Right now you’re losing revenue. Someone is trying to buy something from your site but they can’t because it is sold out.
Lacking inventory creates a frustrating customer experience, and costs you sales and potentially return customers. Knowing how to quantify these lost sales and using this information to get more inventory is the key to a better customer experience and more site revenue.
But fighting for more inventory for your ecommerce site can feel like a lost cause. Luckily, sales lost to inventory are easy to track, quantify, and report.
Let’s look at ways to get you more inventory and site revenue.
“Right now someone is trying to buy something from your site but they can’t because it is sold out.”
Lost Revenue Event Tracking
Event tracking requires some set-up (often a developer will need to add the code to your website), but once in place can provide you with direct evidence of lost revenue. The event you want to track is the number of times (clicks) customers try to add products to their cart.
Add your event tracking to the “Buy” button. This will give you the number of times customers attempt to add products to their cart.
Next, to calculate the revenue lost due to inventory shortages, use the following formula:
Number of events (in this case, clicks of add to cart)
x average cost of product
x conversion rate of in stock add to cart events
= Estimated revenues lost
If you do not have event tracking at a SKU level, or are unable to track when someone is clicking on an item that is not available, you can estimate the missed sales opportunity by making some bigger assumptions.
Start with the number of pageviews for the out of stock item. Multiply the pageviews by the value of the product. Take the result and multiply it by a relevant factor (e.g. ecommerce conversion rate).
A note about estimates and reporting: As you get further removed from the actual customer behavior (which is what an estimate does) it is important to communicate to the report recipients what type of assumptions are being made as the risk of the metrics giving incorrect information becomes magnified.
The Shit List
Once you have your new data it is important to communicate it in a way that demands attention. I learned this early on in my career when I kept hearing that I was on the ‘shit list’ for a missed sale due to inventory not being available.
I felt like lost sales were out of my control and I had no way of solving the problem.
I needed a way to communicate and get the resources to fix the issue because I was spending too much time explaining why each individual SKU was out of stock.
My solution was The Shit List.
I turned the negative conversation around. Instead of being on the shit list for lost sales, I reported on the sales that were lost because of no inventory or other factors. My daily reporting told people what should be on their shit list, why it was an issue, and how it was being addressed (or not addressed in some situations).
“Knowing how to quantify these lost sales and using this information to get more inventory is the key to a better experience and more revenue.”
This was an opportunity to shine a light on what wasn’t working, was a proactive communication tool, and ended up being useful when I needed extra support and resources.
Adding in revenue numbers (or in this case, lost revenue numbers) created an even larger impact. Quantifying total lost sales was often the catalyst for site changes, updated inventory planning, and increasing the voice of the website team.
Once you have found a way to make your lost sales data formulaic you can put this into a lost sales report showcasing daily, weekly, quarterly and yearly sales potential that is being missed.
Bringing attention to lost sales and pushing this content to the right people can create long lasting change. When the purse string holders are aware of revenue holes, they are often quick to provide resources to plug the holes.
If Inventory Isn’t Your Site’s Problem
If inventory allocation isn’t an issue try finding a way to quantify lost sales for other situations on your website: user experience, lack of traffic, or any of the other myriad of reasons someone might not be converting.
Put your data into a lost sales potential and start quantifying. I know if I saw a daily email from an employee in my inbox saying, “Today we lost $XX potential sales” I would find a way to fix it fast.
Rachel Gardner is an e-commerce leader, holding various senior roles over the last decade with some of the Northwest’s best known outdoor brands and action sports retailers. Beginning in the startup world she has kept her entrepreneurial spirit throughout her career and enjoys collaborating with teams to continuously test and innovate new ways of enhancing the customer experience.