What does a stockout cost in retail and e-commerce?
The customer buys elsewhere almost immediately or picks a substitute. Waiting is rare.
Where you lose money
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.
How do you calculate it?
- Potential revenue = realised revenue / (1 − stockout% × (1 − retention rate))
- Missed revenue = potential revenue × stockout% × (1 − retention rate)
- Direct margin loss = missed revenue × gross margin%
- Customer churn = missed revenue × churn rate × gross margin% × customer horizon
- Total impact = direct margin loss + customer churn
The costs
Converting to potential revenue corrects a common mistake: your revenue figures do not contain the missed sales, so calculating on realised revenue understates demand. How much of the affected demand is lost is well researched for B2C. The Gruen and Corsten study of 72,000 customers in supermarket products found that 31% buy at another store and 9% do not buy at all, 40% lost in total; 45% pick a substitute and 15% postpone the purchase.
Be careful with what you enter. Most companies know their item availability, for example 95% of items in stock. That figure usually understates the problem, because stockouts hit the fast movers more often, with a bigger impact on revenue as a result. Five percent of your items can easily be a multiple of that in demanded revenue. So also measure your stockouts in euros of demanded revenue. And a blind spot remains: demand for items you never added to your range shows up in no system as a stockout. That too is why the outcome is a lower bound, and why it pays to review regularly what you keep in stock and what you do not.
The order effect here is the abandoned basket: online, one missing item can make the whole basket drop off. So include the full basket value of customers who dropped off in your stockout%.
The empty shelf that damages trust in the store, even for customers who were looking for something else, is not in the calculation. The estimate is therefore conservative.
Curious what this costs you?
A short conversation, then a personalised calculation for your situation.