January 7th, 2022
UPDATE AS OF JANUARY 1, 2022: Amazon reduced the Inventory Performance Index (IPI) threshold for FBA storage limits from 450 to 400.
Having your inventory sit in a warehouse isn’t good for your business or for Amazon. In order to help determine which inventory should stay and which needs to move, Amazon has established the Inventory Performance Index (IPI). This score can be a headache for some sellers but that’s before they learn more about it and how to make it work to their advantage.
What is Amazon IPI?
Your Amazon IPI or Inventory Performance Index is based on how well you drive sales by keeping popular products in stock, as well as how efficiently you manage your inventory. The IPI measures inventory management over time, including how well you balance inventory levels and sales, how quickly you fix listing problems that make your inventory unavailable to purchase, and how well you keep products in stock.
Why You Should Care About Your IPI Score
Smart inventory management can lead to reduced costs, improved profitability, and business growth for sellers. If your inventory management is improved, you are also ensuring that customers are receiving your products more quickly - and let’s be honest, everyone wants to get their orders fast!
Increasing your Amazon IPI score benefits the FBA seller by:
- Minimizing FBA storage fees by reducing unproductive inventory
- Keeping productive inventory at lean levels to ensure you have enough on hand to minimize lost sales
Amazon IPI Scores
The IPI score measures how efficient and productive you are in managing your FBA inventory. There are multiple factors that influence your IPI score. The top four factors that you should focus on are:
- Maintaining a balanced inventory level between sold and on-hand inventory. Aim to avoid excess and aged inventory.
- Avoid long-term storage fees.
- Fix listing problems.
- Keep your most popular items in stock at the right levels to meet customer demand and maximize customer satisfaction.
This score is designed to represent your overall inventory performance. The Amazon IPI score is calculated using the past three months of sales, inventory levels, and costs. These are rolling metrics that are updated weekly.
Factors That Affect Your Amazon IPI
Amazon uses a variety of influencing factors to help identify and advise sellers of opportunities to improve their Amazon IPI score:
Excess Inventory Percentage
This percentage helps sellers to determine when to mark down or remove products from their FBA inventory.
FBA Sell-Through Rate
Holding too much inventory with too few sales can decrease your sell-through rate and negatively affect your IPI score.
Stranded Inventory Percentage
This is inventory that incurs storage fees without the possibility of sales, which may negatively impact your IPI score. Having outstanding stranded inventory can also contribute to you paying a higher percentage of your FBA revenue in fees, which may also reduce your score.
FBA In-Stock Rate
This rate places value on keeping replenishable ASINs in stock. A low FBA in-stock rate won’t hurt your IPI score, however, if you go out of stock you could miss a valuable opportunity to improve your score.
How to Check Your Amazon IPI
- Log into your Seller Central account
- Click Inventory
- Go to Inventory Planning
Once you are in your Inventory Dashboard you can see your Inventory Performance Index. If you click on the Performance tab you will be shown your top influencing factors (those key attributes to pay attention to if you want to improve your Amazon IPI score).
5 Tips to Raise Your Amazon IPI Score
Overall you want to prioritize tasks related to cleaning up your excess inventory and improving your sales opportunities. Sitting inventory is not good for you as a seller or for Amazon. Here are five tips to help improve your score.
1. Boost Your Advertising Efforts
Take advantage of Amazon’s PPC advertising to target potential customers while they are shopping for similar items.
2. Adjust Prices or Run an Offer
By lowering prices or running a special offer or promotion, like a coupon, you can gain interest in your product and are likely to speed up sales.
3. Submit Removal Orders
If you have inventory that isn’t moving, consider taking advantage of free removals (you should even consider paying for removals - yes, it will be a loss for your company, but could that be less of a loss than paying steep FBA storage fees for inventory that isn’t moving?) and VAT-free donation offers when available. You can have your excess inventory removed, donated, or disposed of quickly which in turn, will help lower your excess inventory percentage.
4. Carefully Time Your Shipments to Amazon Fulfillment Warehouses
You don’t want to run out of stock because it can negatively impact your sales and your IPI score. Make sure you are shipping your inventory into FBA quickly and regularly, and make sure that you are following all of Amazon’s guidelines carefully to ensure your products are ready to sell ASAP. A good rule of thumb is to maintain enough inventory to cover 30-60 days of expected sales.
5. Improve Your Product Listing
Attract more customers and earn their trust with a listing that clearly describes the product to your customer while answering all of their questions. Additionally, don’t forget about your product images. Use all slots available and create eye-catching graphics to compliment your product by sharing more about the key features and benefits.
If you need assistance reviewing your inventory or setting up a strategic plan to move stagnant inventory, we’re here to help. Our team of experts can efficiently and effectively help you determine the next steps and manage the process on your behalf. Learn more about how we can help.