Amazon’s Inventory Performance Index (IPI) has been a source of confusion and frustration for many sellers since it’s inception. On August 16, 2020, Amazon increased the IPI threshold necessary to avoid storage limits up to 500 from its previous threshold of 400. If your account fails to meet this threshold, you may be subject to storage limits.
Amazon announced in November that the company has been working diligently to increase warehouse space and FBA efficiency and that it would update sellers on the IPI storage limit system in mid-December. As we wait for that update, we’re here to give you some important details on how the Inventory Performance Index works and what you can do to increase your IPI score if it is below the 500 threshold.
How Amazon Sets its Storage Limits
FBA storage limits for a quarter will not be applied to professional sellers who have an IPI of 500 or higher on at least one of two checkpoints set during the previous quarter. Storage limits are also not applied to new professional sellers who have been active for less than 26 weeks or those that have not accumulated enough sales data to generate an IPI before the checkpoints.
Sellers that fail to reach the 500 Inventory Performance Index preview will be subjected to storage limits. These limits will be calculated by Amazon based on multiple factors including:
- Your sales volume (both recent and historical for the season)
- Your past IPI scores
- How much space is available in fulfillment centers
You can see your current inventory limitations on your inventory performance dashboard. Your storage limitations are re-evaluated every quarter, so if you currently find yourself limited by a low IPI score, making changes to increase your Inventory Performance Index can result in having your storage limits removed in future quarters.
What Metrics Determine Your Inventory Performance Index?
Unfortunately, Amazon sellers currently have no access to the formula on how the Inventory Performance Index is calculated. It is impossible to know how heavily one category is weighted over another or exactly how much of a difference changes that you make to your inventory health will have.
But even without this detailed information, Amazon does provide sellers with the four categories that it uses to determine your IPI. Improving how your inventory performs using these metrics will build up your IPI over time.
Excess Inventory Percentage
This category evaluates what percentage of your inventory that Amazon deems is in excess. Sellers who struggle with their IPI score often have trouble with this category as they may have a different opinion of how much inventory is “excess” than Amazon does.
For example, say that you have a new SKU that you are trying out and you have sent in only five units. If these five units sit in the warehouse for a bit, Amazon’s algorithm might determine that some or even all of these units are in excess and dock your score. While this can be frustrating, Amazon does let you know on the inventory performance dashboard exactly what products it believes you have excess stock of.
For the sake of your IPI score, consider lowering the price on these products to sell these excess units (and to show Amazon’s algorithm that this product will generate sales). As an alternative, you could also have excess units sent back to you so that they aren’t taking up warehouse space and in turn won’t be hurting your Inventory Performance Index.
FBA Sell-Through
Amazon wants to see sellers constantly moving inventory. Your sell-through rate is determined by taking the number of units you have shipped and sold over the last 90 days and dividing that by the average number of units that were available in your warehouse during that time. For example, if you shipped 150 units in the past 90 days and you had an average of 75 units available over that time, your sell-through rate is 2.0 (150 divided by 75 = 2.0). Amazon ranks sell-through rates as follows:
- Poor = Less than 1.0
- Fair = 1.0 to 2.0
- Good = 2.0 to 7.0
- Excellent = More than 7.0
If you do have some slow-moving SKUs in your inventory, make sure to offset them with fast-moving products that will improve your sell-through rate and in turn your IPI score.
Stranded Inventory Percentage
Stranded inventory includes listings that are not active, usually due to an issue with the listing or the product being under review. With or without IPI considerations, it is always a great practice as an Amazon seller to stay on top of your stranded inventory. Take the necessary actions to fix all of your listings so that you don’t have any stranded inventory; this is good for inventory health and your Inventory Performance Index.
FBA In-Stock Rate
Losing potential sales due to not having enough product in stock is always something sellers want to avoid. As if you need any extra incentive, not being properly stocked on your popular items also hurts your IPI score. Staying on top of your inventory demands and re-stocking units before you sell out should help you to avoid lost sales and the IPI hit that comes with them.
Fixing Your IPI Can Take Time
Keep in mind as you go through the process of cleaning up or maintaining your Inventory Performance Index that the past is factored into your score as well as the present. It can be frustrating to bring your account up to speed only to find your IPI score still lagging behind, but this is common. Continue practicing good inventory habits over an extended period of time and you should see your IPI climb over 500 eventually.
FeedbackWhiz can also help you maximize profits and keep your inventory healthy with our Profits and Loss Tracking Tool. Consider using this tool as you optimize your inventory and IPI for the holiday season.
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