Inventory how-to
How to calculate lead time demand
Lead time demand is the amount of a product you expect to sell between the day you place an order and the day it arrives.
Short answer: Lead time demand is the amount of a product you expect to sell between the day you place an order and the day it arrives. You calculate it by multiplying your average daily sales by your supplier's lead time in days. Add safety days on top to cover delays or demand spikes.
The basic formula
Lead time demand = average daily sales x lead time (in days).
Average daily sales comes from a recent sales window for that specific variant, not the whole store. Lead time is how many days it takes from placing the order to the stock arriving in your warehouse, not just the supplier's shipping time. Include any time the supplier needs to produce or pack the order.
Why it matters for reordering
Lead time demand is the core of your reorder point. The reorder point is the stock level at which you need to place a new order so you do not run out before the next delivery arrives. If you wait until you are already low, you will sell out before the new stock lands.
Most stores also add safety days to the lead time to cover supplier delays, shipping delays, or a sudden jump in sales. This gives you a buffer so a late shipment does not mean a stockout.
Common mistakes
A common mistake is using the supplier's quoted lead time only, and ignoring customs, local delivery, or receiving and checking time. Another is using sales data from a slow month or a promo spike, which skews the daily average too low or too high. Also watch for variants with very low sales volume, where a short sales window can give a noisy average. In that case, use a longer window.
Step by step
- List the variant's recent sales and divide by the number of days to get average daily sales.
- Confirm the true lead time with your supplier, including production, shipping, and receiving time.
- Add safety days based on how reliable that supplier has been.
- Multiply average daily sales by (lead time + safety days) to get lead time demand.
- Compare lead time demand to current stock on hand and stock on order.
- Set your reorder point at the lead time demand figure, and reorder when stock drops to that level.
- Recheck the calculation periodically, since daily sales and lead times change over time.
Worked example
Say a candle variant sells 4 units a day on average, based on the last 28 days. The supplier's lead time is 10 days, and you add 3 safety days for delays. Lead time demand = 4 x (10 + 3) = 52 units. If you have 60 units on hand and nothing on order, you still have 8 units of buffer above your reorder point, so you do not need to order yet. Once stock drops to 52 units, it is time to place the order.
How SteadyShelf helps
SteadyShelf calculates lead time demand automatically per SKU, using your sales window and each supplier's lead time and safety days, and gives you an order-by date so you do not have to run this math by hand. It does this per SKU for the store as a whole, not per location, so if you stock the same item in multiple warehouses you will need to split the numbers yourself.
$29/month flat, unlimited products and suppliers, 30-day free trial. Run the numbers now with the free reorder point calculator.
SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.
Related guides
- How to calculate lost sales from stockouts
- How to calculate safety stock with variable demand
- How to calculate safety stock with variable lead times
- How to calculate landed cost per unit
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FAQ
Should I use average daily sales or peak daily sales for lead time demand?
Use average daily sales for the base calculation, and let safety days absorb peaks and surprises. Using peak sales for every calculation will push your reorder points too high and tie up cash in excess stock.
What if a product has no sales history yet?
Without history, estimate daily sales from a similar existing product or from your own judgment, then adjust the figure once a few weeks of real sales data come in.
Let SteadyShelf do this math for every SKU
Order-by dates per supplier, seasonal forecasts and draft POs for your Shopify store. $29/month after a 30-day free trial.
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