Ever experienced this? Orders are surging, customers are messaging in non-stop, but when you check your stock in the system it says 'Out of Stock' even though you just restocked not long ago. On the flip side, some stores face the opposite problem: they order so much extra stock that capital sits frozen on the shelves for months.
Both of these stem from the same root cause: you still don't know 'when you should reorder' and 'how much safety stock to keep on hand'. This article will walk you through how to calculate Reorder Point and Safety Stock in a way you can follow right along on a calculator.
Why 'Guessing' Costs Your Store Money
Ordering based on gut feeling (ordering when you notice you're running low) sounds flexible, but in reality it quietly costs you money in 2 ways.
- Stockout: You lose sales you should have made, customers leave for competitors, and what hurts even more is that your store rating and visibility ranking on the platform drop.
- Overstock: Capital is tied up in inventory, you pay storage costs, and you risk products expiring or going out of trend.
The solution is to switch from guessing to numbers you can calculate, and there are 2 of them you need to know.
Get to Know the 2 Key Numbers: Safety Stock and Reorder Point
| Number | What It Is |
|---|---|
| Safety Stock | Emergency backup stock to guard against the unexpected, such as a sudden sales spike or a supplier shipping late. |
| Reorder Point | The stock level that, once touched, means you must reorder immediately rather than waiting until you run out. |
Simply put, Safety Stock is the cushion, while Reorder Point is the alert telling you to take action and place an order.
Safety Stock Formula
The basic formula that works in practice for most stores is:
Safety Stock = (Maximum Daily Sales × Maximum Lead Time) − (Average Daily Sales × Average Lead Time)
The term Lead Time refers to the period from when you place an order until the goods arrive at the warehouse ready to sell.
Let's look at an example SKU, the t-shirt TS-WHITE-M
- Average sales of 20 units/day, best-selling day 35 units/day
- Average Lead Time 5 days, slowest 8 days
Plugging in the values: (35 × 8) − (20 × 5) = 280 − 100 = 180 units
This means you should keep 180 units of this shirt in reserve as a safety cushion.
Reorder Point Formula
Once you have your Safety Stock, finding the Reorder Point is very easy.
Reorder Point = (Average Daily Sales × Average Lead Time) + Safety Stock
Using the same TS-WHITE-M numbers: (20 × 5) + 180 = 280 units
This means that every time your stock drops to 280 units, you must place a new order immediately, because during the 5 days of waiting for the goods you will sell around another 100 units, and you'll still have 180 units of Safety Stock to handle situations where the goods arrive late or sales are better than usual.
An Excel Template You Can Copy and Use Right Away
You don't have to use a calculator for every SKU. Set up your columns in Excel or Google Sheets like this, then enter the formula just once.
| Column | Example Value |
|---|---|
| A: SKU | TS-WHITE-M |
| B: Average Sales/Day | 20 |
| C: Maximum Sales/Day | 35 |
| D: Average Lead Time | 5 |
| E: Maximum Lead Time | 8 |
Then enter the formulas in the next cells.
- Safety Stock (F):
=(C2*E2)-(B2*D2) - Reorder Point (G):
=(B2*D2)+F2
Drag the formulas down to cover every SKU, and you'll have a reorder alert table for your entire store on a single sheet.
When You Have More SKUs, Excel Starts to Struggle
These formulas are accurate, true, but they have a weakness: they stay fixed to the values you entered. In real life, average sales change every week, and especially during big campaigns or sale festivals, sales can spike several times over, making the Reorder Point you calculated last month no longer valid. And if you have hundreds of SKUs, manually updating every single one becomes nearly impossible.
This is where a fulfillment system like Flash Fulfillment comes in to help ease the load, because when your stock sits in a warehouse that connects its data with actual sales, the system will:
- See sales and stock levels in real time, with no manual counting needed
- Alert you when any SKU hits its Reorder Point so you can reorder in time
- Have a short and predictable internal Lead Time, helping reduce the Safety Stock you need to keep = less capital tied up
Simply put, you're still the one making decisions, but the system helps keep an eye on the numbers for you.
Key Takeaways
- Safety Stock is the cushion against stockouts, calculated from the difference between the worst case and the normal case.
- Reorder Point is the signal that it's time to reorder, before stock drops to the Safety Stock level.
- Start with Excel using the template above, then move to a system when you have more SKUs.
- Don't forget to periodically review your average sales figures and Lead Time, especially before big campaign periods.
If your store is starting to have so many SKUs that managing stock by hand is becoming too much, consider learning more about how setting up a warehouse and fulfillment system can make the Reorder Point work for you, so you'll have more time to focus on selling.
Frequently Asked Questions (FAQ)
What should I do if my supplier's delivery times are very unpredictable?
The more your Lead Time fluctuates, the more you should use the maximum Lead Time you've actually experienced in the Safety Stock formula to account for the worst case, and consider finding a backup supplier to spread the risk.
What's the difference between Reorder Point and Safety Stock, in short?
Safety Stock is the 'amount you set aside' for emergencies, while Reorder Point is the 'stock level at which you must start ordering'. The Reorder Point already includes the Safety Stock within it, plus the amount you'll sell while waiting for the goods.
How often should I recalculate these values?
It's recommended to review at least once a month, and to do a special review before entering sale festival periods or big campaigns, because average daily sales often change significantly from before.
I have hundreds of SKUs and can't calculate them one by one. What should I do?
Start by prioritizing: calculate the SKUs that sell well and bring high profit first. For the long term, you should use a system that pulls sales and stock data to calculate automatically, such as a warehouse and fulfillment system that alerts you to reorder points on its own.
