Should you allow customer backorders?
Should you allow customer backorders?
First, let me explain the difference between a backlog and a backorder.
A backlog happens when a product is in stock but customers are ordering that item faster than you can ship those orders out the door. You have a backlog of orders that you could fill with existing inventory if you had enough hours in the day.
Meanwhile, a backorder is when you allow a customer to order something that is out-of-stock. In this case, you cannot fill the orders with existing inventory. You must wait for additional inventory to arrive or be manufactured. An important customer expectation of a backorder is that the out-of-stock situation will be over quickly.
So, should you or should you not offer customers the ability to backorder? If you don’t, you’re giving up extra sales revenue, right?
As with many business decisions, you need to evaluate the benefits and risks of each option.
If you sell B2B (business-to-business), then your customers are other businesses. It’s easier to reach those customers to discuss their tolerance for waiting and to keep them informed. Remember that backorders are intended to be filled with inventory arriving soon. With supply chain disruptions, many backorder wait times have moved from days or weeks over to months. If you have good relationships with your B2B customers, their level of understanding for extended wait times is likely to exceed the tolerance of B2C (business-to-consumer) customers.
If you sell B2C, then your customers are individuals. The number of customers you have is likely larger than that of a B2C business. B2C customers have a different expectation for shipping times. If you’re an online business, the expectation has been set by businesses such as Amazon, Walmart and Apple who tend to ship orders within 2 days. It is far more difficult to reach your B2C customers to discuss an extended delay and if the number of customers is large, it is impractical to reach out to them all.
Under the B2C scenario, having a long backorder shipping time can be disastrous. When you fail to meet customer expectations of quick shipping times, they may decide to post unfavourable comments on social media which can harm your company reputation.
As a real example, I had an online retail client who decided to continue offering the backorder option to his customers instead of restricting his retail site to sell only in-stock items. He had many alternative products from which customers could choose, but he felt he would lose additional sales if he turned off the backorder feature. He posted a message on his web site to tell customers that products would take 6-8 weeks to ship because of supply disruptions.
I warned him that it was unlikely that potential customers would read his web site thoroughly enough to read the shipping message before placing an order. That turned out to be true. Customers grew angry when weeks went by and their product didn’t arrive. They took to social media and declared his company fraudulent. It was an action from which his company never recovered.
In short, if you are wondering whether you should make the backorder feature available to your customers, consider the following:
Is the wait time for backorders reasonable in the eyes of your customers’ expectations?
What type of relationship do you have with your customers?
What level of impact could this decision have on your company reputation?
If you sell only what’s in stock, are there enough alternatives available to your customers that you minimize the lost sales opportunity?