Backorder vs. Out of Stock: Which Inventory Management Strategy Fits Your Business

In today's bustling world, where online shoppers are enticed by promises of rapid two-day shipping and instant gratification, mastering the skill of inventory management is vital for all types of business especially when you are an owner of an e-commerce store.

A major issue in managing inventory is when products aren't available for various reasons, known as "backorders" and "out of stock." Although people often mix up these terms, they mean different things to both shoppers and businesses.

So, now in this blog, we are going to explain deeply more about these two terms and how they impact businesses and customers. Whether you're a consumer seeking insight into post-purchase processes or a business striving for operational excellence, this detailed article going to be your ultimate resource for all things related to backorders and out-of-stock availability.

What is a Backorder?

Backordering is a simple yet impactful method of managing inventory. It occurs when a customer orders a product that is showing currently out of stock. In this, even if the product is not available, the customer can still place an order, which will then be fulfilled once the product is available to deliver to the customer’s address.

The Customer Experience with Backorders:

Backorders can present a dual challenge for businesses. While they can indicate high demand for a product, they can also lead to frustrated customers left uninformed about their order's status. However, with finesse and attention to detail, backorders can serve as an opportunity to impress customers and cultivate loyalty.

Transparency and communication are paramount to ensuring a positive customer experience with backorders. Notify customers the moment their order is backordered, providing the option to wait or cancel. Keep them informed with regular updates on expected delivery dates and ensure prompt delivery upon product availability.

Conversely, neglecting to inform customers about their backordered item or failing to meet delivery dates can swiftly lead to dissatisfaction and negative feedback. Thus, successfully navigating backorders should hinge on empathizing with customers and delivering exceptional service.

What Is "Out of Stock"?

When due to nature or some other external or internal factors of a business a product becomes temporarily unavailable, it poses challenges for both businesses and customers. But what exactly does "out of stock" mean?

Let's try to put this in simple words. In that case, an out-of-stock product is unavailable for purchase due to factors such as high demand for the item, limited supply from the manufacturers, dead stock, or unforeseen circumstances like fire, and flood.

What Are The Out-of-Stock Challenges:

Managing out-of-stock situations encompasses a proper balance of keeping customers informed via different methods about the availability of a particular product while maintaining appropriate inventory levels. By updating customers on product availability, offering alternatives, or notifying them when the product is restocked, businesses can showcase that they stand upon their commitment to customer satisfaction. This not only helps eliminate customer disappointment but, also fosters a loyal customer base in the long run.

The Core Distinction between Backordered and Out of Stock:

The fundamental difference between these terms lies in the purchasing opportunity available to consumers. When items are back-ordered, you can easily place a new order depending on the demand from the customer's end, effectively securing the item for future availability. In contrast , an out-of-stock status indicates that the item cannot be purchased for multiple reasons until it is restocked in the future.

Significance for Consumers:

Understanding this disparity is pivotal for consumers in managing their expectations. Ordering a backordered (pre-order) product requires patience but will surely ensure that you will get your desired product. However, with out-of-stock items, there's a risk of the product being discontinued forever or sold out upon restocking, especially when the demand is high.

Implications for Business Operations:

From a business standpoint, allowing backorders can sustain sales momentum and potentially stimulate urgency among buyers. It serves as a means to gauge demand and aids in more effective inventory management. Conversely, an out-of-stock status might deter customers, prompting them to explore alternative options and potentially resulting in lost sales.

Backorder Vs. Out of Stock:

Out-Of-Stock	Backorder
Designating items in your online store as out of stock can deter potential buyers who might not return.	Implementing a backordering system allows you to stay connected with your consumers. Before offering backorders, ensure you have the necessary mechanisms in place to manage them effectively. Prioritize your backordered clients so they're first in line when items are replenished.
If you're unsure how to handle a product that's out of stock or will be until the next replenishment, consider utilizing backorders.	You can keep items on backorder while still allowing your customers to continue shopping.
Customers are unable to place orders for products labeled as "out of stock" on your website.	Customers can place orders for backordered items, but not for those that are out of stock.
The availability of items labeled as out of stock isn't guaranteed to be restocked.	Backordered items are assured to be restocked and delivered at a later date.
The duration of an item being out of stock is uncertain and may change without prior notice.	Backordered products typically have an estimated timeframe for availability.
There isn't a method to track when an item will be restocked.	You can track and monitor backorders to keep yourself informed of their progress, aiding in managing customer expectations and providing timely updates on order status.

Back Order vs Out of Stock: Benefits and Drawbacks:

Both backordering and being out of stock have their own sets of advantages and disadvantages. Here's an overview:

The advantages of backordering and dealing with items that are out of stock:

Backordering lets you accept orders even if things aren't available right away, which keeps customers interested and ensures you keep making money steadily.

When you label items as "out of stock," it can make people think they're in high demand, which makes customers more loyal and shows you're honest about what's available.

Possible problems with items being out of stock or backordering:

It can be tough to handle backorders and preorders if there are delays or you can't deliver products on time, which might make customers unhappy.

Saying something is "out of stock" could mean you lose money, lose loyal customers, and damage your reputation, although telling customers when items are out of stock can help lessen these problems.

So, it would be a better idea to try to find a good balance between backordering and items being out of stock to make sure customers stay happy.

The 3 Keys to Effective Inventory Management:

Maintaining a streamlined and organized stock inventory is crucial to ensure customer satisfaction and repeat business. Consider the following factors:

1. Accurate inventory decisions rely on precise data:

Leverage analytics and monitor current trends to predict inventory needs accurately.

2. Provide exceptional customer service:

Tailor your inventory management to meet customer needs and expectations, informing them about backorder and pre-order statuses, restock timelines and other relevant details.

3. Optimize inventory management with digital tools:

Utilize apps and plugins to establish an efficient inventory management system, monitor stock levels, notify customers of out-of-stock products, offer real-time supply chain visibility, and enable various types of backorders with set discounts.