IMPORTANT NOTE: Amazon announced that effective January 1, 2020, the IPI threshold is 400. Read to see how this can also affect you in 2019.
Amazon rolled out the FBA program to ease the life of third-party sellers. This program comes with lots of advantages and one of them is that it allows sellers to store their products in Amazon’s fulfillment centers.
To make sure that available storage spaces are used efficiently, Amazon introduced the Inventory Performance Index (IPI), a metric that helps sellers forecast their stock levels and manage their inventory. Let’s take a closer look at what IPI is, why it is important and how to measure and improve it.
What is Amazon Inventory Performance Index (IPI)?
Amazon states, “Your IPI score combines three months of historical sales, inventory levels, and costs into a single metric.” Amazon looks at your IPI score to measure the health of your inventory, identify your weak areas and determine if you qualify for unlimited storage. The IPI score ranges between 0 and 1,000.
- 0 to 349 indicates = poor inventory management and can lead to storage limitations and inventory overage fees.
- 350 to 500 = good and you’ve earned unlimited storage for standard size and oversized items, without overage fees.
- 500+ suggests that you are excelling in inventory management and you should keep it up!
Why is Amazon Inventory Performance Index important?
Inventory management is not an easy task. This is why many FBA sellers end up storing their products for a very long time in Amazon’s warehouses. Through the Amazon IPI, you are able to track the health of your inventory and manage your inventory effectively. You can quickly spot which products are moving and which are not selling. In so doing, you are able to lower cost, increase profitability and continue to grow your business.
How to calculate Amazon IPI.
To ensure that competition is fair, Amazon has kept the math behind closed doors. However, it has revealed the four factors influencing the IPI score.
Excess Inventory
This refers to slow-moving items that stay in your inventory for too long. Amazon provides the “Manage Excess Inventory” tool to help sellers identify listings that may have overstock. Inventory tools like those offered by SellerMobile can also help to restock smarter and limit lost sales due to out-of-stock. Pro Tip: Pulling out excess items in your inventory hikes up your IPI score. On the contrary, continuing to keep extra product lowers your IPI score.
Stranded Inventory
These products are in stock but are not available to your customers because of problems with your listing. Pro Tip: Make sure to check your stranded inventory regularly and take action to resolve the problem. You could fix the listing or create a removal order.
Sell-through Rate
This shows the number of products you sell in connection to the number of stock available at Amazon’s fulfillment centers. Pro Tip: Ensure that there is a good balance between your sales and inventory levels.
In-Stock Rate
This indicates how much value you are getting out of your items by keeping replenishable ASINs in stock. Pro Tip: A low FBA in-stock rate does not drop your IPI score. However, if you run out of stock on a popular item, your missed sales stand for a lost opportunity to raise your IPI score.
How to boost your Amazon IPI score?
IPI provides you a score represented by a bar rating with different colors: Red (Poor), Yellow (Fair), Light Green (Good), and Green (Excellent). As someone who wants to be at the top of the online business, your aim is to have your inventory performance within the range of the color ‘green’.
Follow tips provided in the Inventory Performance Dashboard, which include:
- Restock recommendations – so you can increase your in-stock rate.
- Excess inventory suggestions – so you can reduce/prevent storage fees and carrying costs.
- Stranded inventory suggestions – so you can ensure that your inventory is always available for purchase.
Things to keep in mind:
- Amazon IPI is evaluated at the end of each quarter and storage limits are set for the next quarter.
- At the end of each quarter, you have time (6 weeks before the end of the quarter) to elevate your score.
- If your score is below 350, at the end of each quarter you’ll be penalized.
- Your score for August 19 – September 30 affects your storage limits for the holiday season.
The ways of penalties are as follows:
- Limitation of your storage – you cannot send new inventory higher than your particular limit.
- Setting higher fees needed for more amount of items to be stored ($10 per cubic foot)
- An “overage fee” if your IPI drops and you have more FBA inventory than you’re allowed to.
Adding IPI to your seller account is important in boosting your FBA business. Not only will it help you to easily identify the performance of your inventory, but will also encourage you to improve your inventory management. And since you can easily view any unfavorable outcome in your inventory performance, it is easier to find a solution and fix the problem.
SellerMobile provides Amazon sellers cutting-edge tools and features to help them manage their inventory efficiently, as well as advanced analytics that allows them to gain in-depth insights into their sales performance. Learn more about SellerMobile here.
