When you sell on Amazon, through FBA, you know that there’s a strategy to balance inventory to match buyer behavior and avoid overstock fees at Amazon warehouses. If you run out of inventory, your buyers are going to make their purchase somewhere else. Amazon’s golden rule: Don’t run out of stock. On the other hand, too much inventory isn’t ideal either. You’ll be paying excess in storage fees, and risk having stale dated items. So, it’s important to be aware of your Amazon’s Inventory Performance Index (IPI).
What is an IPI (and where can you find it?)
Your IPI is the grade you receive, based on your ability to manage inventory efficiently. Your score can be anywhere between 0 and 1000. This score is based on several factors such as:
- Excess inventory
Excess inventory (%) = no. of excess FBA inventory items total units in FBA inventory(100) - Ensuring inventory is “buyable” (that means not stranded)
Stranded Inventory (%) = total no. of FBA unavailable for purchase units total no. of FBA units (100) - “Sell through” rates
Sell-through Rate = (the number of units sold ÷ the number of units received) x 100 over the past 90 days - In-stock inventory rate
In-stock (per SKU) = (% of days in stock in the last 30 days)*(60-day sales velocity)
How can you find your IPI?
Log in to Seller Central. Click on Inventory and select Inventory Planning from the drop-down menu. Click on the Performance tab to view your IPI score.*
When Do New sellers get an IPI score?
It will take about 3-4 months for new sellers to get an IPI score on their dashboard. If a score falls below the average, Amazon may set storage limits on your account for the following quarter.
*(only professional sellers will get an IPI score, individual sellers do not have access to that part of the dashboard)
Why is it important to have a high IPI score?
Your IPI is directly linked to the storage space that Amazon allocates. If your IPI is low, Amazon may penalize you with increased storage fees, and inventory restrictions. These have the potential to be very damaging, especially leading up to seasonal shopping trends.
Now that we know what affects your IPI, are there ways to improve it?
- Use automation and software for forecasting your stock replenishment timeline.
- Optimize your inventory levels
- Avoid overstocks by monitoring your inventory levels regularly and adjusting them accordingly.
- Keep track of your sales data and make sure you have enough inventory to meet demand without having too much excess inventory.
- Maintain up to 60 days’ worth of stock
- Increase the frequency of sending inbound shipments to Amazon
- Review your supply chain timelines to prevent being out of stock
- Fix stranded inventory
- If you see that sales are slowing, run promotional sales to move your inventory
What are the most common inventory challenges that affect your IPI?
Avoid going out of stock at all costs! Let’s say that you’re waiting on a shipment to arrive, and there’s a delay. You may decide you want to slow down your sales so you don’t go out of stock. How?
- Pause your advertising campaigns
- Increase the selling price (but be aware of competitor’s pricing to avoid a high-pricing error)
But, yet at the same time: Avoid EXCESS inventory. Amazon wants your products to move within about 90 days, so manage your inventory (also called the sell-through rate). How?
- Create removal orders
- Put items on sale
Just like excess inventory, stranded inventory adds to your storage fees. How can you fix stranded inventory?
- Delete inactive listings and set a removal order
- If there are listings that are suppressed, edit and improve to get them live and selling
- Use a repricing tool
Avoid long-term storage fees: For inventory that has been at Amazon fulfillment centers longer than one year, you will be charged a “bonus” fee of the greater of these two: $6.90 per cubic foot or $.15 per unit. Dedicate the 1st and 15th of each month to Identify and fix these inventory challenges, to help increase sales.
Now, let’s talk about your Storage Capacity
What is the difference between restock limits and storage limits?
Storage limits are based on VOLUME. (measured in cubic feet). And, with an IPI of higher than about 500, you may have unlimited storage.
Restock limits are based on the number of “units” on hand. Restock limits are not impacted by your IPI. Amazon does not want to be a storage facility, they want to be a fulfillment facility.
Final tips:
- Establish a good relationship with your suppliers
- Maintain about 60 days of inventory
- Run promotions to stimulate traffic and keep inventory moving
- Run inventory checks twice per month to help avoid long-term storage fees
As an experienced Amazon seller, you’ll be able to develop your rhythm to your inventory thresholds, and reordering frequency. Sellers with unlimited storage capacity have the advantage over sellers whose IPI is lower than 500. If you’re looking to purchase an Amazon seller account that has a high IPI, look no further than our sales team at AIA Assets. We understand the advantages of an account that is in great health! Reach out, we’ll find the Amazon seller account you’re looking for!
