What Does Backorder Mean?
Have you placed an online order for a long-awaited product only to be informed that it is currently unavailable and backordered due to high demand? As a business owner, have you battled to meet the demand for your popular products, resulting in backorders?
Backorders are annoying for everyone involved, from customers to suppliers and businesses as well. The question is, “What does it mean when something is on backorder?”
In this article, we’ll define backorders, explore the reasons behind them, and provide tips for managing and preventing backorders.
So, buckle up and get ready to learn everything you need to know about backorders.
What is a Backorder?
A backorder is an order placed by a customer that cannot be immediately fulfilled because of low inventory or delays in production. As a result, the customer will have to wait to get their order until the product has been manufactured again or is back in stock.
There are many potential causes of backorders, including a high level of demand, production delays, or a lack of available raw materials from a supplier.
Backorders can occur for several reasons, but they always have the same result: you and your customers endure the wait for these orders to be fulfilled. Businesses of all sizes occasionally have backorders; it’s inevitable. Ultimately, success or failure depends on your backorder management strategy and response. We’ll get to that later.
Let’s look at some real-world examples of backorders from a variety of businesses. In the clothing business, a product’s popularity can quickly drive it off the shelves if there isn’t enough supply to meet demand. In this case, the business might place the item on backorder and let buyers know when it will be available again.
Similarly, in the area of technology, a business may announce the debut of a new product, but because of the strong demand for the product, it may not be instantly available for purchase, which might result in backorders.
Why Do Backorders Happen?
Here are some of the most common reasons for backorders:
- High demand: When a product is in high demand and the business is unable to keep up with the orders, backorders can occur.
- Production delays: If there are issues with the production process, such as machinery breakdowns or raw material shortages, it can cause delays in the production of the product.
- Shipping delays: Sometimes, products may be delayed during shipping due to various reasons, such as weather conditions or transportation issues.
- Quality control issues: If there are issues with the quality of the product, it may need to be reworked or discarded, which can cause a delay in fulfilling orders.
- Supply chain disruptions: If a supplier is unable to provide the necessary materials or parts needed to produce the product, it can cause delays in the production process.
- Forecasting errors: If a business underestimates the demand for a product or overestimates its ability to produce it, it can result in backorders.
- Human error: Mistakes made during the ordering or fulfillment process, such as miscommunication or incorrect inventory tracking, can result in backorders.
Do Backorders Have a Positive or Negative Impact on Businesses?
Backorders can be a double-edged sword for businesses. On the one hand, they can indicate that a product is in high demand, and customers are eagerly awaiting its availability. On the other hand, they can result in dissatisfied customers, lost sales, and damage to the business’s reputation.
One of the significant advantages of backorders is that they can indicate strong demand for a product. This means that customers are interested in the product and are willing to wait for it to become available. This demand can be used by businesses to generate excitement and anticipation for their products, which can result in increased sales and customer loyalty.
However, there are also significant drawbacks to backorders. If customers are forced to wait an extended period for a product, they may become frustrated and look for alternatives, resulting in lost sales and potential damage to the business’s reputation.
Furthermore, if the backorder is due to production or supply chain issues, it can result in increased costs for the business, such as expedited shipping or additional labor.
Businesses must manage backorders carefully to ensure that they do not result in lost sales or harm to their reputation. By using backorders to manage demand and inventory levels, businesses can take advantage of the benefits while minimizing the drawbacks.
Which Companies Have Done a Good Job of Handling Backorders?
Companies that have consistently done a good job of handling backorders include:
Apple
Apple is known for its product launches that generate high demand and backorders. However, they manage backorders effectively by providing estimated delivery dates and frequent updates to customers. They also offer the option to cancel the order if the customer doesn’t want to wait for the product.
Tesla
Tesla, an electric vehicle company, has experienced high demand for its products and uses backorders to manage production effectively. They provide estimated delivery dates and allow customers to make changes to their order, such as the color or features, until production begins.
Nintendo
Nintendo, a gaming company, uses backorders to manage demand for their popular gaming consoles. They provide regular updates to customers and offer the option to cancel the order if the customer doesn’t want to wait. They also prioritize orders based on the date they were placed, ensuring fairness for all customers.
Amazon
Amazon, an e-commerce giant, uses backorders to manage demand for products that are out of stock. They provide estimated delivery dates and allow customers to cancel their orders if the wait time is too long. They also communicate with customers via email and provide updates on the order status.
Difference Between Out of Stock and Backorder
When shopping for products online, you may come across the terms “backorder” and “out of stock.” While they may seem similar, there are significant differences between the two terms.
Out of stock means that the product is currently unavailable and that there is no inventory to fulfill orders. When a product is out of stock, customers cannot place an order for it until it becomes available again.
Backorder, on the other hand, means that the product is not currently available but will be restocked in the future. When a customer places an order for a back-ordered product, they are reserving their place in line to receive the product once it becomes available again.
Finally, with out-of-stock products, customers know that they will not be able to place an order for a product until it is restocked. With a backorder, customers have an estimated delivery date and know that they will receive the product as soon as it becomes available.
Difference Between Pre-Order and Backorder
The terms “backorder” and “pre-order” are often used interchangeably, but they refer to two distinct processes.
Backorder refers to a product that was previously in stock but is currently sold out and is expected to be restocked in the future. When you place a backorder, you are essentially reserving your spot in line to receive the product once it becomes available again. With a backorder, customers have an estimated delivery date and know that they will receive the product as soon as it becomes available.
Pre-order, on the other hand, refers to a product that has not yet been released but is available for purchase in advance. When you place a pre-order, you are essentially reserving your spot in line to receive the product once it is released. With pre-orders, customers typically have an estimated release date and know that they will receive the product as soon as it is released.
Strategies for Managing Backorders
Managing backorders can be challenging for businesses, but with the right approach, they can be used to the company’s benefit. Here are some strategies to manage backorders effectively and turn them into an opportunity:
Set Clear Expectations
Communicate with customers about the estimated delivery date, any delays or changes in the timeline, and what they can expect during the backorder process. By setting clear expectations, you can prevent dissatisfaction and improve customer loyalty.
The ELEX WooCommerce Choose Your Delivery Date Plugin is a fantastic free tool for handling backorders.
Customers can select a delivery date that works best for them, and you can specify a minimum number of days it will take for you to deliver the order, a custom shipping notice to display on the checkout page (to inform customers about the backorder status), and shipping holidays.
Prioritize Customers
Prioritize customers who have placed backorders to build customer loyalty and prevent negative feedback. Keep customers informed of the status of their orders and provide regular updates.
Incentivize Customers
Offer incentives such as early bird discounts or free shipping to encourage customers to place backorders and build brand loyalty. This can also help increase sales during the backorder period. Customers are less likely to switch to competing businesses if you take this measure.
Keep Accurate Inventory Records
Keep accurate inventory records to track stock levels and identify when a product is running low so that it can be ordered in advance. This can help prevent backorders in the future.
Efficient Shipping and Delivery
Ensure prompt and efficient shipping and delivery of back-ordered products to avoid any further delays or dissatisfaction. Providing faster shipping options can also improve the customer experience.
Analyze Backorder Trends
Analyze backorder trends to identify any recurring issues or patterns that can be addressed to prevent backorders in the future. Use this information to improve the supply chain and reduce the likelihood of backorders.
Use Backorders as a Marketing Opportunity
Backorders can be used to create anticipation and generate buzz around highly popular products.
Conclusion
Backorders can be both a challenge and an opportunity for businesses. While they can lead to customer dissatisfaction and lost revenue, they also provide an opportunity to build customer loyalty and create hype and marketing buzz around highly sought-after products.
It’s important to remember that communication is key when it comes to backorders. Clear and frequent communication with customers about the status of their orders can help prevent frustration and build trust.
Backorders are inevitable in any business, but how they are handled can have a major effect on both customer loyalty and profits. With the right strategies in place, businesses can make backorders a win-win situation for customers and themselves.
If you have any questions regarding backorders, please let us know in the comments section below.
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