How to Calculate What Stockouts Cost Your Store

Somewhere in your research you probably ran into a number: stockouts cost retailers some large percentage of sales, or some trillion-dollar figure across the industry. None of it tells you what a stockout costs your store, and the honest version of this post doesn't pretend otherwise. It teaches you to calculate your own number instead.

Why industry averages don't help you

The most commonly repeated stockout-cost figure (often cited as "$1.75 trillion lost globally to inventory distortion") traces back to a 2015 report from IHL Group, an analyst firm, commissioned by Order Dynamics, a retail-technology vendor with a direct commercial interest in the finding. That doesn't make every number in it fabricated, but it does mean the figure isn't independently verifiable and isn't the output of academic or peer-reviewed research. It shouldn't be treated as evidence about what a stockout costs a small Shopify store.

There's a genuinely more credible source in this space: Gruen, T.W. and Corsten, D.'s study on retail out-of-stocks, which found out-of-stock events cost the retailers studied roughly 4% of sales, at an out-of-stock rate around 8%. The methodology is real and disclosed: point-of-sale data analysis across a large, audited sample. But the study measured large fast-moving-consumer-goods grocery and drugstore chains, funded in part by a grant from Procter & Gamble and published through industry trade associations rather than a peer-reviewed journal. A large grocery chain selling perishable, high-turnover packaged goods has almost nothing in common with a small Shopify store's stockout economics — different margins, different substitution behavior, different customer relationship. Citing the "4%" figure for your own store, stripped of that scope, would be exactly the mistake this post exists to avoid.

The lost-margin calculation

The number you actually want isn't an industry average. It's the same inputs the reorder point formula already uses, applied backward instead of forward:

Lost margin = Days out of stock × Average daily units sold × Profit margin per unit

This isolates the direct, provable part of the cost: demand you can demonstrate existed, because it's the same velocity you were selling at right before the SKU ran out, multiplied by what each of those units was actually worth to you once cost is subtracted. It deliberately doesn't include the softer, harder-to-prove costs covered below; those are real, but they don't belong in a number you're presenting as a calculation.

A worked example

Back to Cedar & Fig, 250g: 5 units/day average sales. Say it retails at $18 with a $7 unit cost, for an $11 profit margin per unit, and the SKU sat at zero available stock for 4 days before the next shipment arrived.

Lost margin = 4 × 5 × $11 = $220. That's the direct cost of this one stockout, for this one SKU, built entirely from numbers you already have on hand. Run the same formula across every SKU that stocked out over a quarter, and you have a real, defensible figure for your store specifically, not a borrowed one from a different kind of business.

Two adjustments worth making to that raw number, depending on your situation: if you offered a backorder during the stockout, some of that demand wasn't actually lost, just delayed, so subtract units that eventually shipped. If a meaningful share of customers bought a close substitute from your own catalog instead of leaving, that revenue offsets some of the loss too, though it usually comes at a lower margin than the item they originally wanted.

The harder-to-measure cost

The lost-margin figure above is a floor, not the whole picture. Peer-reviewed research (Anderson, E.T., Fitzsimons, G.J. & Simester, D., "Measuring and Mitigating the Costs of Stockouts," Management Science, 2006) found that a stockout's cost extends past the missed transaction: some customers who can't find what they want substitute to a competitor, and don't necessarily return even after the product is back in stock. That's a real, documented mechanism, not a guess.

What it isn't is a number you can plug into your own calculation. It's a single-retailer field study from a different retail era, and this post won't manufacture a percentage out of it that the original research doesn't state. The honest way to use this finding is qualitatively: treat your lost-margin figure as a conservative floor, and weight recurring stockouts on your best-selling, most price-sensitive SKUs more heavily than the raw dollar figure alone suggests, because those are the sales most likely to walk to a competitor for good.

Using the number

Once you have a real, calculated figure per SKU, it becomes useful for exactly one thing: deciding where a bigger safety-stock buffer is worth its own carrying cost, and where it isn't. A SKU that stocks out rarely and costs little each time doesn't need the same protection as one that stocks out often and costs hundreds of dollars in margin per event. That's the actual decision your calculated number should drive: see the safety stock guide for sizing that buffer once you know which SKUs deserve the extra cushion, and the warning signs a stockout is coming for catching the next one before it happens.

Frequently Asked Questions

How much do stockouts cost a Shopify store?

There's no credible, universal figure that answers this for stores generally, and any post or vendor claiming otherwise is quoting a number measured on a different population: often large grocery chains or a vendor-commissioned report with a product to sell. The only defensible number is one calculated from your own margin and sales velocity, which is what this post walks through.

How do you calculate the direct cost of a stockout?

Multiply the days a SKU was out of stock by its average daily unit sales, then by the profit margin per unit. That gives you the lost margin on demand you can prove existed: your own recorded sales velocity before the stockout started.

Does a stockout cost more than the lost sale itself?

Likely yes, though the exact size isn't something this post can quantify for you. Peer-reviewed research (Anderson, Fitzsimons & Simester, 2006) found stockout effects extend into future purchases — a customer who substitutes to a competitor doesn't necessarily come back — but that finding describes a mechanism, not a percentage you can apply to your own store.

Is there a reliable industry-wide stockout-cost statistic?

No defensible one exists for a small ecommerce store specifically. The widely-repeated "$1.75 trillion" figure traces to a vendor-commissioned analyst report describing enterprise retail chains. A separate, real, methodology-disclosed figure (roughly 4% of sales, from Gruen and Corsten) exists but measures large FMCG grocery and drugstore chains, a different business entirely from a small Shopify store.

Honestly: StockCue doesn't reduce the number this post teaches you to calculate to zero. No forecast eliminates stockouts entirely, and a 100% service level is statistically unattainable regardless of the tool behind it. What its reorder and PO-late alerts are built to do is shrink how often you're calculating this number in the first place.