At first, life as a seller on Amazon seems easy. Identify products with promising metrics, load the descriptions and photos, and optimize keywords for Amazon search. The selling life is good until you start to struggle to keep your IPI above 350.
This may bring you down to earth to discover what does IPI mean on Amazon?
Maybe you can’t keep your Amazon Inventory Performance graph in the green zone and stare at rising costs for storage, additional fees and ultimately, your margins getting hammered.
Let’s help you to get on top of those metrics pronto!
What is the Amazon Inventory Performance Index (IPI)?
Diving into Seller Central and you will discover the following.
The Amazon inventory performance index is a number between 0-1000 that represents just how well you’re able to balance the demand for your product with the supply available in Amazon’s warehouse.
The higher your Amazon IPI is, the better you’re doing. Anything below 500 and you’re staring at additional costs, limited storage capacity and fees.
IPI Measures Your Ability to Manage Stock
To keep Amazon happy and by extension, your wallet, you need to walk the ecommerce inventory tightrope. Lean too far towards excess inventory levels and you fall, lean too far the other way with inventory unavailable, and you fall too.
The index covers the preceding 3 months’ figures and is adjusted each week.
Amazon tracks your sales, unproductive inventory levels, and expenses and calculates whether you have a problem with too much stock that isn’t selling or too little stock of the items that are selling.
How Is Amazon Inventory Performance Index Determined?
Let’s look at what exactly the Amazon IPI measures:
- Management of your inventory over 3 months.
- The relationship between stock-on-hand (minimum threshold requirement) and sales.
- How quickly you can fix listing problems to maximize products available for sale.
- Your ability to maintain minimum stock levels of popular products.
4 Factors that Move Your IPI
Four factors influence the direction your IPI moves:
- Excess inventory percentage (how you’re managing your inbound shipments)
- FBA sell-through rates
- Stranded inventory rate
- FBA in-stock inventory (tracking your units in stock)
But it’s not too difficult to get your head around storage volume limits and shipment status to discover how to make them work for you.
What’s Your Target IPI Score?
If you don’t have a target to aim for then it’s difficult to know where to start.
The average score is somewhere between 400-800. That’s a very wide target, so let’s narrow it down a bit.
You don’t want to be under 500 as that’s where you attract overage fees and Amazon limits your FBA storage. You ideally want unlimited storage.
Amazon regards a score above 500 as an indicator of good performance.
So, taking those factors into account, a score of 500+ would be a good starting point to aim for.
Now, how do you do that?
Well, you want to:
- Keep at least 2 months’ inventories on hand to keep feeding the Amazon beast
- Fix your stranded inventory problems
Let’s take a look at how you can achieve these goals.
FBA Sell Through Rate
This is a measure of how quickly you are turning your stock around. The quicker you move stock, the better you and Amazon perform.
The sell-through rate is calculated by dividing the total number of units shipped in the prior 90 days by the number of units in FBA storage over the same period.
The total number of units sold and shipped is calculated at the ASIN level and gives an accurate metric of fulfilled orders.
How to Improve Your FBA Sell Through Rate
Simple, get more traffic to your listings, and then make sure you have enough products in stock to meet the increased demand.
Get your calculations wrong and you either get left with too little stock to meet demand or you’re over the stock threshold with the product not moving quickly enough.
Both of those situations affect your excess inventory percentage and your in-stock rate.
Let’s tackle the inventory health problem… by making more sales. Here are 3 ways to help improve sales.
1. Optimize Your Listing
By tracking what is working for you and every other seller on a variety of different platforms, you can implement what is working.
Split-test headlines, descriptions, and call-to-action text.
Consider hiring a copywriter to rework your listing, push the benefits of your products, get your potential customer to visual themselves using or consuming your product.
Invest in higher-quality photographs that show your product in use.
Provide more detailed information in the form of an infographic or video.
2. Revise Your Price Point
Competing on price is a quick way to go bankrupt, so you need to prove your product will provide value.
Sometimes that means raising your price and sometimes it means lowering your price.
You need access to accurate information across a wide variety of platforms to see what others are doing in terms of their pricing structure.
Consider using volume discounts for business customers.
3. Increase Your Advertising Budget
If you’ve optimized your listing using the suggestions above and you can see that your sales percentage has increased as a result of your tweaks to product sales copy then your next step is to get more people to see your product.
You need to be strategic when you do this, as it’s not just about throwing money at the problem. You need to identify exactly who your target market is.
Test and track the ad copy that you use, split-test colors, headlines, and call to action copy.
Consider short copy and long copy, look at video sales letter formats, make greater use of happy customer testimonials. Social proof is what drives sales, so make use of it.
Optimizing Your Inventory | A Balance & A Shuffle
How well you manage your inventory impacts your ability to meet your buyers’ demand for products. Amazon focuses on this threshold when calculating your excess inventory metric.
The in-stock rate tracks how well you keep your popular items in stock over the prior 60 days.
100% in-stock rate means that all products that had sales are currently in stock, taking up storage space.
You want to aim for a rating of Good which equates to a 90-100% in-stock rate.
Once you head towards the Poor rating, meaning your score is >70% you know that something is amiss.
Lost opportunities to make sales will reduce the IPI score but the in-stock rate doesn’t on its own impact the IPI score. It merely helps you to track a metric that does directly impact your IPI score.
Amazon calculates your in-stock rate by dividing the number of daily units sold multiplied by the individual percentage time each item was in stock by the total number of items that were sold.
A Simple Example Illustrates The Calculation
- Item A has a daily sales rate of 2 items per day (in a 60-day cycle) but was only available for 15 days in the last 30 days (50%).
- Item B has a daily sales rate of 3 items per day (in a 60-day cycle) and was available for the full 30 days in the last 30-day cycle (100%).
- In-stock rate = (2 X 50%) + (3 X 100%) / 2 + 3 = 4/5 = 80%
Bear in mind that the re-stock recommendations in Seller Central are not always 100% accurate especially if you fulfil some of your own orders and not everything goes through the fulfillment center system.
Excess Inventory Management
Any ASIN that has been sitting longer than 90 days needs to move, do whatever you have to get rid of it pronto.
Focus your attention on the high return on investment (ROI) products and reconsider not stocking items that make very little profit. Volume plays a part here, so high volume low-profit items can make you a lot of money.
However, you don’t want to be stuck with a high volume of low-margin stock that isn’t moving quickly enough.
Amazon views this metric as the most critical aspect of calculating your IPI so this is important!
The calculation is as follows: Excess FBA units / Total FBA units.
Get Rid of Dead Inventory
Amazon has a “Manage excess inventory” tab on your inventory dashboard within Seller Central, get familiar with it and use it.
Creating a sale, advertising your listing, or matching the lowest price are some options available to maintain healthy inventory levels and manage seasonal sellers.
As an absolute last resort, you should consider removing the product, but you then need to have a plan B to move those stock items outside of the Amazon platform.
Amazon makes recommendations depending on a variety of factors including demand for the product, input costs, supplier lead times as well as storage and removal costs.
Save Your Stranded Inventory
Your stranded inventory metric is based on the inventory levels of items that are not available for purchase due to errors in your listing.
Here are a few key factors for items being stranded:
- Brand qualification reasons
- ASIN restrictions
- Listing errors
- Expired ASINs (where you’ve reached ASIN-level Quantity limits)
- Deleted listings
- Pricing errors
- Bulk upload template errors
Calculating the stranded inventory percentage is as simple as dividing the number of units unavailable for purchase by the total number of FBA units.
Fixing Stranded Inventory
Go to Amazon Seller Central each day and select Manage Inventory in the inventory dashboard. You will see an option to fix stranded inventory.
The reason the on-hand inventory is stranded is listed next to each ASIN. Fix the listed problem as soon as it appears in the list and you could soon be enjoying unlimited storage.
What If You Don’t Meet The Minimum IPI Target Score?
It makes a lot of sense to maintain strict control over your in-stock inventory levels, chief among them is that you will make more money.
Amazon recognizes this and from experience, they know that sellers who track and manage their stock in the Inventory performance dashboard efficiently are the most successful vendors.
Amazon uses a carrot-and-stick approach to vendors, rewarding those that meet the criteria and punishing those that don’t, especially when it comes to long-term storage fees.
You will face stock limits, unfavorable storage costs, and other additional hefty storage fees until you get control of your inventory.
6 Tips On How to Increase Your Amazon IPI Score?
The recap on some of the suggestions we provide. Follow these 6 tips to help increase and raise your IPI score
- Optimize your listing (make more sales)
- Revise your price point (be competitive but not cheap when taking excess inventory measures)
- Increase your advertising budget (get more eyeballs on target)
- Liquidate your stock (so you don’t hit inventory storage limits)
- Fix stranded Inventory issues ASAP! (This is a daily housekeeping chore)
- Reduce overstocked inventory (manage your suppliers to reduce inventory holding costs)
With even the most successful sellers’ plans going awry, stock management via the Amazon IPI should be part of your monthly business management plan to reduce long-term storage fees.
There are numerous eCommerce tools available to help you manage your Amazon inventory performance and chief among these are the ones that provide a competitive advantage when sourcing products across multiple platforms while comparing price points and profitability.
Grab a free trial of Tactical Arbitrage to help you find better products that have a good sales velocity and demand which should help keep your IPI above the threshold. Click here to try it for free.