Recently, an increasing number of e-commerce companies reducing their storage costs by using backorders. This strategy is also making the settlement system more efficient and has a couple of other advantages. So what characterizes backorders? Those are orders processed by companies even though purchased products are not physically available in their warehouses. Such orders are supposed to be fulfilled as soon as suppliers deliver purchased items.
When you run out of stock, there are a few paths that you can take:
- Stop selling missing products until you get more stock.
- Continue selling, but allow buyers to reserve products and ship them once you restock them.
- Continue selling them and inform buyers that the shipping time will be longer than usual.
The third case is the one when backorders come in handy. They allow you to lower storage costs while increasing your sales.
- Warehouse optimization – correct usage of backorders lets you decide which items to store in the warehouse, making storage more efficient.
- Increasing product variety – backorders allow sellers to offer many different products, especially those that can’t be stored in their warehouses.
- Lowering logistics costs – storing large amounts of goods increases logistics costs. Backorders reduce costs of both storage and management.
- Making the company more prestigious – some companies (like Apple) offer their products before introducing them to the market. It makes buyers feel privileged as they can purchase goods with limited availability.
- Buyers’ loyalty – backorders not only generate income but also guarantee clients’ loyalty. Buyers prefer to wait for their products instead of choosing competition.
- Company’s reputation – a buyer who is frustrated and tired of waiting, might cancel their order and choose another company instead, especially if this other company offers more efficient logistic services.
- More returns – extended waiting time results in more return requests.
- More complex shipments – shipping one backorder shouldn’t be a problem, as the product will be shipped as soon as it’s available. The problem arises when one buyer places a few backorders – should we send each portion of the order ASAP, or should we wait until all components are available and send them all at once to reduce shipping costs? The critical factor here is the warehouse management system.
Backorders can indicate a high demand for specific products and significant loyalty from the company’s clients, but they require a complicated management system.
If you would like to see backorders as one of the MonsterSeller features, please contact us.