What Is a Backorder, and When Should You Accept One?

Most definitions of this term stop at the definition. The definition takes one sentence. The decision behind it — accept the order or stop selling — is the part that costs money either way.

What is a backorder?

A backorder is a customer order you have accepted for a product you do not currently have in stock, which you intend to fulfill when replenishment arrives. Three things are true at once: the demand is real, the commitment is made, and the inventory is not there.

It helps to separate the four states a SKU can be in, because they get used interchangeably and they are not interchangeable:

In your own systems a backorder is usually a switch rather than a document. In Shopify it is the variant-level Continue selling when out of stock setting, which has to be on alongside inventory tracking; with it on, the store keeps taking orders once the tracked level reaches zero. Shopify's own documentation notes it does not apply to Shopify POS, which is how a website and a retail till end up disagreeing about whether you have any.

How is a backorder different from a stockout?

A stockout is something that happens to you. A backorder is something you choose.

• The stockout is the supply condition. You have no sellable units. Nothing about that requires a decision.
• The backorder is the commercial response. You keep the listing live and promise a date.
• You can have one without the other. Turn selling off and you have a stockout with zero backorders. What you also have is no record that anyone wanted the product.

That last point costs the most and shows the least. A stockout with the listing switched off is invisible demand: your sales history records nothing, so next quarter's forecast learns that nobody wanted the SKU during the weeks it was impossible to buy. A backorder at least leaves evidence. What both of them do to your reported service level is covered in service level vs fill rate, and the number itself in what fill rate is.

Should you accept a backorder or stop taking the order?

Three inputs decide it, and only one of them is about inventory.

1. How firm is the receipt date? Not the date on the purchase order — the date you would bet on. If your supplier has slipped twice this year, your promise inherits that.
2. What does the customer do while waiting? A consumable someone is nearly out of has a replacement cycle measured in days. A gift has a deadline. A case-pack reorder from a wholesaler can usually wait.
3. What does the channel allow? DTC lets you explain yourself. Retail purchase orders mostly do not: a retailer measures you on what arrived complete and on time, cuts the shorted line, and charges you for the privilege.

Say you sell a $34 supplement. You are out, the replenishment purchase order lands in five weeks, and you normally ship in two days. Forty customers a week want it. Accepting the backorder books roughly $6,800 of revenue you would otherwise lose — and also promises two hundred people a wait longer than a month, some of whom will cancel, some of whom will file a chargeback, and some of whom will simply not come back. The figure that decides this is not the $6,800. It is how many of those two hundred you keep.

The rule that holds up in a real week: accept a backorder when you can name the date and the wait is shorter than the customer's own replacement cycle. Otherwise take the listing down, refund what you have already collected, and let the demand show up as a stockout you can see.

What does a backorder actually cost you?

Refunds are the visible part. A backorder converts a supply problem into four costs, and they land in four different places:

• Support and refunds. Every open backorder generates contacts, and a share of them end in a refund on an order you already paid to acquire.
• Retail penalties. Fill rate is a scorecard your buyer keeps whether you look at it or not. Short a retail order and the cost is a chargeback and, eventually, shelf space.
• Cash timing. You have collected money for goods that do not exist yet. It is deferred revenue and an unfunded shipping obligation, not cash you can put against the replenishment order without doing the arithmetic first.
• Forecast distortion. Backordered units that ship late land in the wrong week. Cancelled ones vanish entirely.

The full accounting of what an empty shelf costs, including the acquisition spend you have already committed, is in the true cost of stockouts.

How do you stop needing backorders?

Backorders are a symptom. The cause is almost always that the order went out too late rather than too small.

• Order against a reorder point, not a low-stock alert. An alert fires when you are already low, which is usually well past the day you needed to place the order. Start with what a reorder point is and then how to set one.
• Use your real lead time, including the parts nobody counts. Production, transit, customs, receiving and putaway are all lead time. What lead time actually includes is where most reorder points go wrong.
• Size safety stock to how much demand and lead time actually vary, rather than to a flat number of weeks of cover.

None of that removes backorders. It moves them from the SKUs you sell every day, where they cost you customers, to the tail, where a wait is survivable.

Where Planster fits, and where it doesn't

Planster pulls sales and inventory from 150+ systems, builds one demand forecast per SKU across DTC, Amazon, retail and wholesale, and nets it against what is on hand, on order and already committed. From that it computes each SKU's reorder point and safety stock from actual demand variability and your service-level target, applies supplier lead times and minimum order quantities, and produces an order-by date rather than an alert. That is the engine, and it is what decides whether you ever face the backorder question on a given SKU.

On top of it, the overnight run re-checks every SKU, order and channel and brings you a ranked list in the morning with the purchase orders already drafted. Nothing reaches a supplier until you approve it. It is flat $1,000/month, and it is built for consumable CPG brands between $10M and $50M — food, beverage, supplements, beauty, household goods.

It is the wrong answer if you have a handful of SKUs, one channel and one supplier. At that size a spreadsheet and a calendar reminder genuinely do this job, and the reason your backorders happen is not that the math is hard. See reorder recommendations for what the calculation looks like when it is automated, the agent for what arrives each morning, and pricing for the whole number on one page.