What are Stockout Costs and How to Prevent Them

Stockouts cost retailers nearly $1 trillion globally each year.

But it’s not just the money. During the process, you also lose customer trust. Your team ends up dealing with last-minute PO requests, support tickets, refund processing, and supply chain cleanup. 

And as you’d expect, this doesn’t just hit your bottom line, it slowly deteriorates loyalty and creates long-term brand damage.

We’re pretty sure you don’t want that for your business.

We break down what stockouts actually cost you, why they keep happening, how to calculate the damage, and what you can do to stop them.

What are Stockout Costs

Stockout costs refer to the losses a business incurs when it runs out of inventory and cannot fulfill customer demand. 

Out-of-stock products create two types of costs: direct and indirect. Direct costs are easier to measure, like lost sales. Indirect costs, however, show up later and often cause more damage than most realize. 

Let’s understand in detail. 

Direct stockout costs

Direct costs hit your numbers right away. A customer shows up, tries to buy, and leaves empty-handed, which leads to

• Lost sales revenue: Customers can’t buy what’s not in stock
• Lost profits: You lose the margin you would’ve earned on those sales
• Rush fulfillment costs: If you try to restock (e.g. air freight), it drives up costs
• Cancelled orders: Especially in wholesale or B2B, buyers may cancel or switch to another vendor

In short, direct stockout costs are the visible, short-term financial hits caused by being out of stock. They’re easier to quantify than the indirect costs. 

The Harvard Business Review notes that retailers lose nearly half of intended purchases when items are out of stock. 

Indirect stockout costs

These costs aren’t about what happens today, but what happens because of today. The long-term risks are harder to track but just as real.

• Customer frustration builds if stockouts happen too often
• Shoppers may switch to a competitor and not come back
• Your brand starts getting associated with unreliability
• Campaigns drive traffic to out-of-stock products, wasting budget
• Stockouts disrupt fulfillment, create rework for teams, and slow down ops

According to a 2023 report by PwC, 32% of customers stop doing business with a brand they love after just one bad experience. If that experience is “couldn’t buy what I came for,” that’s a cost you don’t see until it’s too late.

So when thinking about stockouts, it’s not just inventory you’re managing. It’s trust. And every time you’re out of something, you’re either missing a sale or weakening your relationship with a customer who might’ve bought again.

Why Do Stockouts Happen?

Stockouts might look like a surface-level supply hiccup, but they usually come from the following three deeper operational issues. 

1. Inaccurate forecasting

Forecasting problems usually don’t come from a total lack of data, they come from using the wrong type of data at the wrong time. 

You’re not just trying to guess demand, you’re trying to guess demand under changing conditions: a viral product video, a sudden heatwave, a warehouse delay nobody saw coming.

For many brands, forecasting is still based on past sales alone. No adjustments for seasonality, no inputs from marketing, and definitely no real-time signals from pre-orders.

If the demand curve shifts and your forecast doesn’t, the result is a sudden spike in orders and empty shelves by the end of the day. 

Especially in retail and DTC, this happens more often during seasonal surges, marketing campaigns, or limited-edition launches. If your forecast doesn't adjust dynamically, your inventory won't either.

P.S. Looking for the right tool? Check out our handpicked list of the top demand planning software

2. Supplier delays

Stockouts also often come from something as simple as your suppliers not delivering on time.

That delay doesn’t just disrupt today, it ripples into weeks of lost sales. One late shipment during peak season, and your most profitable SKUs are not available right when customers are ready to buy.

Delays come from

• Overbooked production lines at your manufacturer’s facility
• Outdated lead times that don’t reflect recent supply chain disruptions (especially post-2020)
• Customs issues or documentation errors holding shipments at ports
• Lack of visibility into tier 2 and tier 3 suppliers, where raw materials come from

Many brands only have strong visibility into their tier 1 supplier. But what happens if the aluminium your supplier uses is stuck with their supplier?

Your purchase order might be fine on paper, but the actual product doesn’t exist yet. That’s how delays sneak in.

And if you're running a just-in-time inventory model, there's little room for slip-ups. There’s no buffer stock to fall back on, so any lag becomes a stockout. 

This is especially risky if you sell seasonal items, have high launch frequency, or rely on a small number of suppliers for key SKUs.

Here’s an article to help you learn how to choose the best suppliers for your Shopify brand

3. Inventory mismanagement

This one’s not about demand. It’s not about your supplier. It’s about your own warehouse and your own data. 

You have the product, but your systems don’t reflect that. Or worse, your systems say you do have stock, so customers keep buying, and you have to cancel their orders after you realize they’re unavailable.

Here’s what usually breaks 

• Inventory isn’t updated across systems in real-time
• One warehouse is showing in stock, but it’s not linked to your online store
• Returns, damaged units, or cycle count corrections aren’t reflected fast enough

These mistakes don’t just lead to lost sales. They lead to support tickets and refunds. And they tend to keep repeating until you have a single source of truth across platforms.

While this one may seem like a small issue, it’s not. If your internal counts are off, it doesn’t matter how good your forecasting or supplier relationships are. You’ll still miss sales you should’ve been able to fulfill.

Simple Methods for Calculating Stockout Costs 

There’s no “right” way to calculate out of stock costs. What matters is picking a method that gives you numbers you can actually act on. 

Here are three methods that cover most cases, with examples and formulas you can apply directly.

1. Lost sales value

When you stock out, the most immediate loss is revenue. This method works best if you know how much of a product you normally sell.

Formula

Lost Sales = (Expected Units Sold – Actual Units Sold) x Unit Selling Price

If you usually sell 120 units a week of a product, but you were out of stock for part of the week and only sold 50, that product sells for $25. Then you end up with (120 - 50) x $25 = $1,750 lost revenue for the week

Use this to track how much money didn’t come in, not just on one product, but across anything that stocked out. It works best when your pricing is stable and you have a good sales history.

If you're using Prediko, you don’t need to do this calculation manually. The app calculates direct stockout costs for you. It shows the estimated daily loss for every out-of-stock product, based on your current sales velocity. 

2. Missed gross profit

This tells you how much profit you lost, not just revenue. Important if you're deciding how much to invest in preventing stockouts.

Formula

Lost Profit = (Expected Units – Actual Units Sold) x Selling Price x Gross Margin(%)

Using the same product as above with a 60% gross margin

• Missed units: 70
• Selling price: $25
• Margin: 60%

You end up with 70 x $25 x 0.60 = $1,050 in lost profit

You’ll use this when you’re trying to figure out how stockouts are impacting the business financially, not just on paper. If you're pushing for extra stock or better supplier terms, this is the number leadership will care about.

3. Lost customer value

If customers leave after they experience a stockout, the loss is much bigger than one transaction. This method is for estimating the long-term loss.

Formula

Lost Value = (Churned Customers) x (Customer Lifetime Value)

If 60 customers were affected by the stockout, and about 10% of them don’t come back, and your average customer lifetime value is $500. Then you end up with 6 x $500 = $3,000 in long-term revenue loss.

How Stockouts Impact Your D2C Business

Stockouts don’t usually come from one big failure. They come from five or six smaller things that no one noticed in time. 

For D2C brands, every stockout is more than a missed transaction. Here’s how it disrupts your entire business

1. Customers stop trusting you

Someone finds your product through a Google search or a paid ad. They land on your product page, see “sold out,” and leave. They come back a few days later. Still gone. At that point, they stop checking.

If it happens once, they might wait. If it happens twice, they assume it’ll happen again.

That loss of trust doesn’t show up in analytics immediately. But it shows up in repeat purchase rates, lower engagement on future campaigns, and lower conversion rates even when you're back in stock. You’re no longer their first option.

2. Campaigns become less effective

Stockouts hit hardest during campaigns. If a product goes out of stock mid-launch, your ad budget is still running, people are still clicking, and you’re paying for traffic that can’t convert.

If you’re doing 30-40% of your monthly revenue during promotion periods and a best-selling SKU is out for just two days, that dip compounds fast. It doesn’t even take a full week of stockout to flatten the entire campaign’s results.

Running Google Ads but struggling to manage inventory alongside it? Here are some ways to fix that. 

3. Operations get pulled into cleanup mode

One stockout turns into a flood of tickets. Customers want updates. Some want refunds. Some ask when it’ll be back and whether they should wait. 

Now your support team is fielding questions they weren’t briefed on, and ops is pulled in to confirm warehouse status manually.

Time gets spent on checking racks and writing apology emails instead of fixing the cause. You can’t delegate or automate most of this because the issue lives across systems, order management, warehouse stock, and Shopify availability. 

The more stockouts happen, the more time ops teams spend reacting instead of improving.

4. You mess up wholesale relationships

If you’re supplying stores, missing even one PO can cause a retailer to move on. If they’ve allocated shelf space to you and the shipment is short, it’s not just a fine, you lose future space. You might get pushed out of their supply planning entirely.

Even if they keep you, you become the backup brand. And when it's time to pitch something new or ask for better placement, your reliability history is already a mark against you. Once that trust is gone, it’s hard to win back.

How to Reduce Stockout Costs (Practical Ways)

There’s no one fix that solves stockouts. But there are simple changes that make them happen less often, and when they do happen, they are less painful to deal with. 

Let’s break these down. 

1. Build forecasting around real demand

Most teams use past sales to forecast future demand. But past sales can’t see what’s about to happen, only what has already happened.

You need to treat forecasting like a live signal, not a report. What are people starting to search for? What product pages are trending, even if sales haven’t spiked yet? Is your marketing team planning a promotion? Are pre-orders gaining momentum? 

Here’s a better way to run it

• Look at the trailing 4- to 8-week sales velocity
• Add expected sales spike or promotion coming up
• Compare forecasted quantity against stock on hand and lead time to reorder more
• Flag SKUs that are overstocked so that you can strategise around them 

You don’t need to be perfect. You just need to spot trouble before it shows up in your inventory report.

2. Keep safety stock where it matters most

Keeping extra stock for every SKU is expensive and unnecessary. But some products are too risky not to buffer.

Start by tagging

• Top 20% revenue drivers or do an ABC analysis 
• SKUs with long or inflexible lead times
• Products that get added to bundles or repeat orders

Build a simple rule: when stock drops below 1.5× average weekly demand, re-order.

If you don’t know what your weekly or monthly demand is, go fix that first. This rule only works if you’ve got basic visibility. But once it’s set up, your buffer stock becomes proactive, not just “extra inventory we forgot we had.”

If you’re using Prediko, you won’t need to track safety stock manually. It flags SKUs that drop below your safety stock threshold and sends reorder alerts before you run out. That way, your top SKUs don’t get missed, even when the team is focused elsewhere.

Want more detail on how to calculate safety stock, its benefits and the challenges? We’ve covered this in detail here. 

3. Shorten lead times with suppliers

Stockouts caused by supplier delays often come down to one thing: silence. You sent a PO. They accepted it. Then something slipped. No one said anything until it was too late.

It doesn’t need to be that way. What you can do instead

• Share a 60-day rolling forecast every two weeks, even if it’s rough
• Let them know which SKUs are under promotion or priority
• Ask if their lead times are still accurate (don’t assume)
• Get partial shipments if full production isn’t on time

You don’t need to micromanage your vendors. But you do need to treat them like extensions of your team.

Here’s a guide on how to deal with suppliers more effectively to keep your operations running smoothly.

4. Sync your inventory systems

A lot of brands think they have an inventory problem, but in reality, they have a sync problem.

Here’s what that looks like

• Shopify shows 60 units, but your WMS says 0
• Warehouse shipped 100 pre-orders, but the system still says “unfulfilled”
• Your B2B team sells into a distributor based on spreadsheet data, and overcommits

Fixing this means connecting your channels: Shopify store, warehouse, B2B store, 3PLs, and marketplaces. 

Check how often your data updates. If it’s syncing once per day, that’s not enough. You’ll oversell during promotions. You’ll say “in stock” when you’re not.

And support will be left explaining mistakes they didn’t cause. You can’t prevent stockouts if you can’t trust your numbers.

Choose a system that brings all of this into one place. Prediko is built exactly on this principle. It connects sales, inventory, purchasing, and planning into a single dashboard, so every team sees the same data in real time.

How Prediko’s Inventory Management Software Helps Avoid Stockouts

Stockouts happen when demand planning is reactive, supplier updates are buried in emails, and no one knows when stock will actually run out. 

Prediko is built to remove that kind of guesswork. It pulls inventory, sales, purchase orders, and forecasting into one place, so your team can see risk early and act fast.

Here’s how it directly helps reduce stockout costs.

1. AI demand & supply planning

Prediko doesn’t just tell you what you sold, it maps your revenue targets into actual unit-level forecasts. 

If you plan to hit $250,000 next quarter, it tells you how many units of each SKU you require, when you’ll run out based on current velocity, and how soon you need to reorder.

This means stockouts don’t sneak up on you during a sale, launch, or promo. You know exactly what to buy to meet demand perfectly. 

2. Live PO recommendations based on sell-through, lead time, and cover days

Prediko doesn’t wait for someone to notice low stock. It automatically shows which SKUs are at risk and suggests how much to reorder, based on the current sell-through rate, lead time, and your forecasted plan.

If your lead time is 45 days and you’ll run out in 28 days, Prediko flags it now. Not after you’re already out. And with 1-click PO creation, you don’t have to start from scratch. The right supplier, quantity, and timing are already filled in.

Once you’ve placed a PO, you can track status, ETA, and location across all vendors and warehouses in one view. Easily spot delays, reallocate inbound stock, or split shipments if something’s running late, before it causes a stockout.

3. Daily & weekly inventory reports 

Prediko sends you a smart digest to your email highlighting SKUs that are at risk, already stocked out, or projected to run out soon. 

You’ll also get reports on sell-through rates, overstock risks, dead stock, and more, each paired with clear recommended actions and exact reorder quantities.

4. Raw materials tracking + flexible Bills of Materials

If you manufacture in-house or assemble products, stockouts often start with a missing component. 

Prediko lets you track and forecast raw materials in connection with the finished goods demand, and see which raw material is running low, and import BOMs in one click

For instance, if you're out of zippers, you won’t find out after your backpacks are already delayed. You can reorder components before they block the finished product.

5. Actual vs. planned revenue tracking

With Prediko, you can see if you're ahead or behind your sales target in real time. If you're beating the forecast, Prediko shows which SKUs are running hotter than expected and what the best reorder date is. 

This prevents "unexpected success" from turning into empty shelves. If you're selling more than planned, you’ll get notified in time to act.

Prediko isn’t a dashboard. It’s a system that flags risk early, tells you what to do, and makes it fast to act, so stockouts become something you plan against, not just react to.

Beat Stockout Costs Before They Happen With the Right Technology

Stockouts rarely show up as one big issue. They creep in, through delayed POs, missed reorders, or visibility gaps across suppliers and channels. 

And while the cost of a single stockout might seem manageable, the long-term impact on customer trust, retention, and revenue can be much harder to recover from.

That’s why having the right technology in place matters. 

Real-time inventory tracking, demand forecasting, supplier visibility, and intelligent alerts can help you catch problems early, before they translate into lost sales.

Want to see how this looks in action? Start your free 14-day trial with Prediko and take control of your inventory before stockouts take control of your margins.

FAQs

1. What is an example of a stockout cost?

You usually sell 150 units of a $40 product weekly, but a stockout limits you to 70; this costs you $3,200 in lost revenue.

2. What is the cost of being out of stock?

Out-of-stock costs include lost sales, lost profit, customer churn, and extra work for your support and ops teams.

3. How can I accurately calculate stockout costs?

Use basic formulas: missed units × price for revenue, or add gross margin and churn to go deeper. Tools like Prediko show estimated daily loss for stockouts without any manual calculations. 

4. What are the best methods to prevent stockouts?

Forecast based on upcoming demand, keep safety stock for key SKUs, talk to suppliers early, and sync inventory across all tools.