Pretend for a moment that your company owns a trendy muesli brand and sells it globally online, via hundreds of resellers.
How much is an individual packet worth, would you say?
$2? $3? Something like that, right?
Well, that’s only part of the picture.
Let’s say, Stephen; a 32-year-old modern big-city dad goes online to do some grocery shopping for his family while watching Netflix after his kids have gone to bed.
He does this every Tuesday night, and it’s usually a quick task since he—like most people—puts the same groceries in the basket every week.
He gets the same bread, the same yogurt, the same fruit, the same pasta, the same cookies, the same salad… and the same muesli—your
company’s brand of muesli.
However, on this particular day, your muesli brand is out of stock.
“Oh well, I’ll try this one instead,” he thinks and places a competing brand in the basket.
Fast forward to breakfast time two days later, and the new muesli is a hit. Both his kids love the different crispy taste and ask their dad to buy this muesli from now on.
They have ditched your brand. And unfortunately for you, it might hurt for a long time. What if Stephen has been buying your muesli every week for years, 50 packets a year?
Now that revenue will go to another company, not yours. We know Stephen shows loyalty to brands loved by his family; what if he keeps choosing your competitor for the next ten years?
So, let’s do the maths. We’re looking at $3 of lost sales value per packet, 50 times a year, for ten years.
That means your brand’s real out of stock cost at this reseller adds up to $1,500. And that’s just for one customer. Of course, there might be other people placing a substitute brand in their shopping baskets until your item is in stock again.
Just one SKU and one customer might seem like a minor problem, but identifying and fixing those out-of-stock situations in your indirect sales channels can make a big difference to your business in the long run.