What is a backorder?

A backorder is an order for a good or service that cannot fill at the current time due to a lack of available supply. The item may not be held in the company’s available inventory but could still be in production, or the company may need to manufacture more of the product still.

This means the customer orders will be on the list; once you have replenished stock or inventory, the orders will fulfill as a priority.

What is out of stock?

Products that are out of stock are not available to buy in your store because they have all been sold.

Backorder Vs. Out of Stock

So, what is the difference between backorder and out-of-stock?

When a product is marked “out of stock” on your website, your customers cannot place an order.

However, the customers can still place an order with a backorder product because the inventory is replenishing.

Out of stock means the item or product is not available in your store.

Backorder means the item or product is currently unavailable; the replenishments are on the way.

Will your customers accept backorders?

Customers do not like delayed shipping or delay orders; 70% of customers’ behavior is impulse buying. If you sell similar products, the backorders will lead 40% of customers to buy from competitors, or customers buy the alternative products, and 20% of customers will realize they don’t need products to cancel the orders.

However, backorders work for niche products. If your items are top of the shelf or unique, the wait to receive an order can increase your business to the next level.

Why?

First, like Apple launches the new iPhone every year, all the customers wait to receive their parcels. That’s what we called hunger marketing.

Then, waiting for receiving products creates an image of the products are selling very well.

A backorder may increase your…

Finance cost

Once your backorders increase, it means your actual sales and income revenue become fluctuating. Customers don’t receive the product; they will refund or cancel the orders, which already count as income revenue. For more order cancelations, finance needs to recalculate the revenue, cost, and profit.

Operation cost

Delay fulfilling or shipping will increase your customer service work. Your customers request order process information; customer service will handle more cases about order complaints and refunds.

Branding cost

Backorders will increase the risk of ruining the brand image.

Payment cost

Order refund increases your cash flow and payment cost.

As an analysis, 0%-2% backorder rate is the margin.

How does eComhub decrease your backorders?

eComhub offers a cross-docking fulfillment solution for our customers. The cross-docking fulfillment will increase the order fulfillment process. Typically, inventory comes in receiving dock, after transfer to the storage area, then pick and pack. However, the cross-dock fulfillment allows your replenished inventory comes in receiving dock and go directly to the pick and pack dock. Then storage dock is skipped during this solution. This solution doesn’t work for all product, product requirements; please contact your account manager. Cross-docking fulfillment can save 30% processing time.