Pros and cons of accepting back orders

To back order or not to back order. That is the question.

The decision to allow back orders in ecommerce depends on factors such as your business model, customer expectations, and operational capabilities. It’s important to assess these pros and cons before deciding whether it’s right for your business.

But first, what is a back order?

A back order refers to a customer’s request or order for a product that is currently out of stock. When a product is not immediately available for fulfilment, a customer’s back order indicates their desire to receive it as soon as it becomes available. The back order is typically recorded and tracked by the seller or retailer, who will deliver the product to the customer when it is restocked.

Online stores can be configured to allow customers to add out-of-stock products to their cart and check out. In other words, they can allow back orders. This can have both pros and cons.

Advantages of back orders

• Increased sales: Allowing back orders can help you capture sales even when a product is out of stock. Customers who are willing to wait for the product to become available again can place their orders.
• Customer satisfaction: By offering back orders, you demonstrate to customers that you are committed to fulfilling their needs, even if a product is temporarily unavailable. This can improve customer satisfaction and loyalty.
• Inventory management: Back orders can provide valuable insights into customer demand and help you manage inventory more effectively. By monitoring back order trends, you can adjust your procurement and production processes accordingly, minimising stockouts and overstock situations.
• Minimised revenue loss: Without the option for back orders, customers may simply abandon their purchase or look elsewhere if a product is out of stock. Allowing back orders reduces the risk of losing the sale to a competitor.

Disadvantages of back orders

• Uncertain fulfilment time: When customers place back orders, there is often uncertainty regarding the timeframe for fulfilment. This lack of clarity can lead to dissatisfaction and frustration if the waiting period is longer than expected. Managing customer expectations becomes crucial in these situations.
• Potential cancellations: Customers may change their minds or find alternative options while waiting for back-ordered products. This can result in order cancellations, which require additional administrative work and complicate your order fulfilment process.
• Increased customer service demands: Handling back orders requires additional customer service efforts. You may receive inquiries about the status of back-ordered products, and responding to these inquiries promptly and accurately can be time-consuming.
• Reputation risks: If you consistently struggle to fulfil back orders in a timely manner or fail to communicate effectively with customers, it can harm your brand reputation. Negative reviews and word-of-mouth can spread, impacting customer trust and future sales.
• Potential inventory challenges: Managing back orders effectively requires careful inventory management. It may be challenging to accurately forecast demand and allocate stock to back orders while ensuring you have sufficient inventory for new orders. This is where an ERP (or accounting system) that caters to the segmentation of stock, and integration with your online store, can help mitigate risk.

Back orders give customers convenience, allowing them to secure their purchase and ensure they receive the item once it is back in stock, rather than having to constantly check for availability or look for alternative options. For the seller, the primary benefit is the ability to secure the order before the stock has arrived.

It’s important to weigh the above benefits against the additional logistical and administrative strains that back orders may place on your business. If you are considering adding this to your ecommerce setup, give us a call to find out how integration could help.