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October 25, 2024
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Picture this: your new product launch is a massive hit, your notifications are stacked, and orders are skyrocketing. And then you realize—your inventory has run out. Orders keep coming in, but you have nothing left to sell. This is where backorders come into play.
A backorder occurs when customers buy items that are temporarily out of stock. While backorders can indicate strong demand, poor handling can damage customer trust.
In this article, we’ll explore backorders, how to avoid them, strategies for managing them, and how to maintain clear communication with your customers. The goal? To turn backorder challenges into opportunities for building loyalty!
Backorders happen when a product is temporarily out of stock but still available for customers to purchase.
They can place an order for an item that isn't currently on your shelves, expecting it to be shipped as soon as it becomes available again. This means the customer will wait longer than average because they must wait for the warehouse or distribution center to receive the item, process it, and ship it to them.
So, what causes backorders? Here are some common instances:
It’s easy to confuse the terms “backorder” and “out-of-stock” or “stockouts.” Although they are often used interchangeably, they refer to different scenarios in inventory management.
Here’s how backorders and stockouts differ from each other:
Backorders: Occurs when a product is temporarily unavailable but can still be purchased.
Stockouts: Happens when a product is entirely unavailable for purchase and can only be ordered once it is restocked.
Backorders: Businesses continue to accept orders, often providing an estimated shipping date or a timeframe for when the product will be available again.
Stockouts: Businesses stop accepting orders for the product until it is back in stock.
Backorders: Businesses are usually aware of when they will receive new stock, so they allow orders to continue.
Stockouts: This may indicate a more uncertain or prolonged inventory shortage, with no immediate restocking plans.
Backorders: Proactive communication is required. Since customers have already placed orders, businesses must manage expectations by providing regular updates.
Stockouts: Focuses on preventing customer frustration by being transparent. If an item is unavailable, businesses must communicate this upfront to avoid disappointing customers.
Backorders: If managed well, it can maintain customer loyalty. However, a lack of updates and extended delays can lead to dissatisfaction, negative reviews, and even order cancellations.
Stockouts: This can often lead to lost sales, as customers may turn to competitors if they cannot purchase the desired item from the store.
Backorders: An online cosmetics store sells out a new makeup product after an unexpected surge in demand. Instead of marking it as "out of stock," they allow customers to place orders on backorder with a message indicating a two-week delay for shipping.
Stockouts: A fashion brand runs out of a popular dress. The product page is updated with an "Out of Stock" label, and customers cannot buy it until the next batch arrives. To keep potential buyers interested, they provide a "Notify Me" button for restock alerts.
While backorders can be a sign that your product is in high demand, they come with a few challenges. If not managed correctly, they can lead to poor customer experiences and even lost sales.
To avoid the pitfalls of backorders and ensure smooth order fulfillment, businesses must take a proactive approach. Here are some key strategies:
Demand forecasting is the process of predicting inventory needs for the future. This involves using sales data from previous years to identify seasonal trends and anticipate future demand. By understanding when your customers are most likely to buy, you can plan your stock levels more effectively and avoid out-of-stock notices.
Efficient inventory management is crucial for avoiding stockouts and overstock situations. Invest in robust inventory management software that provides real-time stock tracking so you always have an accurate picture of your stock levels.
Your suppliers play a crucial role in your ability to meet demand, so keeping those relationships strong is essential. Regularly check in with your suppliers to stay updated on:
And to be safe, diversify your supplier base so you have backup options if your main supplier falls short.
Safety stock acts as a buffer against unpredictable demand spikes or supply chain hiccups. While it may tie up some capital, having a safety net can prevent costly backorders. Pro tip: use sales data and demand forecasts to adjust your buffer quantities, ensuring they align with your needs.
Pre-orders aren’t just a great way to drum up excitement—they can also help you gauge demand before you fully stock a product.
By allowing customers to pre-order, you can clearly see an item's popularity, which helps you adjust your inventory levels accordingly. This reduces the risk of overstocking and backorders, keeping your fulfillment process smooth and efficient.
Even with the best planning, backorders can still happen. The key is to keep them from becoming a source of frustration for your customers or your business. Turn backorders into an opportunity to strengthen customer trust with these strategies:
Not all orders are created equal—especially during a backorder situation. Prioritizing orders based on specific criteria can help you fulfill them more efficiently and maintain customer satisfaction.
Here’s a simple but effective method: process orders in the order they were received to ensure fairness and transparency. If you have a loyalty program, consider prioritizing your most loyal customers or those with higher-value orders.
A backorder can be a symptom of inefficiencies in your operations. Review and streamline your internal process, whether by utilizing inventory management software or strengthening your communication with suppliers. This will reduce the likelihood of future backorders and improve overall fulfillment speed.
Backorders don’t have to result in lost sales! Use your website’s product pages and customer emails to recommend similar items in stock and redirect customers to other products.
As you offer alternatives, keep collecting emails from customers interested in the backorder product. This way, you can notify them immediately once it’s back in stock!
Clear and proactive communication is crucial when managing backorders, as customers are more likely to stay loyal if they feel informed and valued. When faced with a backorder situation, here’s how to effectively communicate with your customers:
When customers are informed upfront about backorders, it sets the right expectations and reduces frustration. Customers are more forgiving if you’re upfront about the situation rather than leaving them in the dark.
Use clear labels like "Available on Backorder," so customers know exactly what to expect before purchasing. Should there be unforeseen delays, communicate it to them honestly.
Regular updates reassure customers that their orders haven’t been forgotten. It keeps them engaged and reduces the likelihood of cancellations or chargebacks.
Immediately after a backorder purchase, send an order confirmation email outlining the expected shipping date. If possible, integrate a tracking system that allows customers to monitor their backorder status to keep them informed throughout the process.
Compensation can turn a potentially negative experience into a positive one. Show customers that you appreciate their patience by offering something of value, such as:
These initiatives can minimize the impact of the delay. Plus, they can encourage repeat purchases!
Two-way communication ensures that customers feel heard and valued, so ensure they can reach you via email, phone, or live chat if they have concerns about their order. For instance, if a customer reaches out with shipping concerns, address them promptly and empathetically. Acknowledge their frustration, apologize for the inconvenience, and offer a solution.
Backorders are an inevitable part of running a business, but with the right approach, they don't have to hurt your brand. Plan ahead, manage your inventory efficiently, communicate transparently with your customers, and you can minimize the negative impact of backorders.
You can even turn them into a positive experience! Use these challenges to build stronger customer relationships and earn their long-term loyalty.
If you're looking to improve your inventory management and reduce the risk of backorders, iDrive Logistics is here to help. Drop a message on our Contact page so we can help you optimize your inventory management and turn stock challenges into opportunities for growth!
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