Many Amazon sellers are not aware that they can improve their inventory performance index score by following a few simple steps. The more you know, the better your chances of increasing your profit margin! In this blog post, we will go over the ways to increase your inventory performance index score and sell on Amazon more efficiently.
What is the Inventory Performance Index score?
The Inventory Performance Index score (IPI) is a measure of the number of days that your inventory stock levels have been below their reorder point. Amazon considers IPI to be an indicator for the riskiness of selling with any given seller on its platform and will control sellers with acceptable numbers if they increase this metric too quickly, or sell out in large quantities without replenishing them at all. This has serious consequences for those who rely on Amazon as their sole source of revenue!
According to Amazon, sellers who have a low IPI score should plan their inventory levels with the following in mind:
Items that sell out quickly (typically niche items) may need to be reordered more often than others. For example, if you are selling products with less demand and they take longer to sell out of inventory, but stocks last for a long time before needing replacement, then it is better not to order as frequently.
For volume sales on low demand items, there might be some benefit from ordering lower quantities in anticipation of them running out faster. If your cost per unit is fairly constant no matter how much you buy at one time this could work well for replenishing stock without having too many unsold units sitting around waiting to be sold again.
What affects IPI score?
While Amazon does not exactly disclose how the IPI scores are calculated, they are still kind enough to disclose the top factors that can influence the score, and with recommendations to improve them.
These major factors includes the excess inventory, sell-through rate, stranded inventory and level of in-stock inventory in your account.
Excess Inventory
Back in the olden days, people used to buy things they didn’t need from a store and then take them home and put them on shelves. Store owners would try not to have too many of these excess items because it was expensive for both parties – the more stuff that remained unsold, the higher their costs were.
Today however we have Amazon FBA which makes inventory management much easier since most of us can just order as many units as needed through our account dashboard and ship everything out when finished without having to go back into stock again until you sell what you ordered (or ordered something else).
The downside is that this could lead some sellers to feel like there is no incentive or obligation any longer for keeping their inventory at an acceptable level and Amazon doesn’t like this.
Amazon classifies “Excess Inventory” as inventory that is either expired, damaged by the customer or is not sold.
Amazon classifies “Excess Inventory” as inventory that has exceeded the 90-days supply rule based on your individual ASIN’s forecasted demand. A good tip is to always maintain about 30-60 days worth of inventory to really prevent you from overstocking. This restocking recommendation is available in your Inventory Dashboard.
Sell-through Rate
This sell-through rate is calculated based on your sales over the past 90 days divided by the average number of units you have stored in FBA warehouse during that same 90 day period.
And should Amazon find out that your sell-through rate is low, they will alert you on some recommendations to improve it. Usually, it’s just increase your sales by lowering price or improve listing.
Now this is important because they will charge you a fee for every day that your inventory is sitting in their warehouse and prevents you from getting charged the much dreaded long-term storage fees.
Stranded Inventory
Stranded inventory is when your product(s) sits in Amazon’s warehouse for an extended period of time without being sold. This can happen due to a variety of reasons but it usually means that the listing is no longer active due to inventory or listing issues.
Thankfully, this is rather easy to resolve as Amazon shows you how many units are stranded and the reason for what causes them to be stranded.
If you have stranded inventory, you’ll get the alert on your dashboard and a “Fix Listing” button. This will show you what what is reason and the options to relist the units or any auto-removal date they have.
In-Stock Inventory
Inventory is a key factor in an Amazon inventory performance index score. You should always be sure to have your items available for sale. If you are not able to keep up with the demand, consider finding someone else who can help you or working on changing your strategy.
The closer you get your FBA in-stock rate to 100%, the better off your IPI score will be.
It might take some time, but keeping your listing active more often increases sales and profits, it will also likely improve your IPI score over time as well.
How to Improve IPI Score?
Amazon themselves have a few general recommendations on maintaining a healthy IPI score and improving IPI score. Here, we’ll also go through our own recommendations that actually works to help you improve your IPI score.
Increase Sell-Through Rate
Increase your selling velocity by adding more optimized keywords to your listing, getting more PPC in, promote through social media influencers. Basically, do whatever it takes to show Amazon that your product is in demand and that it is not a slow moving product!
The higher the number of sales you have, relative to the size of your inventory, the better you are at managing it and you will soon find yourself getting rewarded with a higher inventory performance score.
Reduce Overstocking of Inventory
Remember that Amazon calls their centers “fulfilment centers” which means that they are not meant to store your product for the long term like a warehouse. They are meant to fulfil orders, not store them.
Do your research before launching a product on Amazon and don’t overstock!
If you got excess inventory, Amazon may suggest you liquidate your inventory through the “Amazon Outlet” deal to quickly sell overstocked or off-season products. You may also engage a liquidator to off-load your inventory to them in bulk.
Avoid Long-term Storage Fees
Getting hit with the long-term storage fees not only sucks the profit out of your business, but it will also ensure your IPI score will get severely affected.
Make sure you remove all inventory from FBA before it goes beyond 365 days in storage. At this stage, you can consider doing a removal order or have Amazon dispose of your inventory at a per unit fee.
Fix Listing Issues ASAP
Having stranded inventory prevents your ASIN to be shown to your customers. Fix them in a timely manner and your listing should be back to active again.
You should ensure that you regularly check for any inventory that may get stranded from time to time, ensure you stay in stock especially at peak sales season and avoid excess inventory.
Keeping a close eye on your IPI score in the inventory dashboard is a good habit for any FBA seller.
What if my IPI score goes below the threshold?
If your IPI score goes below the threshold, you may be subject to an storage type level restriction (As of April 22, 2021). Amazon limits the inventory you can send on the whole account as opposed to limiting by ASIN level previously. This means that restocking limits applies to each storage type (Standard-size, oversize etc.)
However, many sellers call this move unfair and not well thought out by Amazon. As sellers on Amazon forums, pointed out that “This is really bad for me. I have one product that sells really well. It’s standard size. With the ASIN-level restriction, I was able to create a shipment of over 2000 units. Now I can only create a shipment of 29 units. I don’t sell anything else. No apparel, no footwear, so it’s not good for me.”
Other comments from another seller stated that “I can’t launch the 2 new products currently being produced and have to hold off on the 3rd that’s in dev. because I’m already over on my entire restock limit. At least before we had a 200 unit limit on new ASINs… this basically kills any opportunity for growth and launching new products.”
It does seems that even if you maintain a healthy IPI score, you will still be subjected to storage level limits which inhibits a lot of seller’s flexibility to send or plan their inventory.
It is still generally advisable to keep your IPI score above the threshold to keep your storage cost minimal.
How often does Amazon IPI gets updated?
Amazon updates the IPI score once per week.
What is a good IPI score on Amazon?
A good score can range anywhere from 500 to 800. Excellent score is anything above 800.
Where do I find my IPI score on Amazon?
Go to Seller Central, hit Inventory and then Inventory planning. Then click on Performance tab on your dashboard.
Maintaining Good inventory Levels
It takes a lot of practice, experience and patience to figure out exactly what is the right inventory level for the individual ASINs your sell.
A good rule of thumb is to periodically check your inventory level and see if you are running low on stock. If you have an inventory manager tool like Helium10‘s, it is useful to have as well to help you keep track of your inventory levels. It may also be worth exploring third party logistics to store your inventory or fulfill your orders via FBM.
If you are able to properly manage this tricky issue, you are well on your way to becoming a pro Amazon seller.
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