How to Set Reorder Points
A reorder point is the stock level at which you should place a new order with your supplier. Set it too high and you're overstocking — tying up cash in products sitting on shelves. Set it too low and you'll run out before the next delivery arrives, losing sales and frustrating customers.
Most small businesses don't set reorder points at all. They reorder when someone notices a shelf is empty or when a manager "feels like" it's time. This reactive approach leads to emergency orders, stockouts, and wasted money on rush shipping.
This guide explains how to calculate reorder points for your retail store, coffee shop, or restaurant — using a simple formula, real examples, and practical adjustments for how businesses actually operate.
The Reorder Point Formula
The basic formula is straightforward:
Reorder Point = (Average Daily Sales × Lead Time in Days) + Safety Stock
Let's break that down:
- Average Daily Sales: How many units of this product you sell per day, on average. Use at least 30 days of data to smooth out daily fluctuations.
- Lead Time: How many days it takes from when you place an order with your supplier to when the product arrives on your shelf. This includes processing time, shipping, and any receiving/stocking time on your end.
- Safety Stock: Extra buffer to protect against unexpected demand spikes or supplier delays. Without safety stock, any deviation from average sales or average lead time results in a stockout.
Calculating Average Daily Sales
Pull your sales data for each product over the last 30 to 90 days. Divide total units sold by the number of days.
Example: You sold 120 bags of coffee beans in the last 30 days.
Average daily sales = 120 ÷ 30 = 4 bags per day
Use a longer time period (60 or 90 days) if your sales fluctuate significantly. A 30-day average can be skewed by a single busy week or a promotion.
If you use a POS system connected to your inventory software, this number is calculated automatically. Stash tracks sales velocity per product per location, so you don't need to pull reports and do math manually.
Determining Lead Time
Lead time isn't just shipping time. It includes:
- Order processing: How long after you place the order does the supplier begin fulfilling it? Some suppliers process orders same-day; others take 2-3 business days.
- Shipping/delivery: Transit time from the supplier to your store.
- Receiving: Time to inspect the delivery, check it against the purchase order, and get products onto shelves.
Example: Your coffee bean supplier takes 1 day to process, 3 days to ship, and your team takes 1 day to receive and shelve.
Total lead time = 1 + 3 + 1 = 5 days
Track actual lead times for each supplier over multiple orders. Suppliers are rarely as consistent as they promise. If lead time varies between 4 and 7 days, use the longer number in your reorder point calculation — using the average means half your orders will arrive late.
Calculating Safety Stock
Safety stock is your buffer against uncertainty. There are complex statistical formulas for calculating it, but for most small businesses, a practical approach works better:
Safety Stock = (Maximum Daily Sales - Average Daily Sales) × Maximum Lead Time
This formula accounts for both demand spikes and supplier delays.
Example:
Average daily sales: 4 bags
Maximum daily sales (your busiest day in recent history): 7 bags
Maximum lead time: 7 days
Safety stock = (7 - 4) × 7 = 21 bags
If that feels like too much buffer, you can simplify further: many businesses set safety stock at 20-50% of their lead time demand (average daily sales × lead time). The right level depends on how much a stockout would hurt — a stockout on your best-selling product is more costly than a stockout on a slow mover.
Putting It All Together
Using our coffee bean example:
- Average daily sales: 4 bags
- Lead time: 5 days
- Safety stock: 21 bags
Reorder Point = (4 × 5) + 21 = 41 bags
When your inventory of this product drops to 41 bags, it's time to place a new order. This gives you enough stock to cover the 5-day wait for the next delivery, plus a buffer for unexpected demand or delays.
Multi-Location Reorder Points
If you run multiple locations, each store needs its own reorder points for every product. A downtown coffee shop that sells 6 bags of beans per day needs a different reorder point than a suburban location selling 2 per day — even if they use the same supplier with the same lead time.
This is where spreadsheet-based reorder tracking breaks down fast. With 50 products across 3 locations, you need 150 reorder points — each with its own sales velocity, lead time, and safety stock calculation. That's not practical to maintain manually.
Stash handles this automatically. It calculates reorder points per product per location based on actual sales data from your POS system, and sends you low stock and critical stock alerts when inventory hits those thresholds. You can set alerts manually or let Stash's AI demand forecasting calculate optimal levels based on your sales patterns.
When to Adjust Reorder Points
Reorder points aren't set-and-forget. Review and adjust them when:
- Seasons change. A coffee shop sells more iced drinks in summer and more hot drinks in winter. Reorder points for related ingredients should shift with the season.
- You run promotions. If you're planning a sale or event that will spike demand, temporarily increase your reorder points for affected products.
- Supplier lead times change. If a supplier speeds up or slows down, your reorder point needs to reflect the new reality.
- Sales trends shift. If a product is steadily gaining or losing popularity, update your average daily sales figure and recalculate.
- You add or change locations. New stores need their own reorder points from day one. Don't copy numbers from an existing location — demand patterns will be different.
For most products, quarterly reviews are sufficient. For high-velocity or seasonal products, monthly reviews are better.
Common Mistakes
- Using the same reorder point for every location. Each store sells at a different rate. A blanket reorder point across all locations guarantees overstocking at some stores and stockouts at others.
- Ignoring lead time variability. If your supplier says "3-5 days" and you calculate with 3, you'll run out every time they take 5. Use the longer number.
- No safety stock at all. Averages are averages — half the time, demand will be above average. Without a buffer, you'll have frequent stockouts.
- Too much safety stock. The opposite problem. Excessive safety stock ties up cash and increases waste on perishable goods. For low-cost, fast-moving items, a small buffer is fine. Reserve larger buffers for high-cost or hard-to-replace products.
- Not reviewing reorder points regularly. A reorder point set 6 months ago may be completely wrong today if sales patterns have changed. Stale data leads to bad orders.
- Setting reorder points without sales data. If you're guessing instead of calculating, you're gambling. Even a rough estimate based on actual sales is better than a gut feeling.
Reorder Points vs. Par Levels
You'll sometimes hear the term "par level" used interchangeably with "reorder point," especially in restaurants and food service. They're related but different:
- Reorder Point: The inventory level at which you place a new order. It accounts for lead time and safety stock.
- Par Level: The maximum inventory level you want to maintain. When inventory drops to the reorder point, you order enough to bring it back up to the par level.
Order Quantity = Par Level - Current Inventory
Both numbers work together. The reorder point tells you when to order. The par level tells you how much to order. Without both, you either order too early, too late, too much, or too little.
Quick Reference: Reorder Point Examples
| Product | Avg Daily Sales | Lead Time | Safety Stock | Reorder Point |
|---|---|---|---|---|
| Coffee beans (bags) | 4 | 5 days | 21 | 41 bags |
| Oat milk (cartons) | 8 | 2 days | 10 | 26 cartons |
| T-shirts (retail store) | 3 | 14 days | 14 | 56 units |
| Vanilla syrup (bottles) | 1 | 3 days | 3 | 6 bottles |
| Candles (gift shop) | 2 | 10 days | 8 | 28 units |
Automating Reorder Points
Calculating reorder points manually works if you have a handful of products at one location. Once you're managing dozens or hundreds of products across multiple locations, manual calculations don't scale.
Stash automates the entire reorder process:
- AI demand forecasting analyzes your sales patterns from your POS data to predict future demand per product, per location — including seasonal adjustments.
- Automatic stock alerts notify you when any product at any location hits low, critical, or out-of-stock levels.
- AI-generated purchase orders suggest what to reorder and how much, based on your sales velocity and supplier lead times. You can approve and send with one click.
- One-click reconciliation lets you confirm deliveries against purchase orders instantly when stock arrives.
The goal isn't to eliminate your judgment — it's to replace guesswork with data-driven suggestions that you can adjust based on your knowledge of the business.
Getting Started
If you're currently reordering based on gut feeling or empty shelves, start here:
- Pick your 10 best-selling products.
- Look up their average daily sales from your POS data.
- Estimate lead time for each supplier.
- Calculate reorder points using the formula above.
- Set those as alert thresholds in your inventory system.
You don't need to calculate reorder points for every product on day one. Start with the products that matter most — the ones where a stockout costs you the most revenue or customer goodwill.
Or, start a 14-day free trial of Stash, connect your POS, and let the AI calculate reorder points across your entire catalog automatically. No formulas required.
