Running out of a fast-selling item loses sales and sends customers to a competitor. Over-ordering ties up cash in stock that sits on the shelf. A reorder point is the simple tool that sits between the two: the stock level at which you place your next order.
You don’t need specialist software or statistics to set good reorder points. You need three numbers per item and a few minutes with a calculator.
What Is a Reorder Point?
A reorder point is the quantity on hand at which you should place a new purchase order, so that the new stock arrives before the old stock runs out. When an item’s stock falls to or below its reorder point, it is time to order.
The Reorder Point Formula
The standard formula is:
Reorder point
Reorder point = (average daily sales × lead time in days) + safety stock
- Average daily sales: units sold over a recent period divided by the number of days. Use a normal period — not a festival week, unless you are planning for one.
- Lead time: the number of days from placing an order to having the stock ready to sell, including any time to receive and shelve it.
- Safety stock: a buffer for days when sales are higher, or delivery slower, than usual.
Calculating Safety Stock
A simple, widely used method compares your worst realistic case with your average case:
Safety stock
Safety stock = (maximum daily sales × maximum lead time) − (average daily sales × average lead time)
Use the highest daily sales and the longest lead time you have seen in normal trading over the last few months — not a one-off event. If an item is cheap to hold and costly to run out of, lean towards more safety stock; if it is expensive or perishable, lean towards less.
A Worked Example
A 1-litre cooking oil that sells steadily
Average daily sales: 12 units; highest normal day: 18 units
Average lead time: 5 days; longest lead time: 7 days
Safety stock = (18 × 7) − (12 × 5) = 126 − 60 = 66 units
Reorder point = (12 × 5) + 66 = 126 units
When stock of this item falls to 126 units, place the next order. If 126 feels high for your shelf space, look at the inputs: shortening the lead time with a closer supplier, or ordering more often, will bring it down.
How Much to Order
The reorder point tells you when to order, not how much. A simple starting point is to order enough to cover sales until your next regular order day, then adjust for the supplier’s minimum order quantity, pack sizes, bulk discounts, and the shelf life of the product.
Focus Where It Matters
You don’t need equal care for every item. Sort products by sales value: the small group of items that bring in most of your revenue deserves careful reorder points reviewed often. Slow, low-value items can use a simple rule of thumb and a longer review cycle.
Review reorder points:
- Before known seasonal peaks such as festivals, weddings, or school reopening.
- Whenever a supplier’s lead time changes.
- Every few months for fast-moving items, as sales patterns drift.
Common Mistakes
- Using one reorder level for every product, regardless of how fast it sells.
- Forgetting the time it takes to receive and shelve stock when counting lead time.
- Setting levels once and never revisiting them.
- Trusting a reorder point when the stock figure itself is wrong — it only works if every sale and delivery is recorded.
Key Takeaways
- Reorder point = (average daily sales × lead time) + safety stock.
- Safety stock = (max daily sales × max lead time) − (average daily sales × average lead time).
- Give your highest-value items the most attention and review them before seasonal peaks.
- Reorder points are only as good as your stock records.
How BizPro Helps
In BizPro you set a reorder level on each product. Stock updates in real time with every sale, purchase receipt, and return, the low-stock report lists every item at or below its level, and your team gets a daily low-stock alert. When it is time to order, raise a purchase order and receive the stock straight into the right warehouse. See inventory management and purchase management .