Ecommerce businesses need inventory management systems to avoid running out of stock—a standard problem for ecommerce merchants.
What’s a back order?
A back order is when a customer purchases a product that’s temporarily unavailable (on account of insufficient stock levels) for shipment at a later date. When a customer places a back order, their purchase is reserved, and merchants work to satisfy that order as quickly as possible.
Although there’s no required delivery timeline for back ordered items, merchants aim to satisfy back orders inside weeks. Merchants who accept back orders can process payment as soon as a customer places the order, once the order is shipped, and even once it’s delivered.
Back order vs. out-of-stock: What’s the difference?
While out-of-stock items are unavailable for purchase, customers should buy back order items though they’re temporarily out of stock. Customers place back orders knowing they are going to receive the purchased services or products at a future date, whereas out-of-stock items might never turn out to be available for purchase again.
Advantages of selling back order items
Although ecommerce businesses generally try to attenuate back orders as much as possible, selling back order items can involve certain benefits for merchants:
Reduced inventory carrying costs
If you might have excess inventory, the full expenses of storing those items can begin so as to add up. Generally known as inventory carrying costs, this includes expenses like handling costs, insurance, and the associated fee of renting or owning a cupboard space. Depending on your organization’s business model, offering back order items can enable you avoid excess stock and contribute to lower inventory carrying costs. You may make items available on back order and place a bulk order together with your supplier once orders surpass a threshold.
Increased sense of demand for products
A product listed as a back order can communicate a high demand for the product to customers. If used strategically and with clear communication about delivery timelines, listing a couple of back order products on your organization’s website may end up in those items having a better perceived value.
In this fashion, back orders can function a type of social proof—a psychological phenomenon that describes the human tendency to form opinions and take actions based on the opinions and actions of others. For instance, a customer shopping online for a pair of headphones may view a certain brand or style as more attractive based on its perceived popularity as a back order item.
Continued sales even with less inventory
Back orders allow merchants to take care of a sales channel for certain items, even once they’re not currently on the shelves of that company’s warehouse or retail store. Back orders thus help keep sales fairly consistent when experiencing fluctuations in supply and demand.
For instance, a merchant selling sunglasses that suddenly go viral on TikTok could offer the product as a back order to retain market share without having the inventory to fulfill demand.
Higher insights into customer demand
Listing items for back order can offer you a clearer sense of which of your services are in demand. Based on customer orders, you’ll be able to make decisions about how much stock to purchase for various items. For instance, an ecommerce entrepreneur selling water bottles could prioritize marketing and stocking a certain color based on what number of back orders it’s receiving.
Drawbacks of selling back order items
There are a couple of major drawbacks to accepting back orders that merchants have to remember, including:
Longer success times
In today’s fast-paced world of ecommerce, customers have turn out to be accustomed to the immediate shipment of products purchased online and even same-day delivery. The longer you make your customers wait for a purchased item, the less satisfied they’ll be with their overall shopping experience.
Lost sales
In case you’re selling a back ordered item with a lot of competition within the marketplace, you’ll likely lose sales to competitors who’ve the product in stock. Offering back order services works higher for merchants selling high-ticket items with little competition.
For instance, costlier items like luxury jewelry and outdoor equipment are a greater fit for back ordering than inexpensive impulse purchases like cell phone accessories and kitchen gadgets.
More opportunities for cancellations
The longer it takes to satisfy an order, the more opportunities there are for a customer to cancel their order. In case you processed a customer’s back order payment upon purchase, you’ll have to undergo the logistics of refunding that order.
In case you’re waiting to process payment until shipment or delivery is complete, there are still inventory management and bookkeeping tasks that may must be done. With all the logistics required to make back orders possible, the method can find yourself costing more resources than the orders are price.
What causes back orders?
Back orders occur when there’s an imbalance between supply and demand, which is brought on by a wide range of aspects, including:
Unexpected customer demand
Back orders can occur when demand exceeds supply, which may involve an unusual demand on account of several potential aspects like seasonal demand changes, price changes, fluctuations out there, and successful marketing campaigns. Although sudden increases in demand are positive for revenues, they may end up in more back orders or out-of-stock items for firms.
For instance, fashion brand Flexin’ In My Complexion sold out of its first apparel products inside minutes due to a viral social media post made by entrepreneur Kheris Rogers, who was only 10 years old when the corporate launched.
Supply chain issues
Supply chain delays also can create the necessity to list back order items. These supply chain issues may end up from political and economic challenges, rising energy costs, and infrastructure problems with suppliers. For instance, the COVID-19 pandemic caused a rise in port congestion and provide chain issues for ecommerce merchants across the globe.
Manufacturing problems
A producing slowdown can contribute to low inventory levels. This will involve manufacturers running low on raw materials crucial for certain items and even issues with the production process itself.
Human error
One other way that back orders occur is thru mistakes made by people producing, supplying, or shipping items. For instance, warehouse management discrepancies may end up in lost or missing inventory and even small mistakes on a purchase order order can create success delays.
Suggestions for reducing back orders
Listed here are some suggestions to think about when trying to scale back back orders in your personal company:
Carry safety stock
Safety stock is an additional amount of inventory that merchants keep as a contingency plan to avoid back orders. Low safety stock levels indicate that recent safety stock should be acquired to guard against inventory shortages. This strategy works particularly well for firms with extra cupboard space and consistent demand for his or her services or products.
Establish reorder points
Define reorder points for each one in every of your products that determine at what point the stock levels are low enough to put an order for more inventory. Reorder points are an important aspect of any inventory management system to make sure that you replenish stock well before running out.
Arrange automated alerts to remain on top of your inventory levels. Integrated ecommerce platforms like Shopify make inventory management easy with comprehensive analytics and reporting tools that feature real-time data about how long your current inventory is anticipated to last.
Use inventory forecasting tools
Predict future demand on your products by utilizing inventory forecasting tools. These software tools can enable you predict sales trends based on historical data. Using accurate forecasting tools can enable you maintain the proper amount of stock levels on your online store and anticipate spikes in demand.
Work with multiple suppliers
One other way you’ll be able to reduce back orders is by partnering up with multiple supplier. Even when you might have a primary manufacturer for the products you sell, research several backup options which have similar product availability. In case you only work with one supplier to order inventory, you run the chance of missing out on sales if that one supplier delays shipments or stops providing those products altogether.
Communicate together with your customers
If back orders are inevitable, keep your customers pleased with accurate estimations for if you will fulfill back orders. Be certain back ordered items are clearly delineated in your online store. Arrange automated email sequences that send customers updates with the status of back ordered items. Establish an order success process that prioritizes back ordered items being shipped in a timely manner.
What’s back order FAQ
What does back order mean?
Back order refers to items not currently in stock which are purchased by customers to be shipped and delivered at a later date.
How long do back ordered items take?
Every back order item has a special delivery timeframe, but back orders can typically take anywhere from a few weeks to some of months.
What’s an example of a back order?
An example of a back order could be purchasing a brand-new smartphone that’s currently out of stock due to high demand, knowing that you might have reserved your purchase to be fulfilled in the long run.
