How to Handle Back Orders to Keep Your Ecommerce Sales FlowingTable of ContentsIntroductionWhat is a Back Order?Back Order vs. Out-of-Stock: Key DifferencesBenefits of Selling Back Order ItemsDrawbacks of Selling Back Order ItemsCauses of Back OrdersTips for Reducing Back OrdersManaging Inventory with ShopifyConclusionFAQ SectionIntroductionImagine the frustration of discovering that the product you desperately want is out of stock. Your hopes are dashed, and you leave the website empty-handed. This is a recurring challenge for many ecommerce businesses. However, there’s a strategic solution that can keep customers engaged and sales flowing: back orders. This blog post will delve into the world of back orders, examining their benefits, drawbacks, and providing essential tips to manage them successfully. Whether you are an ecommerce novice or a seasoned online merchant, understanding how to handle back orders effectively can significantly impact your business growth and customer satisfaction.What is a Back Order?A back order transaction occurs when a customer purchases an item that is temporarily unavailable for immediate shipping. When customers place back orders, their purchases are secured but will be fulfilled at a later date. This strategy enables businesses to maintain sales momentum even when inventory is low. Unlike items that are simply out-of-stock and unavailable for purchase, back ordered items will be delivered once inventory is replenished.Back Order vs. Out-of-Stock: Key DifferencesIt's crucial to distinguish between back orders and out-of-stock situations:Back Orders: Customers can purchase the product despite its unavailability, ensuring future delivery once stock is available.Out-of-Stock: The product cannot be purchased at all, and there might be no indication of when or if it will be available again.While out-of-stock items can lead to lost sales, offering back orders helps sustain customer interest and sales prospects.Benefits of Selling Back Order ItemsReduced Inventory Carrying CostsStoring excess inventory can be costly due to handling, insurance, and storage expenses. Back orders can mitigate these costs by enabling merchants to sell items not currently in stock and order only when necessary. This approach is especially effective for businesses with limited storage space or those looking to optimize cash flow.Increased Perceived DemandListing products as back orders can create an impression of high demand and exclusivity. Customers are often drawn to items perceived as popular. When managed correctly, this can elevate the perceived value of the product, boosting overall sales.Sustained Sales with Limited InventoryBack orders allow businesses to continue selling even with low or zero inventory. For example, if a product suddenly becomes popular due to a viral trend, offering it on back order ensures that the surge in demand is met without immediate stock.Insight into Customer PreferencesAccepting back orders provides valuable data on which products are in high demand. This information can guide future inventory and marketing decisions, ensuring that popular items are always available.Drawbacks of Selling Back Order ItemsLonger Fulfillment TimesToday's consumers expect quick delivery. Lengthy waits for back ordered items can lead to dissatisfaction and potential harm to your brand’s reputation. It's essential to manage customer expectations with clear communication about delivery timelines.Potential Loss of SalesFor products with high competition, customers may turn to competitors with available stock rather than wait for back ordered items. This is less of an issue for niche or high-ticket items with less competition.Increased Cancellation RatesThe longer the wait for an item, the higher the chances of order cancellations. This can complicate inventory and financial management, particularly if customer payments were processed at the time of purchase.Causes of Back OrdersUnexpected Demand SurgesUnanticipated spikes in demand, driven by trends, promotions, or market changes, can quickly deplete inventory. Effective marketing that surpasses expectations can lead to temporary stock shortages.Supply Chain DisruptionsFactors such as political turmoil, economic shifts, or pandemic-related disruptions can hinder supply chain efficiency, leading to delays in stock replenishment.Manufacturing IssuesProblems such as raw material shortages or production delays can reduce available stock and increase back orders.Human ErrorMistakes in warehouse management, inaccurate inventory counts, or errors in order processing can also lead to back orders. Regular audits and robust training can help mitigate these issues.Tips for Reducing Back OrdersMaintain Safety StockKeeping a buffer stock can prevent stockouts. Calculate safety stock based on historical data and seasonal trends to ensure a consistent supply even during demand fluctuations.Set Reorder PointsEstablishing reorder points ensures that stock is replenished before it depletes entirely. Automated alerts and integrated inventory management systems, like those offered by Shopify, can help in maintaining optimal stock levels.Employ Inventory Forecasting ToolsUtilize forecasting tools to predict demand based on historical sales data. Accurate forecasts help in planning inventory needs more effectively, reducing the frequency of back orders.Partner with Multiple SuppliersHaving alternative suppliers ensures that if one source faces delays, others can fulfill the demand. Diversified supply chains enhance reliability and reduce the risk of stockouts.Communicate Clearly with CustomersTransparency is key. Clearly indicate on your website which items are back orders and provide estimated delivery times. Regular updates via email can keep customers informed and mitigate frustration.Managing Inventory with ShopifyShopify offers comprehensive tools to help manage inventory and minimize back orders. Features like real-time inventory tracking, demand forecasting, low stock alerts, and integrated purchase orders streamline the process. Shopify's built-in analytics provide insights into sales patterns, helping businesses make informed inventory decisions.ConclusionBack orders, when managed effectively, can be a strategic tool for ecommerce businesses to maintain sales and customer engagement even during inventory shortages. By understanding the causes of back orders and implementing robust inventory management practices, businesses can minimize disruptions and maintain customer satisfaction. Platforms like Shopify offer the necessary tools to manage and reduce back orders efficiently.FAQ SectionWhat does back order mean?A back order refers to a purchase for an item that is currently out of stock but is expected to be shipped and delivered once the inventory is replenished.How long do back ordered items take?The timeframe for back ordered items varies, typically ranging from several weeks to a few months, depending on the inventory replenishment cycle.What is an example of a back order?An example of a back order is purchasing a highly-anticipated new smartphone that is currently out of stock due to high demand, securing your order to be fulfilled once more stock is available.E-commerce businesses face the constant challenge of balancing supply and demand. By leveraging back orders strategically, businesses can ensure they continue to capture sales and satisfy customer needs even during inventory shortages. With effective planning and management, back orders can become a valuable aspect of your inventory strategy.