How to Manage Backorders

how to manage backorders

Estimated reading time: 5 minutes

We’ve all been there. You are shopping in person or online for a particular product or item, but it isn’t available. You can either wait for it to come in or choose an alternative product or item. In many cases, the alternative products and items in stock are only available in styles or colors that you are not interested in. Or, they might be the wrong size altogether, a common occurrence when shopping for clothes, shoes, furniture, appliances, and home décor. If the product or item you want is on backorder, the brick-and-mortar or online retailer might be able to reserve your order, and they will ship it to you when they have the product back in stock. However, this can be frustrating because you want to get it right away.

If you run a small business, your customers will feel the same frustration if the products and items you sell are on backorder. Today’s consumers are used to getting things quickly. We live in an on-demand world where shoppers are used to getting the products and items they want… when they want them. If your products and items are on backorder, shoppers can pull out their mobile devices and search for them elsewhere with a few taps on a glass screen. If customers take their business elsewhere, your business will lose sales revenue. So, it is essential to understand how to manage backorders, which is the focus of this Balboa Capital blog article.

What is a backorder?

A backorder is a request to purchase a product or item that is not in stock. This means that the customer will have to wait until the product or item is back in stock before they can receive it. Products and items on backorder are still being produced or manufactured; they are just not available from the retailer when the customers want to purchase them.

There is a difference between a backorder and an out-of-stock product or item. When a product or item is marked “out of stock” in your store or on your website, customers cannot place their order because you have no inventory, and there is no guarantee that it will be available in the future. Holiday and limited-edition versions of items and products typically become out of stock.

How do backorders work?

Here is an example of how backorders work. A couple shopping for whimsical-themed wall art for their child’s bedroom saw the perfect print in the window display at a local art store. After informing the art store’s manager that they would like to buy the print in a 24-inch by 36-inch format, the couple learned that size is on backorder. Unfortunately, the closest available sizes in stock were 12-inch by 18-inch and 8-inch by 10-inch, neither of which would give the couple what they wanted.

The art store manager showed the couple some similar wall art options in stock, but they were already sold on their preferred choice. So, the couple placed a backorder for the print, and it arrived weeks later. The couple had to wait a little bit longer, but they were happy with the art print because it was what they had their sights set on.

Why do backorders occur?

Backorders happen for various reasons, some of which are entirely out of your control. For example, your suppliers may have unexpected supply chain challenges. When parts, supplies, and other raw materials are unavailable, products and items cannot be created, which impacts production and causes delivery delays. Backorders can also occur when there is a sudden increase in demand for specific products or items that exceed supply. For example, when the COVID-19 pandemic hit, there was a massive spike in orders for disinfectant wipes and face masks.

How do you manage backorders?

Customers who want to buy a specific product or item do not want to wait long to get it; they are accustomed to getting their purchases in a reasonable timeframe. So, it is essential to take the steps necessary to manage your backorders. First, you can monitor your inventory levels to ensure they are within acceptable ranges. Second, keep an eye on your business’s sales trends and sales data to help determine when it’s time to reorder products and items. The most popular products and items that you sell are the ones that you need to stock up on regularly. One way to manage your inventory and maximize your storage is by using point-of-sale software.

Next, stay informed on the latest developments in your industry, so you know what customers want and can predict future demand. Lastly, you can find out which items you need to order in advance by asking your supplier or retailer about their lead times, or you can place a pre-order at the same time as your initial order so that it will be sent when it becomes available.

Put your customers’ convenience first.

Backorders can be seen as an inconvenience for customers and lead to a negative customer experience. Customers may feel that they are not getting their products or items on time or not getting their complete order. Backorders can also affect your business in many ways, such as increased labor and inventory costs, lower profits due to missed revenue opportunities, and a higher risk of lost sales due to customers canceling orders or returning their purchases.

By putting your customers’ convenience first, you let them know that you value their business and want to keep them happy. For example, you might consider using backorders as a marketing tool by offering special discounts to your customers for products and items that are not available for immediate shipment, which can make them happy in the end.

Finally, communication with your customers is vital when it comes to backorders. Providing your customers with the estimated arrival date and regularly checking the status of their orders can benefit all parties. If an order will take longer than expected to fill, let your customer know, and express your sincere apologies for the delay. You can complete these tasks with customer relationship software, which can be tailored to your business’s specific needs.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.