What A Stockout Really Costs You
Category
Operations
Published by
Tom Emmanuel
Read Time
5 Minutes
Brands price a stockout as lost sales for the days they were out. That is the smaller half of the number. The expensive part starts the day you come back in stock.
Tom Emmanuel
Founder, Furnace Commerce
The bill you can see
The obvious loss
Days out of stock multiplied by daily revenue. It is the number everyone calculates, and on a healthy SKU it is uncomfortable enough on its own.
The advertising you wasted first
Most stockouts are preceded by a week of advertising driving traffic to a listing that is about to run dry, and followed by campaigns still live on an unavailable product. That spend buys nothing.
Buy Box and competitor gain
Going out of stock hands the Buy Box to whoever is still available. Some of those customers do not come back, and the competitor who served them now has the review and the repeat purchase.
Rank does not wait for you
Amazon ranks on sales velocity. Zero velocity for over a week moves you down the page, and the position is taken by someone else. You return to a worse starting point than you left.
On a product selling 120 units a day at £30, nine days out is roughly £32,000 of lost sales. The six weeks of suppressed velocity that follow are usually larger again, and that second number is the one nobody forecasts.
How to stop it happening again
Forecast by SKU and market, not in aggregate
A flat percentage on last year hides the SKUs that are accelerating. Forecasts need to be built bottom up, per market, and revisited monthly rather than annually.
Set cover in weeks, not units
Reorder points expressed in units go stale the moment velocity changes. Expressed as weeks of cover they adjust themselves, and they make the lead time conversation concrete.
Watch inbound, not just stock
Most stockouts are not forecasting failures, they are receiving failures. Stock arrives at the warehouse and takes two weeks to become available. Track units inbound and units receivable separately.
Protect the hero SKUs first
If cash is constrained, hold deeper cover on the products that carry rank and let the tail run leaner. Running everything at the same cover level protects nothing.
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