Quantify the margin and goodwill lost when demand arrives and stock is unavailable.
Only the portion of demand that is genuinely lost — rather than merely delayed — costs margin. A further allowance is added for customers who never return, valued at roughly three future orders of contribution. Stockout cost is systematically underestimated because the permanent customer loss never appears in any report, which is why safety stock always looks too expensive.
Stockout Cost
Cost = demand × days × share lost × contribution, plus an allowance for permanent customer loss
Cost = demand × days × share lost × contribution, plus an allowance for permanent customer loss Only the portion of demand that is genuinely lost — rather than merely delayed — costs margin. A further allowance is added for customers who never return, valued at roughly three future orders of contribution.
Stockout cost is systematically underestimated because the permanent customer loss never appears in any report, which is why safety stock always looks too expensive.
This calculator takes 5 inputs: Daily demand in units, Days out of stock, Contribution per unit, Share of demand lost rather than delayed, Share of lost customers who never return. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.