What does a stockout cost?
How to estimate the impact on your revenue and margin
A stockout causes losses on several fronts. You lose the margin on sales that go to a competitor, and in the worst case on the entire order the missing item was part of. On top of that, some customers switch permanently after such experiences. You also pay for rush deliveries and extra handling to deliver anyway, and internal time goes into solving problems. Which losses weigh heaviest depends on your type of business. Find your situation below and calculate what stockouts cost you. That estimate is usually a lower bound on the real cost.
What a stockout costs depends on your business
Jump to the situation that applies to you. You may also fall into more than one category.
Manufacturing company
A missing raw material or component slows the line or brings it to a stop.
- Downtime cost. Machines and people wait while fixed costs keep running.
- Reshuffling the schedule. Rearranging orders and changing over lines costs time.
- Rush transport on purchasing. Getting the missing material in anyway happens at a premium rate.
- Late delivery to your customer. Penalties are possible, and the customer starts out unhappy with a new purchase. That first impression colours the rest of the relationship.
Wholesale and distribution (B2B)
The customer waits, buys an alternative from you, or goes to a competitor.
- Missed margin. On the missing item, or in the worst case on the entire order it was part of.
- Customer churn. Whoever bought from the competitor may not come back.
- Rush deliveries and extra handling. Back-orders and partial deliveries cost more than one normal delivery.
- Back-order administration. Every open line needs follow-up, communication and exceptions in your process.
Retail and e-commerce (B2C)
The customer buys elsewhere almost immediately or picks a substitute. Waiting is rare.
- Missed margin per transaction. The sale is gone at that very moment.
- Abandoned baskets. Online, one missing item can make the whole basket drop off.
- An empty shelf. It damages trust in the store, even for customers who were looking for something else.
- Getting used to the competitor. Whoever bought elsewhere twice now has an account and a habit there.
In-house service department with mostly unique parts
The customer cannot go anywhere else and has to wait.
- Downtime at the customer. Their machine stands still until your part arrives.
- Waiting technicians. A service call without the right part means lost hours or an extra service call.
- SLA penalties. Contractual availability guarantees get hit.
- Relationship damage. The next machine or the maintenance contract is bought elsewhere.
- Plus everything from manufacturing. A machine builder is itself a manufacturer; those impacts apply too.
Project environment (construction and installation)
One missing item delays the whole site or the handover.
- Delay costs and penalty clauses. Every day of late handover has a price, often set out in the contract.
- Waiting crews. Your own people and subcontractors stand idle on costs that keep running.
- Rescheduling. Booking skilled workers and equipment again pushes the whole project back.
- An unhappy start. The client takes their building or installation into use with the delay still fresh in memory.
Calculate what stockouts really cost you
A short conversation to work out your situation.