Preventing stockouts: calculating your days of coverage
A stockout on a best seller costs you twice: the sales lost while it lasts, and the customers who went to a competitor and never came back. The good news is that you can see it coming. Here is how to calculate, product by product, how many days you have left.
Days of coverage: the KPI that matters
Your back office shows quantities in stock. But is 60 units a lot? For a product that sells once a week, it is more than a year. For a best seller, it may be two weeks. The right KPI relates stock to the sales pace:
Days of coverage = available stock ÷ average daily sales
Example: 60 units in stock, 90 sold over the last 30 days, so 3 a day. Coverage: 20 days. Without a restock, the product will be sold out in three weeks.
Use a period long enough to smooth out noise and recent enough to reflect current demand: 30 days is a good trade-off for most stores.
The reorder point: when to reorder
Knowing the stockout date is not enough: you need to order before it, taking your supplier’s lead time into account.
Reorder point = daily sales × (supplier lead time + safety days)
With 3 sales a day, a supplier that delivers in 12 days and 5 safety days, the reorder point is 3 × 17 = 51 units. As soon as stock falls below 51, it is time to order.
Safety days absorb the unexpected: a late supplier, a sales spike. The less reliable your supplier, or the more strategic the product, the wider the margin should be.
How much to order
The order quantity covers the period until the next order. If you order once a month: daily sales × 30, plus safety stock, minus what will be left when the delivery arrives. Then round to your supplier’s pack sizes and minimum order quantities.
The traps that throw the calculation off
- Past stockouts: a product sold out for ten days shows ten days without sales. Those days must be excluded, otherwise the sales pace is underestimated and the next stockout comes sooner than expected.
- Variants: a T-shirt’s overall stock can look comfortable while size M, the one that sells most, will be sold out next week. Run the calculation variant by variant.
- Seasonality: the pace of the last 30 days does not hold for December if you are in October. Ahead of a peak season, rely on a forecast rather than the recent average.
- Promotions: a planned promotion pushes sales up; build stock before launching it.
- Hidden demand: on PrestaShop, the Mail alerts module records the customers waiting for a sold-out product to come back. A product awaited by 40 customers deserves to be restocked first.
What a stockout costs
To decide where to start, put a number on what is at stake: the product’s average daily revenue × the number of stockout days expected. A product earning €140 a day that will be sold out for a week before the next delivery represents about €980 of lost sales, not counting the customers who went to a competitor. We go through this reasoning in our article on the cost of inaction.
Automating the follow-up
Running this calculation every week for hundreds of variants is not sustainable by hand. Lumexio estimates the stockout date of every product and variant, suggests the restock quantity, puts a figure on the revenue at stake and helps you prepare your supplier orders. Available for PrestaShop and Shopify.