Backorder vs. Out of Stock: How to Manage Product Shortages Without Losing Sales

In the world of ecommerce, there is hardly anything more frustrating for a customer than finding the desired product, adding it to the cart, and then discovering that it is unavailable. For businesses, such situations mean potential lost sales, decreased customer loyalty, and damage to their reputation.

But what should you do when a product is temporarily out of stock? How can you avoid losing customers? In such cases, sellers have the option to allow customers to place a backorder. However, it’s important to understand that this approach only works when the product is temporarily unavailable and its restocking is planned for the near future.

In this article, we will compare backorders vs “out of stock” status, explain in which situations each approach is justified, and how they affect business metrics and customer expectations. We will also look at practical strategies that help minimize losses and effectively manage temporary product shortages.

• 1. What Does “Backorder” Mean?
• 2. What Does “Out of Stock” Mean?
• 3. Difference Between Backorder and Out of Stock
• 4. Reasons Why Orders May Be Delayed
• 5. How Do Backorders Affect Customers and Business?
• 6. When Is It Better to Choose “Out of Stock” Instead of a Backorder?
• 7. How to Manage Backorders to Minimize Customer Loss?
• 8. How to Minimize Product Shortages and Their Impact on Business: 5 Effective Strategies

1. What Does “Backorder” Mean?

How a backorder works:

2. What Does “Out of Stock” Mean?

Unlike a backorder, the “out of stock” meaning refers to a situation where the product is unavailable and the customer cannot place an order until inventory is replenished. In other words, sales are completely halted for an indefinite period: it is unknown when—or even if—the product will become available again. Many online stores offer a “notify me when available” feature, but this does not guarantee that the item will be reserved for the customer.

From the customer’s perspective, it’s straightforward: the “Buy” button on the website is disabled, and the store offers the option to subscribe for a restock notification or choose an alternative product. For the business, this status usually means lost potential sales and an increased risk of customers turning to competitors.

3. Difference Between Backorder and Out of Stock

At first glance, a backorder and an out-of-stock situation may seem to describe the same thing—the product is physically unavailable. However, from the perspective of both the business and the customer, these are fundamentally different statuses.

For the customer, the difference is immediately noticeable:

• With a backorder, the customer can place an order and secure the purchase, even if the product is currently out of stock;
• With an out-of-stock status, placing an order is impossible until the product is actually restocked. The customer can only wait or look for an alternative.

In essence, the first option represents managed waiting, while the second involves uncertainty.

From a business perspective, the differences are even more significant:

• A backorder allows the business to secure the sale and plan inventory based on actual orders;
• An out-of-stock situation halts sales for that item and increases the risk of losing the customer.

Additionally, by using backorders, a company gains valuable insights into actual demand, which simplifies procurement and inventory planning.

Backorder vs. Out of Stock: Comparison from the Business and Customer Perspective

4. Reasons Why Orders May Be Delayed

Behind every instance of a product being unavailable lies a specific reason—or a combination of reasons. Understanding these triggers is the first step toward building a resilient inventory management system. Let’s examine the main factors that can turn your warehouse shelves into empty space.

4.1 Supply chain disruptions

Even with proper planning, shortages can occur due to external factors:

• Production delays at suppliers;
• Transportation issues (lack of transport, port congestion, flight or shipping cancellations);
• Customs inspections and clearance delays in international shipments;
• Changes in international trade regulations and tariffs;
• Force majeure events (natural disasters, strikes, geopolitical risks).

The COVID-19 pandemic has become a vivid example of how vulnerable modern supply chains can be.

4.2 Unexpected demand spikes

Warehouse inventory is usually planned for the store’s typical sales level. When a single day brings the equivalent of a week’s or month’s worth of orders, stock can quickly run out. Such demand spikes may be caused by seasonality, sales promotions, successful marketing campaigns, viral social media trends, or shifts in consumer behavior. Urgent reorders from the supplier do not solve the problem immediately—it takes time to produce the additional batch, deliver it, and stock it in the warehouse.

4.3 Inefficient inventory management

Inefficient inventory management is often a key cause of product shortages and, consequently, order delays. This situation usually arises from a combination of factors, including:

• Errors in procurement planning and inaccurate forecasting of future demand;
• Lack of or insufficient safety (buffer) stock;
• Untimely warehouse replenishment due to manual processes or poorly configured reorder systems;
• Absence of up-to-date information on actual stock levels and real-time inventory movements.

As a result, the business loses control over its inventory, increasing the risk of shortages, backorders, and a deteriorated customer experience.

4.4 Long supplier lead times

For products with long production cycles, delays are often a systemic issue. Any changes in production schedules, raw material supply, or factory priorities can shift order fulfillment timelines.

These situations require more accurate forecasting, increased safety stock, and continuous monitoring of supplier lead times. Without these measures, the risk of delays and unfulfilled orders rises significantly.

4.5 Human error

Mistakes by employees can occur at any stage—from procurement planning to warehouse handling and shipping. In practice, this can manifest as:

• Incorrect data entry for inventory;
• Errors when reserving products for orders;
• Delays in placing purchase orders;
• Inaccuracies during receiving, picking, or stocktaking.

Even a single mistake can result in a product appearing as available in the system, while it is actually out of stock. Consequently, orders are placed but cannot be fulfilled on time.

5. How Do Backorders Affect Customers and Business?

A backorder represents a compromise between securing sales and managing customer wait times. It can be an effective tool for handling product shortages, but if mismanaged, it can negatively impact both the customer experience and business performance. Let’s examine its effects from both perspectives.

Advantages of backorders:

Disadvantages of backorders:

6. When Is It Better to Choose “Out of Stock” Instead of a Backorder?

A backorder is an effective tool for managing temporary shortages, but it should be used judiciously, selecting products and scenarios where waiting is truly justified.

Pre-orders are unlikely to work for products in highly competitive niches with many alternatives. If customers can easily find a substitute, they won’t wait—backorders won’t retain them or achieve their primary purpose. Conversely, if you sell specialized products that are hard to find elsewhere, customers are more likely to wait rather than seek alternatives.

Similarly, this approach fails when promised timelines are not met. Imagine a customer places a pre-order expecting delivery in a week, but the product is delayed by a month. Dissatisfaction is guaranteed, and your reputation will suffer. When you cannot reliably estimate restock timing, it’s more honest to mark the item as “out of stock.”

7. How to Manage Backorders to Minimize Customer Loss?

If mismanaged, backorders can quickly become a source of customer dissatisfaction and operational issues. To avoid complaints and cancellations, it is crucial to establish transparent communication with the customer throughout the waiting period:

• Clearly indicate on the website which products are out of stock or available only by pre-order. Customers should understand the situation before placing an order, not find out about delays afterward.
• Provide estimated shipping timelines directly on the product page and in the order confirmation. Use specific and clear wording—for example, “shipping in 7–10 days” rather than “coming soon”. This reduces uncertainty and helps customers make informed decisions.
• Set up an automated email workflow for customers with pending orders. Regular updates on order status, reminders, and confirmations of each fulfillment stage reduce support inquiries and increase trust in the seller.
• Continuously inform the customer about the order’s progress and communicate any changes in timelines honestly. Even negative news, delivered promptly, is better received than silence. Transparency and proactive communication help maintain customer loyalty even during delays.
• Use cross-docking. This approach involves directing products from the supplier straight to customer orders without storing them in the warehouse. It shortens backorder fulfillment times and speeds up delivery to the customer.

8. How to Minimize Product Shortages and Their Impact on Business: 5 Effective Strategies

Understanding how and when to use backorders is only part of the solution. Equally important is establishing processes that reduce the likelihood of shortages in the first place. This involves systematic inventory management, demand forecasting, and supply chain monitoring, enabling businesses to act proactively rather than reactively.

8.1 Maintain safety stock

Safety stock acts as a buffer that protects your business from sudden demand spikes and supply delays. The appropriate level should be calculated individually for each product, taking into account turnover, seasonality, and supplier reliability. Regularly review safety stock levels, especially during periods of growth or changes in demand.

8.2 Determine reorder points

A reorder point is a specific inventory level at which a new order should be placed with the supplier, before stock runs out. When calculating it, consider not only current sales but also the supplier’s lead time. For example, if delivery takes 14 days, the warehouse stock should cover at least the average demand for that period, plus safety stock to account for demand spikes or delays. Without this, products risk becoming “out of stock” before the next batch arrives.

8.3 Diversify suppliers

Relying on a single supplier makes a business vulnerable. It’s important to have trusted backup suppliers who can be quickly engaged if issues arise with the primary supplier. An additional advantage of diversification is flexibility. Different suppliers may have varying production lead times, minimum order quantities, geographic locations, and delivery conditions. This allows you to respond faster to demand spikes, optimize logistics, and reduce the risk of complete stockouts, especially during periods of market instability.

8.4 Implement automation

Without automation, inventory management quickly becomes limited by human error. WMS and ERP systems with real-time data enable businesses to:

• Track stock levels and reservations;
• Automatically trigger reorder processes;
• Monitor supplier lead times;
• Identify shortage risks before stock runs out.

Automation is especially crucial when managing multiple warehouses, marketplaces, and sales channels, where manual control becomes inefficient and risky.

8.5 Consider partnering with 3PL providers

Modern 3PL providers offer distributed infrastructure, flexibility, and automated inventory and order management. They help businesses significantly reduce the risk of product shortages and mitigate the impact of backorders.

Fulfillment-Box is a network of fulfillment and prep centers in Europe and the USA that helps eCommerce businesses and marketplace sellers manage inventory and orders without operational overload.

We offer:

• Warehouses in strategic locations across Europe and the USA;
• Transparent inventory and order management via the WMS Ysell.pro;
• Scalability during peak seasons;
• Expertise in optimizing supply chains.

In the long term, partnering with a 3PL enhances business resilience against disruptions and market fluctuations.