Amazon has recently changed the way it calculates inventory storage limits. Now the IPI score, Inventory Performance Index, is the main factor in determining your allowed storage levels.
The IPI score also shows you how your business is performing on Amazon.
Why is this important?
Excess Inventory
This measures how much extra stock you have. It serves as a warning light if your product is not selling enough relative to the stock level.
In the short term, FBA storage fees are not too expensive. But if a product stays in Amazon over 12 months it gets hit with Long Term Storage fees which are many times more costly.
This section of the Inventory Dashboard highlights which SKUs have too much stock and Amazon even calculates how much it will cost you in storage fees.
It is usually cheaper to store the product in an FBA prep warehouse than Amazon itself – so pay attention to this and reduce stock levels so you don’t get hit with big fees!
FBA Sell-Through
This is a measure of how many times you will sell your inventory in 90 days. The higher the number the better.
For example, a FBA sell-through of 1 means Amazon expects that you will sell out all your current inventory on average 1 time every 90 days. This means your capital is tied up fro the full 90 days.
What if your score is 5? Then this means you will sell all your stock 5 times every 90 days. You have more sales, more profit and less capital tied up in stock.
It’s hard to get this number super high, but the lower you can keep your stock, the less capital you have tied up in the business.
Stranded Inventory Percentage
This shows you what percentage of your product inventory is stranded. For example – if your listing gets suspended or paused then your stock might get stranded. It’s important to check this and prevent it as soon as possible.
If you do run into an issue where some stock does get stranded, try to solve the root cause of the problem ASAP as it can negatively impact your overall inventory performance score.
FBA in-stock rate
Every day out of stock, you lose sales but you also lose rank. In addition, Amazon will penalize your account if you are out of stock too frequently.
It’s always better to have a little extra inventory so that you reduce the risk of going out of stock.
A good rule of thumb is to keep enough stock to cover your supplier lead time with shipping included plus an extra 30 days. If your sales are increasing then this number also needs to increase.
A single week out of stock can lose you pages of rank in the Amazon system. It can cost thousands to rank your product back up to the top – so it’s better to prevent going out of stock in the first place.
What does it all mean?
A low IPI score can lead to your business performance decreasing, your rank dropping and selling less. Amazon may also limit how much inventory you can hold – meaning you have to find another warehouse to keep your product.
Check the IPI score on a weekly basis and take steps to continually improve it over time.
