Shopping online has become the norm, and Amazon, the most popular eCommerce platform, has had to meet increased demand. The retail giant is obsessed with ensuring that its customers find what they want. Hence, the need for sellers to take inventory management seriously.
Inventory management is a crucial aspect of selling on Amazon and every seller knows this. Recently, Amazon came up with a scoring system — the IPI score — to help sellers track overall inventory performance.
Many sellers use Amazon FBA to ensure that their products are always in stock. However, in a bid to not run out of stock, some sellers send excess inventory to fulfillment centers, and this only leads to overcrowding. Also, with excess inventory comes increased storage costs and reduced profitability.
The IPI score on Amazon is designed to help sellers understand the health and performance of their inventory. Thus, increasing their chances of making a profit. In this post, we’ll talk about the Amazon Inventory Performance Index score and how it affects you. We’ll also show you how to improve your ipi score on Amazon.
Let’s get right into it.
What is IPI Amazon?
The IPI score, or Inventory Performance Index score, on Amazon, is a built-in metric that is designed to help sellers maintain good inventory health. The IPI score serves as a measure of efficiency, so it reflects how well sellers are managing their inventory levels. The IPI score on Amazon aims to help sellers:
- Maintain balanced inventory levels.
- Avoid stock unavailability, especially for in-demand items.
- Ensure that in-demand products are always available.
The Inventory Performance Index score ranges from 0 to 1000. It is a simple, regularly updated metric that combines sales or inventory levels and is a reflection of a seller’s inventory health.
Where to Find IPI Score on Amazon
Since the Amazon Inventory Performance Index Score is so important, you have to know how to find it. Every quarter, AMZN issues two IPI checks. Sellers who fail one of these checks will be unable to send any additional items to FBA warehouses in the following quarter. But if you pass the checks consistently, you qualify for unlimited storage in AMZN’s fulfillment centers.
You can easily view your IPI score on your inventory performance dashboard by following these steps:
- Log in to your Seller Central account.
- Navigate to the ‘Inventory’ tab
- Click on “Inventory Planning.”
- Select the “Performance” option on the dashboard for more details.
Now that you know where to find your IPI score on Amazon, how do you determine if your score is good or not?
What is a Good IPI Score on Amazon?
Amazon’s Inventory Performance Index score ranges from 0 to 1000, which is an unusually wide gap. Like everything else, when it comes to the IPI score on Amazon, the higher it is, the better for you. Still, 0-1000 is a wide gap, and that makes it almost impossible to take guesses that hit the bull’s eye. So, what’s a good IPI score to maintain on Amazon?
In most settings, even outside of AMZN, an average score will get you safely out of harm’s way. So, Amazon’s minimum threshold for the performance index score is between 400 – 500. In other words, anything above 500 is good. And, of course, there are consequences to falling below the benchmark. If you fall below the minimum score, AMZN will place storage limits on your account until you’re able to fix the issue.
Having storage limits on your account can be bad for business because you’ll incur more overage fees and have limited selling opportunities. Hence, it’s important that you constantly monitor your inventory performance score. Plus, the IPI score is usually updated regularly. So, if it was great during the last check, it may not be for the next one.
However, if your IPI score ever falls below the threshold, you have a grace period of about six weeks before the next check to rectify it. The question is, how do you fix a low IPI score? The only way to do this is to monitor the factors that influence your score. We’ll tell you all about these factors in the next section.
Factors that Influence Your Amazon Inventory Performance Index Score
Amazon keeps most of its policies and metric systems under wraps, so no one knows for sure how the IPI score is calculated. But if you want to learn how to calculate your IPI score or maintain a good score, there are four factors you should pay attention to. They are:
- Excess Inventory
- Amazon FBA Sell-through rate
- The amount of stranded inventory
- In-stock Inventory Levels
Here’s how these factors determine your IPI score:
One of the major reasons why AMZN created the IPI score is to prevent overcrowding in its warehouses. Amazon is keen on storing items that sell out quickly instead of slow-moving items that take up space. Yes, there’s a long-term inventory storage fee that covers that, but that’s not the point. Excess inventory is not something that AMZN tolerates at all. So, if you consistently over-stock, you can get on AMZN’s bad side and have a low IPI score.
If your inventory exceeds a 90-day supply based on its known market demand, AMZN tags it as excess inventory. The best way to stay safe is to maintain a 30-60 day inventory supply of your product. Thankfully, AMZN gives sellers an indication of high demand or stock replenishment in the inventory dashboard.
Amazon will show you how many units are overstocked if you have surplus inventory. They’ll also provide suggestions for how to dispose of them.
You can also track excess inventory percentage to see how much of your inventory AMZN considers excess. Here’s how to calculate the excess inventory percentage:
Excess inventory (%) = No. of excess FBA inventory items total units in FBA inventory(100)
FBA Sell-through Rate
This metric shows how well you’re managing inventory against sales. To determine your sell-through rate;
Calculate the number of units sold over 90 days divided by the average number of units available in stock at a warehouse.
If your sell-through rate is low, AMZN will notify you and show you how to improve it. This will allow you to keep track of how much you pay in storage fees and avoid being charged long-term storage fees.
If you click on “Improve sell-through,” you will be taken to the “FBA Inventory Age” page.
Products with a low sell-through rate will be listed on Amazon, along with the following metrics:
The sales rank, sales over the last 90 days, sell-through rate, available inventory, inventory age, and expected long-term storage fees.
To view AMZN’s suggestions for improving your sell-through rate, scroll to the right. Then, click on the drop-down menu to view more specific suggestions.
Items that are stored in AMZN’s warehouse but are not currently listed on the platform due to a listing problem are tagged “stranded inventory”. Since there is no existing listing for these items, customers will be unable to place orders, leading to zero sales and unnecessary storage costs.
If you have stranded inventory that is affecting your IPI score, AMZN will tell you how many units are stranded and how to resolve the issue. Here’s how to monitor your stranded inventory.
In your inventory performance dashboard, you’ll see an alert and a “Fix listings” button if you have stranded inventory.
When you click on the “Fix listings” button, you will be redirected to the “Fix stranded inventory” page. Here, the stranded items will be listed, along with the number of units stranded and if they have an auto-removal date. You’ll also be able to see the reason they were stranded, and if you can relist the units.
Here are some other causes of stranded inventory:
- ASIN Limitations
- Out-of-date ASINs
- Errors in Bulk Upload Templates
- Brand Qualification Reasons
- Listing problems like Deleted Listings
Your inventory performance score is largely dependent on how well you keep in-demand or popular products in stock. This metric may not drag your score down, but it can improve it.
AMZN is big on always having products in stock. So, usually, they’ll provide an estimate of the FBA sales you missed over 30 days based on a sales forecast for the days your products were unavailable.
You can exclude a product from your IPI score if it is not replenishable. To protect your IPI score, you can mark limited-edition products, products that are no longer in production, or one-off retail arbitrage items as “non-replenishable”. You’ll find this option under “Restock inventory.”
To calculate In-stock Rate (per SKU) = (% of days in stock in the last 30 days)*(60-day sales velocity.
How to Improve Your IPI Score on Amazon
As we’ve already established, your Amazon Inventory Performance Index score depends on these factors. So, if you want to improve your IPI score on Amazon, you should focus on improving these metrics individually. Here are a few tips to help:
Since AMZN is so averse to having its warehouses overcrowded, you should try as much as possible to avoid having excess inventory. If you have excess inventory, you can check the “Manage Inventory” tab on your dashboard to learn how you can fix it. Amazon may also suggest that you leverage “Amazon Outlet” to sell overstocked or out-of-season items quickly.
In addition to monitoring your inventory level, you can also:
- Use a profitable pricing strategy to reduce the extra costs that come with overstocking. Since excess inventory leads to higher prices, you can instead price fix a lower price that still allows you to make a profit.
- Estimate your demand based on market trends. This way, you can make production plans based on how many items are needed.
- Use an inventory forecast tool that can make quick projections and notify you when stock levels are low.
Improve Your Sell-through Rate
Obviously, Amazon is concerned about having space in its warehouses, and a high sell-through rate gives them that. A 90-day rolling sell-through rate is considered healthy and can improve your IPI score significantly.
The sell-through rate typically depends on your niche or product category and the type of products you sell. Of course, sales may be slower during certain periods. So, if your products are moving slowly, you should consider ways to shave off some inventory from the warehouse. Here are a few ways to do that:
- Create discounted deals so you can sell more items.
- Create product bundles to increase the number of items sold per transaction.
- Reduce the number of reorders for less popular items.
- Keep track of your check-in inventory status and, if necessary, remove some inventories from FBA warehouses.
You’ll incur extra costs if you let slow-moving goods stay in FBA warehouses for more than 365 days. So, be proactive — create a removal order beforehand or ask AMZN to destroy your inventory if that applies.
Improve Your In-Stock Rate
Yes, you should avoid excess inventory. But if you sell popular products, then you want to keep them in stock as much as possible. If you constantly run out of stock on your most profitable items, you may end up losing sales that may have impacted your IPI score positively.
To improve your in-stock rate, you should
- Group products based on market demand or popularity.
- Analyze your inventory frequently so you can keep the best-selling items in stock.
- Use essential sales statistics from management systems to figure out which products sell better at various periods.
Reduce Stranded Inventory and Fix Listing Problems
If you have stranded inventory, your best bet is to reduce it or fix any listing issues that may have caused it. Storing stranded or unsellable inventory will only cost money without any guaranteed profit, and that can be bad for business. Check your stranded inventory percentage regularly, so you can notice listing issues quickly and fix them before you incur extra costs.
Also, maintain standard inventory levels (30-60 days supply) for your best-selling items and create a balance between sold and available inventory.
What if My Score Dips Below the Amazon IPI Threshold?
If your score goes below the minimum threshold, your account will be under storage limits. To check new storage and restock restrictions, go to the “Inventory performance” or “Manage FBA shipments” tab in your seller dashboard.
Amazon announced new ASIN-level FBA inventory restrictions based on sales volume in July 2020. While new ASINs were limited to 200 units, older established listings were given far greater limits. FBA products will no longer be subject to those restrictions as of April 22, 2021.
Now, Amazon has imposed restocking restrictions based on storage type. Amazon now limits the amount of FBA inventory you can keep at fulfillment centers to your entire account, rather than by ASIN. Standard-size storage, oversize storage, garment storage, and footwear storage all have restock limits.
Now that Amazon has made this significant move, keep a watch on your storage restrictions. Even if you have refill limits in place, make sure you maintain a strong IPI score, since this will at the very least keep your storage expenses low.
If your IPI score is below the threshold and your restock and storage limits are low, you might want to consider employing a third-party fulfillment center.
Inventory health is important if your goal is to build a profitable business through FBA. If you can maintain great inventory levels and a high IPI score on Amazon, you’ll be on your way to succeeding on the platform. If you’re new to FBA and are still testing the waters, you can send in a few samples of your product to see how quickly they sell. Also, remember to track your inventory levels regularly and use the metrics in your seller dashboard to avoid overstocking or stranded inventory.