What is fill rate and what does it say about your business?

Fill rate is the percentage of customer orders that your business can ship right now, without any backorders, stockouts, or missed sales. To find your fill rate, simply divide the number of orders shipped by the number of orders placed and multiply by 100.

Calculating your fill rate isn’t just an exercise in number crunching—it gives you crucial insights into how well you’re meeting customer demand. In this article, you’ll learn how to calculate your fill rate and how you can use this metric to optimize your inventory management processes. But first, let’s cover the basics.

What is fill rate?

Fill rate pinpoints the exact percentage of customer orders that are successfully filled through instant stock availability. In other words, it’s an indicator of how well a business’s shipping performance meets the expectations of its customers.

A low fill rate can lead to lost sales, unhappy customers, and a poor reputation. Accordingly, any company that ships inventory should have a keen understanding of its fill rate. That includes retailers, manufacturers, and wholesalers.

Four categories of fill rate

Fill rate metrics can apply to different facets of a business, but the common thread is that they calculate the service level between buyers and sellers.

1. SKU fill rate: the number of stock-keeping units ordered and shipped
2. Line count fill rate: the number of order lines (each line item on a bill) shipped versus the number of lines ordered
3. Value fill rate: the amount of order line values shipped on the initial shipment versus the number of cases ordered
4. Case fill rate: the number of cases shipped on the initial shipment versus the number of cases ordered

How do you calculate fill rate?

Fill rate is calculated by dividing the number of items shipped by the total number of items a customer ordered and converting that figure into a percentage.

Here’s a quick example of the fill rate formula in action:

Let’s say you’re a clothing retailer—a client orders 50 shirts, but you’re only able to ship 30 when the order was placed. Your fill rate would be:

30 ÷ 50 = 0.6 = 60%

As a retailer, you’ll likely want to find a way to increase the 60% inventory for this item, so you can meet demand and satisfy more customers who want to purchase it.

Why is knowing fill rate important?

You can’t improve what you don’t measure. This is especially true when it comes to how well you satisfy customer demand. Calculating fill rate is key to understanding what action you need to take to prevent costly hiccups in your supply chain.

Here are four ways tracking your fill rate can improve your bottom line:

1. Manage customer expectations: If you find out you’re unable to fulfill an entire order at once, you can proactively communicate with the client instead of leaving them with last-minute bad news. The same should go for delivery exceptions.
2. Improve your inventory management: If you see that your fill rate is chronically low, you can seek out different suppliers or reevaluate your reorder point or safety stock levels.
3. Improve yourorder fulfillment processes: Sometimes a low fill rate can indicate packing or delivery inefficiencies. If that’s the case, you can reassess your fulfillment process to plug the holes.
4. Maximize order value: When you can’t fulfill an entire order, you can offer customers alternative products rather than letting them walk away empty-handed.

Customer service level vs. fill rate: What’s the difference?

Fill rates and customer service levels are two of the most common KPIs that supply chain managers track to stay efficient. The two terms are often mixed up, but they’re pretty different.

While fill rate defines the percentage of customer order demand that’s met, service level defines the likelihood of not stocking out during an order cycle. Put simply, fill rate measures past performance while service level measures future probability.

There’s often a correlation between these two metrics, but it’s possible to have a low chance of stocking out and still struggle to maintain a high fill rate—and vice versa.

What is an ideal fill rate?

An optimal fill rate varies based on the type of products you sell, how competitive your market is, and how loyal your customers are. Conducting an  inventory analysis  will give you a clear picture of your stock levels and how they impact the health of your business.

Some companies have fill rates as high as 99%. Average companies hover anywhere between 80-90%. The more products you stock, the more difficult it becomes to maintain a high fill rate. That said, you should always strive to meet your customers’ expectations.

A fill rate of 100% might sound incredible, but it can actually be a negative sign. Why? Because you might have excess  inventory carrying costs  because of a surplus or run the risk of holding damaged, lost, or obsolete products. On the other hand, a lower fill rate than average can make your business less competitive. The key is striking a sustainable sweet spot for your unique business.

How can your business improve its order fill rate?

A clear understanding of your fill rate will inform what steps your business should take to boost its performance. Some factors, such as holidays or inclement weather, are out of your control.

But there are a few steps you can take to achieve a higher fill rate.

Have alternative products ready

Rather than telling your customer to wait for their desired product, keeping alternatives on hand will reduce the likelihood of losing them to a competitor, especially if the product isn’t tough to replace.

Improve your relationship with suppliers

If you’re confident in your internal order fulfillment processes but still struggle with a low fill rate, you may need to improve your relationships with your suppliers. This could involve accelerating price-change negotiations, minimizing response time to demand surges, or streamlining your order management process.

Take advantage of inventory management software

In today’s fast-paced marketplace, software tools aren’t a luxury; they’re a necessity. QuickBooks Enterprise is a business management solution for managing sales, tracking inventory, and reducing data entry—all in one central dashboard. Best of all, you can track all of this data in a central dashboard in real-time.

Final thoughts

Leaving important metrics to guesswork means leaving money on the table. Keeping an eye on your fill rate helps you catch missed opportunities and see how you stack up to your competitors.

Then, with data in hand, you can take the necessary steps to improve your demand satisfaction rate. That’s where inventory management software like QuickBooks Enterprise can help automate ordering fulfillment and reporting so you can spend less time on tedious tasks and more time creating better customer experiences.