Reorder point formula and safety stock: how to calculate both

Running out of a best-seller costs you sales. Ordering too much ties up cash in boxes on a shelf. The reorder point is the simple number that sits between those two problems: when stock falls to it, you place a new order.

You do not need special software or statistics to calculate it. Two formulas and a spreadsheet are enough to get started.

The three numbers you need

For each product, find:

1. Average daily sales. Units sold over a period, divided by the number of days. Use the last 30 to 90 days.
2. Lead time. The number of days between placing an order with your supplier and having the stock ready to sell. Include production, shipping, customs and the time you need to unpack.
3. Safety stock. A buffer that protects you when sales are faster or deliveries slower than usual.

Formula 1: reorder point

Reorder point = (average daily sales × lead time in days) + safety stock

The first part, average daily sales × lead time, is the stock you will sell while waiting for the delivery. Safety stock is the cushion on top.

Formula 2: a simple safety stock

There are sophisticated ways to calculate safety stock. For a small shop, this simple method works well:

Safety stock = (maximum daily sales × maximum lead time) − (average daily sales × average lead time)

It asks: “What if my busiest sales days happen during my slowest delivery?” and keeps enough to cover the difference.

A worked example

You sell a ceramic mug. Over the last 90 days:

	Value
Average daily sales	4 mugs
Busiest daily sales	6 mugs
Average lead time	10 days
Longest lead time	14 days

Safety stock = (6 × 14) − (4 × 10) = 84 − 40 = 44 mugs

Reorder point = (4 × 10) + 44 = 84 mugs

So when your stock of mugs falls to 84, it is time to order. In a normal cycle you will sell about 40 during the wait and still have 44 left when the delivery arrives. In a bad cycle, the buffer absorbs the shock.

How much should you order?

The reorder point tells you when to order, not how much. A practical starting rule:

Order quantity = average daily sales × number of days you want the order to cover

If you want each mug order to last about 45 days: 4 × 45 = 180 mugs. Then adjust for real-life constraints: supplier minimums, price breaks, storage space and cash available.

For a more precise answer that balances ordering costs against storage costs, use the economic order quantity (EOQ) formula.

Put it in your spreadsheet

Add these columns to your stock sheet, one row per product variant. If you do not have a stock sheet yet, see how to make an inventory spreadsheet.

Column	Example
SKU	MUG-BLU-12
On hand	97
Average daily sales	4
Lead time (days)	10
Safety stock	44
Reorder point	= average daily sales × lead time + safety stock
Status	“REORDER” if on hand ≤ reorder point, otherwise “OK”

Add a conditional format that colors the row when the status is “REORDER” and you have a basic alert system. If your SKUs are messy, our guide to creating SKU numbers will help first.

Common mistakes

• Using one number for the whole year. If your sales are seasonal, recalculate before each busy period using last year’s numbers for the same season.
• Forgetting part of the lead time. Count from the day you order to the day stock is on your shelf, not just the shipping time.
• Ignoring stock already on order. When you check whether to reorder, compare the reorder point with stock on hand plus stock already ordered but not yet received.
• Setting it once and forgetting it. Review the numbers every few months, or whenever a supplier changes its delivery times.
• Treating every product the same. A large buffer makes sense for best-sellers; slow movers can run leaner. Inventory turnover shows which products are which.

When a spreadsheet is no longer enough

Once you have many products or sell on several channels, updating daily sales by hand becomes the weak point. Inventory software calculates sales velocity for you and sends low-stock alerts automatically. Our guide on spreadsheets versus inventory software covers the signs that it is time to switch.

Key takeaways

• Reorder point = average daily sales × lead time + safety stock.
• A simple safety stock covers your busiest sales during your slowest delivery.
• Count stock already on order before placing a new one.
• Review the numbers each season and when suppliers change.