools like Excel 📝

Using manual solutions and Excel spreadsheets for inventory management might seem like a cost-effective way to track inventory, but it often leads to stockout costs. Here’s why:

• Human error: Manual data entry is prone to mistakes. A simple typo or miscalculation can make it look like you have enough inventory when, in reality, you don’t. These small errors can quickly result in unexpected stockout costs.
• Lack of real-time insights: Excel doesn’t update in real-time, which means you’re always behind in understanding your true stock levels. If demand spikes, you’re left with outdated information, leading to missed restocks and inevitable stockouts.
• Time-consuming: As your business grows, managing inventory manually can become overwhelming. The more time you spend updating spreadsheets, the more likely you are to overlook critical inventory needs, ultimately causing stockouts.
• Lack of automation: Without automation, you’re left manually tracking when to reorder, making it easy to miss timely replenishments. Inventory management solutions like Fabrikatör automate replenishment and track stock in real time, so you’ll know exactly when to replenish. With automated insights, you can avoid the struggles of manual solutions and decrease stockout cost significantly.

Decrease Stockout Costs with Fabrikatör!

With Fabrikatör, you can minimize stockout and stockout costs and make your inventory management more efficient. ✨ By providing real-time tracking, automated reorder points, and reliable demand forecasting, Fabrikatör helps you keep stockouts—and their costly impacts—under control.

This 5/5-rated Shopify offers advanced features and top-notch support so you can optimize your supply chain and keep inventory costs down. 🚀

Fabrikatör equips you to proactively manage your stock levels, ensuring you’re prepared for fluctuations and reducing missed sales due to stockouts. Ready to lower your stockout costs? See it in action in only 30 minutes!

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