Backorder as a Cash Flow Generator

February 7, 2024

As an eCommerce business owner, you're aware that being out-of-stock means losing money. According to statistics, stockouts cost US and Canadian retailers around $350 billion annually.

But what if you're only temporarily out-of-stock while waiting for new inventory to arrive, or if there are supply chain issues? You shouldn't have to lose money on products that aren't currently available. Or let's say there's no problem in your inventory process, but you're just not sure how to use backorder as a cash flow generator. Then you’re at the right address.📍Backorders can help you generate cash flow in many ways. Let's explore how to make this work for you. 🚀

What is Backorder?

According to Investopedia, a backorder is an order for a good or service that cannot be filled immediately due to a lack of available supply. With selling on backorder, businesses can fulfill orders when the product is back in stock, ensuring customers get what they want without having to wait for the product to become available again.

Backorder might be a vital feature for your business: When products are sold out online, about 15% of people check other websites, and 60% look for something similar from the same store according to a report by Corsten and Gruen. Some might try a different brand, and others stick with what they know. Around 10% head to a physical store, and about 15% wait or cancel their buy. These stats show that running out of stock can be challenging for both customers and business owners. Backorder is a smart move to keep customers happy and turn stockouts into profits. 💰 It's a win-win solution for everyone involved. 🥂

Preorder vs Backorder: While Preorder refers to taking orders for products that haven't been released yet, Backorder, on the other hand, is about selling products temporarily out-of-stock.

📌 You can learn more: How Does Backorder Work?

Backorder as a Cash Flow Generator

Did you know that backorder can be used as a cash flow generator? If the answer is no, then don't go anywhere. 👉 Producing or sourcing products for your eCommerce store comes at a cost. However, the revenue from the products you sell gives you the ability to create new purchase orders. Accepting backorders allows you to make sales and generate revenue for products that are temporarily out-of-stock. This not only speeds up the supply chain process but also turns this time into revenue. This is essentially how a cash flow generator operates. On the other hand, if you're out-of-stock and don't offer backorders, then you end up not earning anything. 🤷‍♀️

If you have a store in Shopify, you probably know that you need an inventory management tool to use backorders. You can also check Backorder Management on Shopify & Best Practices.

Let’s go over some applications of backorder to understand this concept so much better.

Time Value of the Money ⏰

A graph showing the time value of the money with and without using backorder.

You can use backorder and keep selling the products that are temporarily out-of-stock. Backorders provide you with an instant cash flow so that you don’t have to wait until the other party from the supplier arrives. Besides, you can avoid potential stockouts and keep customers happy. Plus, with backorders, your products are sold faster, which means less waiting time and reduced inventory costs.

Supply Agreements 🤝

Every merchant has a different agreement with their suppliers. Let's say you're running an online store and you've got this deal with your supplier – you pay up within two weeks of receiving the products. So, you get the products, and sell them all in a week, but here's the problem: even if you want to restock, you have to wait until that payment deadline. But with backorder, you can use the revenue from those sales to place a new order. Now, thanks to backorder, you could keep on selling until the next batch arrives, keeping the cash flowing in.

Discount Opportunities 📈

Another point is discount opportunities for merchants. With the profit from the products you sell and the ongoing revenue from backorders, you can afford to pay your supplier early. This gives you some bargaining power with suppliers. How so? Well, you could negotiate for discounts in exchange for making payments earlier or placing orders ahead of schedule. You can sell the products you purchased at the same price by increasing your profit margin or offering seasonal discounts to customers. About 93% of shoppers use coupons or discount codes regularly, indicating that most consumers are actively seeking a good deal according to Statista. As you see, using backorders allows for more flexible management of the sales process and leads to profitability.

Unlocking Future Demand 🔮

It is possible to see your eCommerce business’ future with backorder! How so? Remember the time when you're temporarily out-of-stock and decide to accept backorder. Let's say you are selling watch bands in every color. When a customer buys products they like on backorder, you as a merchant will see which product/color is more popular. Precious and insightful data right from your customers! This can be applied to any other business. Thanks to backorders, you can detect your star products and invest in them.

📌 As you might have noticed, preorders also provide you with a very similar insight but only for unreleased products. Have you checked our Ultimate Guide: Backorder & Preorders?

Fabrikatör as Your Cash Flow Generator

An image of backorder process in Fabrikatör app.

Fabrikatör can be a revenue booster for your eCommerce store. It seamlessly integrates with your Shopify store, and operates automatically. This tool allows you to build stronger and more transparent relationships with customers, ultimately leading to increased profits!

Fabrikatör serves as your:

  • Cash Flow Generator 💸
  • A Safety Net for Merchants 🤝
  • Customer Satisfaction Booster 💬
  • An Efficient Inventory Forecasting Tool 🔎

Did you know that Fabrikatör is 5/5 rated on the Shopify App Store. 🚀 💙 Users love it, and we're confident you'll love it too. Give it a try today and experience the incredible benefits for your Shopify store!

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