The Reorder Point Formula: How to Calculate It and Why It Matters

1. Rely on data, not gut feeling

Many e-commerce sellers make the mistake of reordering based on intuition rather than actual sales data. While it might sometimes work, it's far from reliable. Instead, use concrete numbers to identify sales trends and patterns.

How to do it:

• Analyse your average daily sales over the past months.
• Consider seasonal peaks (e.g. higher sales before Christmas or Black Friday).
• Use analytics tools like Google Analytics, your shop backend, or ERP systems for informed decisions.

Bonus tip: If you're new to business and lack extensive sales data, start with a conservative reorder level and optimise it after a few months.

2. Adapt your reorder point to seasonal demand

Many products experience strong seasonal demand changes. A fixed reorder level won’t be enough if your orders triple in some months.

What you can do:

• Increase your reorder level before peak seasons (Christmas, Easter, summer holidays, etc.).
• After peak seasons, lower it to avoid tying up capital in excess stock.
• Review your sales data monthly to make timely adjustments.

Example: If you sell sunglasses, demand will naturally rise in spring and summer. Your reorder point should be higher in these months than in winter to avoid stockouts.

3. Automate your inventory management

Manually managing stock can be tedious and error-prone. Automation tools help you get timely alerts when your reorder level is reached.

Useful tools:

• ERP systems like Xentral, Billbee, or JTL that link inventory management with reorders.
• E-commerce platforms like Shopify or WooCommerce, which offer plugins for automated stock alerts.
• Excel or Google Sheets with a simple formula for manual reorder calculations.

Bonus tip: If you use Amazon FBA, enable automated stock alerts in Amazon Seller Central.

4. Optimize your supplier strategy

The faster your supplier delivers, the lower your reorder level can be. If delivery times fluctuate, you need a bigger buffer.

What you can do:

• Work with reliable suppliers that offer guaranteed delivery times.
• Use multiple suppliers if possible, to avoid disruptions.
• Consider regional warehouses for faster restocking.

Example: If you sell sneakers sourced from China with a 4-week lead time, switching to a local supplier with a 3-day lead time could drastically lower your reorder level.

5. Use safety stock wisely—don’t go overboard

A safety stock buffer helps you absorb unexpected delays, but holding too much can drive up storage costs. Here, you’ll learn everything about this essential inventory category!

How to determine the right safety stock:

• Check how often delivery delays occurred in the past.
• If delivery times are stable, keep safety stock low.
• If sales fluctuate heavily (e.g. viral products), keep a higher buffer.

Formula for safety stock:

Safety stock = Average daily sales × Days at risk

• Example: If your supplier is regularly 2 days late, and you sell 50 units per day, your safety stock should be 100 units.

6. Avoid excessive stock—it ties up capital

Having a high reorder point might prevent stockouts, but it also increases storage costs and limits cash flow.

Solutions:

• Identify slow-moving products and reduce their reorder level.
• Optimise order quantities by placing smaller, more frequent orders.
• Use dropshipping or just-in-time delivery when possible to minimise storage needs.

Bonus tip: If you have excess inventory that’s not selling fast enough, consider discounts, bundles, or promotions to clear out stock efficiently.