The reorder point is the stock level at which you place your next supplier order so that new units arrive before you run out. The formula is: reorder point = (average daily sales x lead time in days) + safety stock. If you sell 20 units a day, your supplier needs 45 days from order to warehouse, and you want 10 days of cover, your reorder point is 20 x 45 + 200 = 1,100 units. This guide walks through each input, a worked example, and how to check the cash before you reorder.
All numbers in the examples are illustrations to show the arithmetic. Replace them with your own sales data and supplier quotes.
The three inputs
Average daily sales. Take units sold over a recent period and divide by the days in it. Use a window that is long enough to smooth out spikes, such as 30 to 60 days, and exclude days when you were out of stock, because those undercount real demand. If the product is seasonal, use the same period from last year or your latest Google Trends curve for the product term as a guide, as covered in how to use Google Trends for product research.
Lead time. This is the total time from placing the order to units being sellable, not just production time. Add production, inland transport to the port, sea or air freight, customs clearance, delivery to your warehouse, and check-in time if you use a marketplace warehouse such as Amazon FBA. The full cost side of those steps is in landed cost: how to calculate the true cost of your product.
Safety stock. This is the buffer for demand spikes and late deliveries. A simple method is: safety stock = (maximum daily sales x maximum lead time) minus (average daily sales x average lead time). A cheaper rule of thumb is to hold a fixed number of days of cover, such as 7 to 14 days for short lead times and more for ocean freight.
Worked example: a phone stand sold on Amazon and Shopify
Assume you sell a phone stand with these figures, which are invented for illustration:
| Input | Value |
|---|---|
| Units sold in the last 30 days | 600 |
| Average daily sales | 20 |
| Typical lead time (production 20 days, shipping and customs 25 days) | 45 days |
| Best-case lead time | 40 days |
| Worst-case lead time | 55 days |
| Highest daily sales seen | 32 |
Demand during lead time: 20 x 45 = 900 units.
Safety stock by the max method: (32 x 55) minus (20 x 45) = 1,760 minus 900 = 860 units. That is a lot, and it ties up cash.
Safety stock by the fixed-cover rule: 10 days x 20 = 200 units.
The truth sits between the two. Many sellers pick a number between them based on how costly a stock-out is. If running out costs you your marketplace ranking, lean towards the higher buffer. If you can simply pause ads and wait, the smaller one is enough.
With the 200-unit buffer, the reorder point is 900 + 200 = 1,100 units. When your total inventory, including units in transit that will arrive in time, falls to 1,100, you reorder.
How big should the reorder quantity be?
The reorder point tells you when. The quantity depends on your supplier's minimum order quantity (see how to negotiate MOQ with suppliers), your cash, and storage costs. A simple approach is to order enough to cover one full lead time plus the review period. In the example, if you review stock every two weeks and want the next shipment to cover 90 days, you order about 20 x 90 = 1,800 units.
The cash check before you reorder
Stock is money sitting on a shelf. Before you place the order, multiply units by landed cost and compare it to the cash you will have when the invoice is due.
| Line | Amount (illustrative) |
|---|---|
| Order quantity | 1,800 units |
| Landed cost per unit | $4.20 |
| Total inventory spend | $7,560 |
| Daily gross profit per unit sold, after fees and before ads | $5.00 |
| Days of sales to earn it back | about 76 days (7,560 / 100 per day) |
If the payback period is longer than your cash can carry, order less more often, or negotiate payment terms. Storage fees matter too: on Amazon, storage is billed by the cubic foot and rises in the fourth quarter, which is why overstocking before Q4 hurts, as shown in Amazon FBA fulfillment fees.
Common mistakes
Using sales from a launch spike as the daily average will make you overorder. Forgetting that units in transit count toward your position will make you order twice. Ignoring lead time variance, such as a delayed container, leaves you with no buffer when you need it. Finally, treating the formula as fixed: recalculate every time your sales rate or supplier lead time changes.
Where Ecomtoro fits
The reorder point assumes the product will keep selling. Before the first order, Ecomtoro helps you check demand, competition and margin so your first purchase order is based on evidence rather than a guess.
Frequently asked questions
What is the reorder point formula?
Reorder point equals average daily sales multiplied by lead time in days, plus safety stock. When your available inventory reaches that number, place a new order.
How much safety stock should I hold?
It depends on how variable your demand and lead time are and how costly a stock-out is. A simple start is 7 to 14 days of average sales for short lead times, and more for ocean freight. The max-based formula gives a more cautious figure.
Should I count units in transit?
Yes. Count inventory on hand plus units already ordered that will arrive within your lead time. Otherwise you will reorder too early and tie up cash.
How often should I recalculate it?
Whenever sales rates change noticeably, a supplier changes its lead time, or a season starts. Reviewing every one to two weeks for fast sellers is a sensible routine.
