The Pros and Cons of Backorders vs. Out of Stock in Online Sales

⏱ It will take you only 10 min to read this post

✨ Post actualizado el 09/07/2024 por David Costarrosa

Backorder vs Out of Stock

Maintaining available stock and having constant rotation of your winning product is ideal for anyone who has an e-commerce store.

Now, I’m guessing you’ve also experienced what it is like to run out of stock for that item.

From this almost inevitable reality, some questions arise.

What do we tell customers?

When will this product be available again?

Will we restock this product?

Related to this, we can also mention the question asked by Beth Owens for her blog article on Whiplash about backorders:Is selling without stock right for your business?

Today I will teach you and we will navigate together through the concept of Backorder vs Out of Stock.

Not only will I explain what this means, but I will also help you understand how to take advantage of an almost inevitable and extremely common situation that you face when you are part of the online business and product sales ecosystem: running out of stock.

Defining Backorders and Out of Stock

In this digital world governed by the immediacy proposed by Amazon and its Prime service with 24-hour delivery, it is becoming increasingly difficult to find customers who are willing to wait more than 3 days to get their product.

That is why the challenge is to achieve active and constant rotation and a balance between sales and stock of a product.

However, it is also true that on some occasions the supply chain breaks down, and that is when the concepts of backorders and out of stock arise.

But… What is the definition of backorders and what is out of stock?

Defining Backorders

When an item is not in stock, as a store you can make the decision to continue selling that product even if you do not have physical stock at that time.

You can do this because either you are the manufacturer of the product and will know that you will be able to produce more of it, or because you have already spoken to your supplier and they have given you a restocking date in your warehouse.

In other words, backorders refer to items that are out of stock at the time a customer is ordering but have a confirmed date when they will be available again.

All such information must be explicitly included in the product description and the user must be made aware of this.

Warehouse Beeping

What are the advantages of selling items on backorder?

  • Guaranteed delivery of the product on a specific date
  • Your customer will be able to get the item they want
  • Helps your company’s cash flow
  • A good way to measure the importance of and demand for the product
  • Saves warehouse space because when the product comes in a percentage of the stock will be ready to be shipped

What are the disadvantages of selling items on backorder?

  • Customer dissatisfaction with having to wait longer than usual to receive the product
  • Increased risk of order cancellations
  • Increased risk of claiming refunds
  • Increased flow of inquiries through customer service

Defining Out of Stock

Out of stock is the concept that establishes that a product should no longer be sold in the store since it is not physically in stock and there is no foreseen delivery date for its replenishment in the warehouse.

Why can "Out of Stock" occur with a product?

  • Unexpected product demand
  • Forecasting errors when purchasing stock or manufacturing the item
  • Problems in the supply chain
  • Lack of parts in the manufacturing line
  • Concept of “Exclusivity”: An item is sold as an exclusive and only a limited quantity of the item is manufactured

What is the difference between backorders and out of stock?

Unlike backorder, where there is an expected delivery date of the product, if a product is out of stock, it is not only not physically available at the moment but there is also no  estimated date of replenishment in the warehouse.

In other words, you will have to stop offering it in your store.

Impact on ecommerce operations: A Comparative Analysis

As explained above, there is a substantial difference between the concept of backorder and out of stock.

While with backorders you can continue to sell the out of stock product, when an item is out of stock that is impossible.

From that, a different impact is generated within the ecosystem of your ecommerce business.

BackordersOut of Stock
Sale of the productYou can continue to sell the product clarifying that it is temporarily out of stock but will be available again on the date indicated.For reasons that will be mentioned in the article, you will not be able to continue selling this product in your store.
Customer satisfactionKeeping in touch and up to date on the status of your order can help mitigate the impact on the customer of not being able to have the item within a short time from the date of purchase.It can be a frustrating situation for the customer and from your side you can help by offering similar items or discounts on future purchases.
Branding and Brand ReputationAlthough, as we have explained above, it is not an ideal situation, when the user receives the product after having been notified of the different processes of their order, their perception of the brand will not vary too much.For the user, not being able to get the desired product will never be a pleasant experience, so it will be important to be able to change that opinion with other actions from the marketing side of the company.
Inventory managementIt is important to take note of the situation and carry out an action plan so that the situation does not happen again. You should have a calendar with specific dates for when the demand for the product is expected to increase and take this into account when manufacturing or ordering the product from the supplier.In this case it will not be possible to restock the product that is out of stock.

Case study: PlayStation 5 and its failed launch

After the launch of the successful Playstation 4 console in 2013, Sony was working hard to present its latest console, the PlayStation 5, by the end of 2020.

However, its launch was marked by a number of issues that left millions of fans of the electronic device without their star product.

Play Station

First, during the pre-sale launch day, units sold out within minutes across the United States, while quantities allocated for Europe and Asia were virtually impossible to obtain.

It should be taken into account that the manufacture of the product was marked by the COVID-19 pandemic, which made the distribution chain difficult and interrupted supply.

Such was the impact of the launch that for months the company was forced to present its flagship product as “out of stock”, because they did not know for sure when there would be recurring availability again.

It was not until 2022 that the console began to enjoy normal distribution in both the United States and the rest of the planet.

This is a clear example of how poor stock management, coupled with unexpected demand and an absolutely unforeseeable event such as the 2020 pandemic can conspire against the launch of a product that was destined to be the best-selling product in history.

Impact on Customer Experience: A Comparative Analysis

Just as we have previously discussed the impact of these two scenarios within your ecommerce ecosystem, it is also important to consider what happens from the customer’s point of view.

What can we expect from them in each situation?

BackordersOut of Stock
Vision of the brandWhile they won't have the product in their possession quickly, with the strategies mentioned earlier in the article, you can lessen the negative impact on the customer’s vision of the brand.In this case, you will have to sharpen your strategies and offer solid alternatives so that the customer's impact on your brand does not have a negative and irrecoverable end.
Customer retentionThrough strategies such as discount coupons, access to exclusive launches, or even small gifts, you can retain a customer who has been affected by the temporary stock issue.As mentioned above, in order to retain this customer and in a scenario where you will not be able to meet their expectations, it will be necessary to provide an aggressive discount coupon as well as VIP or exclusive treatment going forward.
CommunicationCommunication is one of the most important aspects of coping with this type of situation. If you can tailor shipping to fit the customer's shipping date, you can help them manage their anxiety level and thus decrease the likelihood of refund requests and order cancellations.Offering a sincere apology and using retention mechanisms will be the cornerstones of communication with the customer when it is impossible to fulfill their order.

Strategies of mitigating negative customer impacts in each situation

In this section I will explain how you can help your customer manage their “panic” and anxiety levels after ordering and paying for a product that is on backorder.

  • Keep the expectations high: You can use email marketing or SMS marketing tools to create a campaign with messages in which you keep the customer up to date about the product situation.
  • Use a countdown: Using a countdown can be a very interesting way to mitigate the customer’s wait and lower their anxiety level. Let them know how many days are left before they can have the product at home.
  • Keep in touch: This is one of the key points. Keeping your client informed about the whole situation will be fundamental to reducing their stress level.

For a product that is out of stock, you can apply the following strategies:

  • Be transparent: It is very important to be transparent with the customer about the status of the item in question and inform them truthfully that it will not be possible to fulfill their order.
  • Include them on a supply list: You can offer the customer the opportunity to be included on a “supply” list in case the product becomes available again at some point.
  • Robust returns policy: It is important to have a clear returns policy regarding this type of situation and how the refund of each order will be handled.
  • Offer alternatives: Another important point is to offer alternatives that can help reduce the negative impact on your brand.

Leveraging technology: Backorders vs. Out of Stock

Although these scenarios are not pleasant for the company or for the customer, nowadays we can count on tools to help us prevent these types of situations and, above all, handle them in the right way.

In the case of backorders, you can create graphs that include the periods of highest and lowest sales in order to correctly distribute the investment in stock.

Thanks to this, you will have a financial overview of what your investment in that product needs to be in order not to break the distribution chain or the stock of the item.

On this point, you could use the same software to find the availability of your supplier and, if necessary, consider the alternative of a second or even third supplier of the same item.

On the out of stock side, technology will help you to anticipate this scenario and avoid major inconveniences with your customers.

Similarly, you can set up the necessary mechanisms to mitigate the impact of a shortage by automatically offering similar and related products to those you do not have in stock.

Software solutions

Beeping

Beeping has one of the best prepared tools to correctly handle both backorders and out of stock cases.

Logo Beeping

From the “Orders” section of the Beeping software, you will see a list of all the orders of your store where you can see the exact status of each one of them.

By clicking on an order you will be able to access all the detailed information.

Also, in the “Products” section, you will have access to the total, available, reserved and incoming stock of your different products.

Note that the software features integrations with Shopify, so you can have a real-time overview of your items in stock wherever you are.

Our team will also be in charge of managing and arranging all the stock that arrives at our warehouses to ensure it is at your disposal in the software immediately.

Warehouse Beeping

Mecalux Easy WMS

Founded in Barcelona, this Spanish company has a presence in more than 70 countries and a very interesting management software to deal with backorders.

Mecalux

The Easy WMS software is a tool designed for efficient warehouse management.

As reported in one of the articles of their blog: “use warehouse management systems, such as Easy WMS, which integrate with ERPs to coordinate all supply chain processes. WMS tracks the levels of available inventory along the various points of the chain and manages flows, making exact predictions about pending orders, depleted SKUs, and low stock levels.”

ShipBob

ShipBob is another company with interesting solutions to deal with backorders and out of stock products.

ShipBob

It has an Inventory Management Solutions for Ecommerce service that works in conjunction with its fulfillment center with the objective of providing the best solutions in the market for its customers.

Beeping Customer: Case Study

How does our software work together with a customer to foresee and act upon a stock out?

Here is a concrete case study.

Out of Stock Prevention

In this first scenario, the customer accesses their total stock through the Beeping software and, faced with the imminent “Out of Stock”, proceeds to place an order for goods from their supplier.

Stock Breakage

Faced with a stock out, the customer can start selling the product on “Backorder” since the goods are on their way.

In the Beeping software, “Backorder” orders will have the label “Pending Stock”.

Back to normal

Once the merchandise arrives at the Beeping warehouse, our team updates the available stock.

In this way, those orders “Pending Stock” will be sent to each of the buyers and the customer will be able to continue to operate normally.

Beeping’s software will be a fundamental ally in order to correctly address both the “Backorder” and “Out of Stock” scenarios.

Conclusion

In this article we have reviewed the differences between backorders and out of stock and the importance of using management tools and software to deal with these scenarios.

It is also important to have strategies that can decrease customer anxiety during the wait for your product, as well as similar options if the product is out of stock.

From the point of view of impact, it is important to serve users’ needs in a timely manner and keep them informed about the status of their order so as not to receive complaints and refund claims.

Beeping has the ideal software that integrates perfectly into your ecommerce business to handle these situations and, thus, ensure you are forewarned during peak sales periods of the year.

Contenidos 📋
Managing your stock is the key to success. We are the solution.

2 thoughts on “The Pros and Cons of Backorders vs. Out of Stock in Online Sales”

    1. David Costarrosa

      The main difference between backorders and out of stock is that in the former we have an expected date for the delivery of the product, while in the latter we neither have the product nor know when we’re going to restock it, so we would have to stop offering it.

Leave a Comment

Your email address will not be published. Required fields are marked *