Inventory how-to

How to calculate stockout cost

Stockout cost is the profit you lose when a product is out of stock, plus any extra cost from the fallout.

Short answer: Stockout cost is the profit you lose when a product is out of stock, plus any extra cost from the fallout. For a single SKU, start with lost sales during the out-of-stock period times your margin per unit, then add estimates for customers who do not come back.

What goes into the number

The core number is lost units times margin. Lost units are your normal daily sales for that SKU multiplied by the number of days it was out of stock. Margin is your selling price minus your cost per unit.

Beyond that, you can add softer costs if you want a fuller picture: customers who switch to a competitor and do not come back, refunded or cancelled orders, and extra support time answering "when is this back" emails. These are harder to measure, so many stores just track the direct lost-profit number and treat the rest as a known but unmeasured risk.

Direct lost sales calculation

Direct lost sales = average daily sales x days out of stock x margin per unit. This tells you what the stockout cost your store in the time it took to get the item back on shelf.

Repeat the calculation per SKU

Stockout cost varies a lot by product. A slow mover that is out of stock for a week may cost you very little. A best seller out of stock during a peak week can cost a lot. Calculate it per SKU so you know which stockouts actually matter and which ones to stop worrying about.

Use it to set safety days

Once you know roughly what a stockout costs for a given SKU, compare that to the cost of holding extra safety stock (tied-up cash, storage). If the stockout cost is high relative to holding cost, add more safety days for that SKU. If a stockout costs almost nothing, you can run leaner.

Step by step

  1. List the SKU and the date range it was out of stock.
  2. Pull average daily sales for that SKU from before the stockout.
  3. Multiply daily sales by days out of stock to get lost units.
  4. Multiply lost units by your margin per unit (price minus cost) to get direct lost profit.
  5. Optionally add a rough estimate for lost repeat customers or support costs if you track that.
  6. Repeat for each SKU that went out of stock and rank them by cost.
  7. Use the high-cost SKUs to decide where to add safety days or tighten your order-by dates.

Worked example

Say a SKU normally sells 6 units a day at a margin of $10 per unit. It was out of stock for 9 days. Lost units = 6 x 9 = 54 units. Direct lost profit = 54 x $10 = $540. If a slower SKU sells 1 unit a day at $4 margin and was out for 9 days, that is 9 x $4 = $36 lost. The first SKU is the one worth protecting with extra safety days.

How SteadyShelf helps

SteadyShelf does not calculate stockout cost directly, since that needs your margin and sales-loss assumptions. What it does is flag when a SKU is projected to run out before its next order-by date, so you can act before the stockout happens rather than measuring the cost after. You will still need to do the margin math yourself for any SKU that did run out.

$29/month flat, unlimited products and suppliers, 30-day free trial. Run the numbers now with the free reorder point calculator.

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FAQ

Should I include lost future sales from customers who never come back?

You can, but treat it as a rough add-on, not a precise figure. Estimate what share of affected customers you think you permanently lose and apply your average customer lifetime value to that share. Keep this separate from the direct lost-sales number so you know which part is solid and which part is a guess.

What if the SKU had no sales history before the stockout, like a new product?

Use sales from a comparable existing product as a stand-in for expected daily sales, or use pre-order or waitlist signups during the stockout period as a proxy for demand. Either way, flag the estimate as rough since you are working without real history for that SKU.

Let SteadyShelf do this math for every SKU

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