Reorder point: the formula, worked through on a real SKU
The reorder point formula is average daily sales multiplied by supplier lead time in days, plus safety stock. Below it is worked through on one SKU, input by input, so you can copy the arithmetic for your own catalogue.
What a reorder point is, and the formula
A reorder point is the stock level at which you place your next purchase order, calculated so the new stock arrives before the shelf empties. The formula has three inputs and one multiplication:
Reorder point = average daily sales x lead time in days + safety stock
Average daily sales is your sales velocity: units sold over a chosen window, divided by the days in that window. Lead time is the gap between sending the order and the stock being sellable, counted in calendar days, not working days, and measured from your own past orders rather than your supplier's promise. Safety stock is the buffer you hold for the weeks when demand runs hot or the container is late.
The first two terms together are called lead time demand: everything you expect to sell while you wait. If you hold no buffer at all, your reorder point is exactly lead time demand, and you are betting that nothing goes wrong. Most operators add some cover, often expressed as a number of extra days of sales rather than a raw unit count, because days are easier to reason about across a catalogue.
Worked through on one SKU
Take a matte black water bottle. Over the last 30 days it sold 540 units, so average daily sales is 18. Your last three orders from that supplier took 19, 21 and 23 days from purchase order to the stock being live, so lead time is 21 days. You want a week of buffer, which is 7 x 18, or 126 units.
Lead time demand is 18 x 21 = 378. Add 126 of safety stock and the reorder point is 504 units. When on-hand stock for that bottle touches 504, the order goes out. Not 400, not when the bin looks low.
The inputs, and where each one comes from
| Input | Value for this SKU | Where you get it |
|---|---|---|
| Units sold in window | 540 over 30 days | Your store's sales history for that variant |
| Average daily sales | 18 units | 540 divided by 30 |
| Lead time | 21 days | Your own past purchase orders, order date to sellable date |
| Safety stock | 126 units | 7 days of cover, chosen by you |
| Reorder point | 504 units | 18 x 21 + 126 |
The window you choose changes the number
Sales velocity is not one number, it is whatever number your window produces. Run the same bottle on a 7 day window during a hot week where it sold 196 units and velocity is 28 a day, which puts the reorder point at 28 x 21 + 196, or 784. That is 280 units higher than the 30 day answer.
Neither is wrong. They answer different questions.
- A 7 day window reacts fast, which suits SKUs trending up or down, and overreacts to one good weekend.
- A 14 day window smooths a single spike while still turning over quickly.
- A 30 day window is steady and forgiving, and it will be late to notice a product taking off.
Two cases break the arithmetic rather than bend it. A SKU with no sales in the window gets a reorder point of zero, which is correct but tells you nothing. A SKU with less sales history than the window is measuring a partial period, so its velocity reads low until the history catches up. Treat both as needing a human eye, not a formula.
Related terms
- Sales velocity: units sold per day over a stated window. The first term of the formula.
- Lead time: calendar days from placing an order to the stock being sellable. Yours to measure, not your supplier's to claim.
- Lead time demand: velocity multiplied by lead time. The reorder point with no buffer.
- Safety stock: the buffer above lead time demand, often set as a number of days of cover.
- Days of inventory remaining: current stock divided by daily velocity. The same maths pointed forward instead of at a threshold.
- Stockout: on-hand reaching zero with demand still there.
A reorder point is a threshold. Turning it into an order date, and an order quantity, is the next step, and it is covered separately in our guide on when to reorder.
Questions
How do you calculate a reorder point?
Multiply average daily sales by lead time in days, then add safety stock. For a SKU selling 18 a day with a 21 day lead time and a week of buffer, that is 18 x 21 + 126, or 504 units.
What is safety stock, and how much should I hold?
Safety stock is the buffer you keep above expected lead time demand to absorb demand spikes and late deliveries. A practical way to set it is in days of cover: pick a number of extra days you can live with per SKU, multiply by daily velocity, and raise it for SKUs with volatile sales or unreliable suppliers.
What is lead time demand?
The units you expect to sell during the wait for a delivery, calculated as average daily sales multiplied by lead time in days. It is the reorder point before any safety stock is added.
Should I use a 7, 14 or 30 day velocity window?
Use 7 days for SKUs whose demand is moving and that you want to track closely, 30 days for steady sellers where you want the number to stop jumping around, and 14 days as the middle setting. The shorter the window, the faster the reorder point reacts and the more it overreacts.
Does the reorder point need recalculating?
Yes. Velocity moves every week and lead times drift, so a reorder point set once in a spreadsheet goes stale. Recalculate on the same rhythm you place orders, and update lead time whenever a delivery lands noticeably early or late.
What if a SKU has no sales in the window?
Velocity is zero, so the formula returns a reorder point of zero. That is arithmetically right and operationally useless, so treat zero-sales and short-history SKUs as manual decisions rather than trusting the number.
Can I set one reorder point for the whole store?
Not usefully. The formula depends on per-SKU velocity and per-supplier lead time, so a single threshold across a catalogue will be far too high on slow lines and far too low on your best sellers.