See what stockouts are quietly costing you
Enter five numbers about your catalog and get your estimated annual lost revenue from out-of-stocks — instantly, no sales call.
The short answer
Annual stockout cost = number of stockout events per year x average units lost per event x contribution margin per unit. Contribution margin is the selling price minus the variable cost of the unit, not the full retail price: the cost of a stockout is the profit you did not earn, not the revenue you did not book.
Worked example
A SKU goes out of stock 8 times a year. Each event lasts about 5 days, and the SKU normally sells 40 units a day, so roughly 200 units are lost per event. The unit sells for 24.00 and costs 14.50, giving a contribution margin of 9.50. Annual stockout cost is 8 x 200 x 9.50 = 15,200. That is one SKU.
The number you can measure is the floor, not the total
Lost margin on the missed sale is the part you can calculate from your own data, which is why it is the number this estimator returns. It is deliberately conservative, because it counts only the transaction that did not happen.
The costs it does not attempt to price are usually larger and are specific to your business: the customer who buys the substitute and does not come back, the expedited freight to close the gap, the retail buyer who cuts your shelf space after a fill-rate miss. Treat the estimate as a floor when you are deciding how much buffer stock is worth carrying.
Counting stockout events without a stockout report
Most small operations do not track stockout events directly, but the data usually exists. Days at zero on-hand is the closest proxy and is recoverable from inventory snapshots. If you hold daily or weekly on-hand history, count the days a SKU sat at zero and divide by the average length of a stockout to get event count.
Where no history exists at all, start from customer signals: backorder lines, cancelled order lines, and support messages asking when something is coming back. These undercount, but they establish that the problem is real and give you a starting figure to improve on.
Frequently asked questions
How do you calculate the cost of a stockout?
Multiply the number of stockout events per year by the average units lost per event, then by the contribution margin per unit. Contribution margin is selling price minus variable unit cost. Using full retail price instead overstates the loss, because you did not incur the cost of goods on a sale you never made.
Should I use gross margin or contribution margin?
Contribution margin. A stockout removes the sale and the variable cost of that sale together, so the loss is the difference between them. Fixed costs are incurred whether or not the unit sells and do not belong in the calculation.
How many units do I lose during a stockout?
Start with the SKU's normal daily sales rate multiplied by the length of the stockout. That assumes every would-be buyer is lost, which is the conservative end. If a share of customers wait for the restock or buy a substitute you also sell, reduce the figure by that share.