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5 Ways to Measure Lost Sales Due to Inventory Constraints

5 Ways to Measure Lost Sales Due to Inventory Constraints

CEO & Co-Founder at Flieber

If you’re like most retailers, you’re losing sales in more ways than you think.

Understanding your lost sales isn’t just about tallying up the number of times you sold less than you should have because you stocked out.

No matter what or where you sell, customer returns, backorders, missed conversions, and lost rankings can all have an impact on your brand’s current and future sales.

To scale your revenue and protect your investment in customer acquisition, here are five things you don’t want to overlook when measuring lost sales.

1. Factor in your returns

Despite rapid advancements in inventory technology, most retailers still use an overly simplistic formula to identify stockouts. It typically looks something like this:

If inventory equals zero, then stockout. 

If it sounds too easy, that’s because it is. In reality, this approach has several blind spots.

For example, you might be out of stock and still show more than zero inventory because of returns. After all, all it takes is for one customer to return one product, and your inventory is back above zero.

Let’s say you’re an electronics brand with an average return rate of 8%. If you sell 100 units in a day, you’ll have roughly 80 of those units coming back into your inventory via returns some time in the near future. And this will ruin your stockout calculations.

No matter which category you’re in, most retailers never truly have zero inventory during a stockout period. By factoring in your returns, you can begin to see the real impact of your inventory on sales.

2. Identify backordering patterns

For many brands, backorders can be a great option for continuing to sell even when you’re out of stock.

But the difference between a two-day delivery and a two-week delivery is simply too much for some shoppers. Even with a solid backordering strategy, you’ll likely lose revenue due to lost and deferred sales.

This dip is usually followed by a peak in sales when the next batch of inventory comes in. 

This is a critical sales pattern directly related to inventory. Yet more often than not, changes in sales pace due to backorders aren’t flagged as a problem in your sales forecasting process.

Instead of giving customers the opportunity to buy from a competitor, consider how many more units you could sell if you always had enough inventory to fulfill all sales.

3. Consider missed conversion opportunities

It’s no secret the cost of customer acquisition is on the rise.

In 2013, the average merchant spent $9 to acquire a new customer. By 2022, that number had risen to $29. That’s an increase of 222% in eight years

If you’re a Shopify merchant, you’re investing your time, energy, and more and more money in any number of marketing tactics to drive the customer to your store. Why put all that in, only to give someone else the conversion?

Modern shoppers are spoiled for choice. If you're out of stock or on backorder, many of them have no problem going straight to the competition for the products they want. 

Sure, you could limit your ads or bump up your prices until replenishments arrive, but ultimately, you could have sold more by identifying the pattern sooner.

4. Account for the pre-stockout effect

Missed opportunities are par for the course during any ramp down period in inventory.

On Amazon, for example, as soon as the algorithms see your stock dwindling, they start limiting your visibility in search. And you start selling less before you even officially run out of stock.

Once again, a simple lost sales formula doesn’t take this decline into account.

If you’re only out of stock for a handful of days, this might not be a big deal. But if a stockout persists beyond a week, you could be looking at months of effort and countless PPC dollars until you recoup your rankings.

5. Account for the post-stockout effect

No one wants to be in the position of having to fight a battle they’ve already won just to get sales back on track, yet it’s a story we hear all the time at Flieber.

Even FBA sellers with a solidly high organic ranking get buried on page 10 after going out of stock. You can always ramp up your PPC to regain your traction. But it takes time, and of course money, to get your rankings, search visibility, and sales back to where they were.

On Shopify, you’ll need to put in major work and retargeting dollars to regain lost customers, and get back on the radar with potential new customers who came and left when they couldn’t find their product.

Eventually, you will get back to the same level of sales that you had before. But you’ve already spent money on sales you didn’t have the inventory to close. No matter how hard you work, your investment in customer acquisition can’t be recovered.

Unlock higher sales through better inventory planning

Most of us had to learn the hard way that measuring lost sales is about so much more than the days you sold zero inventory.

And that’s exactly why we built Flieber.

To increase your return on customer acquisition and protect profitability as you scale, you need an inventory planning platform that goes beyond traditional spreadsheet-based systems.

Flieber’s algorithms are always on, accounting for the full range of factors impacting your sales and inventory so you can take all the right steps to keep growth on track.

Identify lost sales before they become a problem. Flieber’s lost sales identification algorithm has been tested on over 3 million SKUs. Try it for free to learn more.

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