The success of your Amazon FBA business largely depends on inventory management.
Employing effective inventory management strategies will help you reduce inventory and storage costs, increase sales and improve your overall profit.
One way to measure the health of your inventory is through what is called Amazon FBA Inventory Performance Index (IPI). So what exactly is the Amazon IPI?
Read on as we dive into what an IPI score is, how it is calculated, what a good IPI score is and how you can improve your Amazon IPI score.
Here's what we will be looking at:
Amazon Inventory Performance Index is a scoring system that helps Amazon sellers gauge how effectively they are managing their inventory.
Introduced in 2018, Amazon IPI helps you measure the health of your inventory.
It takes into account the number of units in your inventory. Having low units of inventory can lead to being out of stock causing you to lose sales. On the other hand, having too much inventory will lead to increased storage costs.
The Inventory Performance Index score ranges from 0 to 1000. With Amazon IPI, you can effectively track your inventory and ensure you have the right products in stock. It will also help you avoid lost sales and excess costs.
You can easily view and monitor your Amazon IPI score from your dashboard in your Amazon Seller Central account. Simply go to your Seller Central account, and click on Inventory > Inventory Planning > Performance to view your IPI score.
Your IPI score is updated weekly based on your three-month performance statistics.
How Amazon calculates your IPI score remains a secret. Amazon responds to calculating IPI scores by saying: “The calculation is proprietary and will not be published, just as we do not publish the Buy Box algorithm.”
Amazon states that IPI points are not deducted when you run out of stock.
Amazon also states that “The best way to increase your IPI score and minimize your FBA storage fees is to reduce unproductive inventory and keep your product inventory at lean levels while ensuring you have enough on hand to minimize lost sales.”
Amazon has a minimum IPI score that sellers must not go below to avoid high storage costs.
As an Amazon FBA seller, if your IPI score drops below the minimum, Amazon will set storage limits on your seller central account until improvements are made to your inventory levels.
As of 2022, the IPI score threshold is 400. This means that any score above the 400 IPI score threshold is considered a good IPI.
Amazon evaluates IPI scores for professional sellers every three months. If your Inventory Performance Index falls below 400 six weeks before the quarter ends, Amazon will send you a notification of potential storage limits.
By the end of the quarter, if your Inventory Performance Index still falls below the 400 IPI score threshold, Amazon will apply storage limits in the next quarter of the year.
Before Amazon places a storage limit, three major factors are considered. This includes your historical IPI scores, fulfillment center capacity, and your sales volume.
If Amazon gives you a storage limit, you won't be able to create shipments for a storage type until your inventory falls below the limit of that storage type. Storage limits will be divided between six storage types which include Apparel, Footwear, Flammable, Oversize, Standard-size, and Aerosol.
If you send more inventory than your storage limit, Amazon may reject your inventory at the fulfillment center. In addition, an Inventory Storage Overage Fee of $10 per cubic foot will be charged for the amount above the storage limit alongside other fees like monthly and long-term storage fees if applicable.
While Amazon doesn't reveal how IPI scores are calculated, it does tell us the factors that can affect your IPI score.
Here are the four factors that affect your IPI score on Amazon:
One of the biggest factors that influence your IPI score is excess inventory. Amazon prioritizes moving inventory items from fulfillment centers to customer doorsteps quickly. If your inventory units exceed the 90-day supply, it is declared to be excess or overstock. On your inventory dashboard, Amazon provides insights that you can execute to deal with your excess inventory.
Stranded inventory refers to units that are not selling due to product listing problems. This can happen if your listing doesn't meet Amazon guidelines or if there is a problem with your listing tool. When this happens, customers won't be able to buy the product ultimately leading to higher storage costs and loss in sales.
Your FBA sell-through rate refers to the number of inventory units sold over the past 90 days from your total inventory stocks at fulfillment centers from the past 90 days.
For example, if you sold 200 units over the last 90 days with a total stock of 300, your FBA sell-through rate will be 0.67.
Amazon calculates the percentage of time your product has remained in stock for the past 30 days in addition to items that have sold more units in the past 60 days. If you can maintain a good in-stock rate, you will have fewer lost sales.
Here are some common misconceptions about IPI scores:
To avoid being penalized, here are a few ways you can improve your Amazon IPI score:
To avoid excess inventory and incur higher storage costs, remove the items that are not in demand. To remove excess inventory, simply go to your inventory dashboard and then “Manage Inventory Page”. You will find recommendations on the dashboard to help you handle the excess inventory.
You can improve your sell-through rate and ensure you maintain a green high mark on the IPI score graph.
To boost your sell-through rate, you can run sponsored ad campaigns to increase sales velocity, optimize your product listing and improve your keyword targeting.
To avoid hefty long-term storage fees, remove inventory in fulfillment centers within 365 days. You can allow Amazon to remove your inventory or make a removal order.
If you have issues with your listing, you can take simple steps to tackle them:
Optimizing your inventory levels and maintaining a good Inventory Performance Index is key to maximizing sales and increasing your profit margins.
For new sellers, it may take a while to figure out the right amount of inventory for your product ASINs. However, paying attention to recommendations and actionable insights will help you avoid higher storage fees.