E-commerce Glossary

Safety Stock

Buffer stock quantity maintained to avoid stockouts in case of unexpected demand or supplier delay.

Safety stock is the additional quantity you keep beyond average demand to absorb unforeseen variations: demand peak, supplier delivery delay, quality defect.

Simplified calculation: Safety stock = (Max daily demand x Max replenishment lead time) - (Average demand x Average lead time). More sophisticated formula using the normal distribution: Z * sigma * sqrt(Lead time), where Z is the target service level.

Too much safety stock ties up cash and increases storage costs. Too little exposes to stockouts that cost lost sales and degrade customer experience. The balance depends on stockout cost vs storage cost.

Fullmetrix calculates optimal safety stock per product based on historical demand variability and supplier lead time, to avoid both stockouts and overstocking.

Related terms

AOV (Average Order Value)Average amount spent per order in your store.See definition ARPU (Average Revenue Per User)Average revenue generated per user over a given period.See definition Blended CACAverage acquisition cost including all marketing channels.See definition Blended ROASOverall return on all advertising spend combined.See definition CAC (Customer Acquisition Cost)Total cost to acquire a new customer.See definition Churn RatePercentage of customers lost over a given period.See definition
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