Reorder Point Formula for Small Business Inventory

Stockouts cost sales. Overstocking costs cash. The reorder point formula finds the balance: exactly when to reorder so new stock arrives before you run out, without maintaining more inventory than you need.

The Reorder Point Formula

Reorder Point = (Average Daily Sales × Lead Time) + Safety Stock

Where:

• Average Daily Sales = units sold per day on average
• Lead Time = days from when you place an order to when you receive it
• Safety Stock = buffer for demand spikes and supplier delays

Calculating Each Component

Average Daily Sales: Pull 90 days of sales history. Divide total units sold by 90.

Example: Sold 450 units in 90 days = 5 units/day average

For seasonal products, use the most recent 30-day average when approaching peak season, not the full year.

Lead Time: Time from order placement to stock arriving on your shelf. Include:

• Supplier processing time
• Shipping transit time
• Your receiving/intake time

If lead time is variable (sometimes 7 days, sometimes 14), use the average plus some buffer — or use maximum lead time for higher-stakes products.

Example: Average lead time = 10 days

Safety Stock: Buffer inventory to cover demand spikes and supplier delays.

Simple formula: Safety Stock = (Maximum Daily Sales − Average Daily Sales) × Maximum Lead Time

Where Maximum Daily Sales = your peak single day in the last 90 days.

Example:

• Average daily sales: 5 units
• Maximum daily sales (peak): 9 units
• Maximum lead time: 14 days
• Safety stock = (9 − 5) × 14 = 56 units

Putting it together: Reorder Point = (5 × 10) + 56 = 106 units

When your inventory drops to 106 units, place a reorder.

Building the Spreadsheet

Create one row per SKU:

Column	Formula
Product	(manual)
Average daily sales	=AVERAGE(90-day sales column)/90
Max daily sales	=MAX(90-day sales column)
Lead time (days)	(manual, per supplier)
Max lead time	(manual)
Safety stock	=(Max daily - Avg daily) × Max lead time
Reorder point	=(Avg daily × Lead time) + Safety stock
Current stock	(manual or connected to inventory tracker)
Reorder needed?	=IF(Current stock <= Reorder point, “REORDER”, "")

The “Reorder needed?” column is your daily alert. Sort by this column to see everything that needs ordering.

Conditional Formatting

Color-code the current stock column:

• Red: At or below reorder point
• Yellow: Within 50% of reorder point
• Green: Comfortable stock level

This gives you an at-a-glance inventory health dashboard without reading every number.

Reorder Quantity (The Related Question)

Reorder point tells you WHEN to order. Reorder quantity is HOW MUCH to order.

Simple approach: order enough to get back to your maximum stock level.

Reorder Quantity = (Max stock level) − (Stock at time of reorder) + (Expected sales during lead time)

Or use Economic Order Quantity (EOQ) if you want to optimize for ordering costs vs. holding costs. EOQ = √(2 × Annual Demand × Order Cost ÷ Holding Cost)

For most small businesses, a simpler rule — “order 60-90 days of supply” — is close enough and far easier to execute.

Seasonal Adjustments

Your reorder points should change seasonally. A product that sells 5/day in January and 20/day in July needs a dramatically different reorder point in June than in November.

Build a simple calendar adjustment into your spreadsheet: multiply your average daily sales by a seasonal factor (1.0 = normal, 1.5 = 50% above normal, etc.) for each month.

Implement reorder points for your top 20 products this week. Your top sellers are where stockouts hurt most. Calculate the reorder point for each and enter current stock levels — you may find you’re already below reorder point on products you didn’t realize were running low.