Since the dawn of online selling, the journey of an eCommerce seller has been fraught with hurdles and hoops to jump through. Some are one-time obstacles, others present themselves repeatedly over time. For small to mid-sized Amazon Sellers, the name of the game is inventory thresholds, and the moving target is their IPI. In addition to navigating shipping delays caused by COVID, Amazon Sellers must manage the flow of their inventory to reach the Goldilocks sweet spot. The amount of product going in and the amount being sold must be just right to avoid limitations on storage in FBA warehousing.
What is an IPI score?
Introduced by Amazon in 2018, Inventory Performance Index scores are used to measure how efficiently Sellers are managing FBA inventory. This performance is measured on a scale of 0 to 1,000. Amazon uses IPI scores to determine which accounts are underperforming and are subject to FBA storage limitations.
Think of your IPI score as a credit score for your Amazon account. In the beginning, your score isn’t very high because you haven’t built up any credibility with the “bureau” yet. You want to have multiple lines of credit, but opening a new account can ding your score. You also don’t want to use up too much of your credit lines. It’s all a delicate balancing act that takes time to increase, similar to IPI.
The IPI Timeline
Introduced in 2018
Amazon introduced this metric with an introductory IPI threshold of 350. It’s intended use was to gauge recent inventory management and enforce stock limits for underperforming sellers. Every quarter, Amazon would carry out two IPI checks. Sellers who fail either of the two are not allowed to send any more items to FBA in the following quarter.
January 1, 2020 – IPI Threshold for Storage Limits is Increased
Storage limits continue to be evaluated on a quarterly cycle, but with an increased IPI threshold of 400. Therefore, if your IPI score was less than 400 during the week of November 11, 2019, you were notified of your potential storage limits for Q1 2020. You then had 6 weeks to improve your IPI score. If your score was still below 400 during the week of December 23, 2019, storage limits were applied for Q1 2020. Sellers who maintained an IPI score of 400 or greater had unlimited storage for standard size and oversize items. (Monthly storage fees and long-term storage fees still applied).
January 20, 2020 – Calculation Change
Amazon updated its calculation to have IPI consider recent and long-term inventory performance. Originally, the score was based solely on recent performance. This benefited Sellers with lower sales volumes in their off-peak season as well as sellers taking action to improve their inventory performance. However, this placed new Sellers at a disadvantage, as they didn’t have any long-term performance.
August 16, 2020 through December 31, 2020 – Amazon announces threshold increase
Amazon increased the inventory threshold from 400 to 500 for the latter half of 2020. This, in large part, was in response to overflowing FBA warehousing, trying to have Sellers better optimize their inventory.
December 22, 2020 – Threshold to decrease in 2021
On December 22nd, Amazon released an announcement in Seller Central stating the following:
“If your IPI is 450 or above in week 51 of 2020, starting January 1, 2021, you will not be subject to storage volume limits. If your IPI is below 450 in week 51 of 2020, you will continue to be subject to storage volume limits. We will notify you of your next period limits, which will go into effect on February 1, 2021.”
What is considered a good IPI score?
On the IPI scale of 0 to 1,000, an ideal score is 550 or higher. This tells Amazon that you’re effectively managing your inventory on a consistent basis, and excludes your account from FBA storage limitations. Scores between 400 and 549 are considered good but require some improvement. If your score lies within this bracket, your account may fall beneath the IPI threshold for inventory limitations. As we saw in the timeline, the minimum IPI to avoid limitations tends to fluctuate between 400 and 500. Scores under 400 require immediate attention and should be addressed.
How does Amazon Measure IPI?
That, my friends, is a secret the orange giant would rather keep to itself. Amazon has not released the formula used to calculate IPI scores, and there are no signs of them sharing that information with the Sellers anytime soon. However, we do know the following four factors greatly impact an IPI score:
- Excess Inventory Percentage
- This is the inventory that is carried over every time that you’re charged storage fees, which in turn, affects your profitability.
- FBA Sell-Through Rate
- Your sell-through rate is units sold compared to the initial inventory
- Stranded Inventory Percentage
- Stranded inventory are products in FBA warehousing that cannot be sold. This percentage is how much of that inventory you have compared to your total inventory across all ASINs.
- FBA In-Stock Rate
- This metric tells Amazon how well you keep your popular inventory in stock and measures how much inventory you have of a current listing. This applies exclusively to products that have sold in the last 60 days. In-stock rate excludes products without sales or products that are fulfilled by the Seller.
What can I do to Improve my IPI?
As mentioned earlier, managing a healthy IPI is a balancing act. The trick is to not run out of inventory, but not have so much on the shelves that you’re overstocking and not selling quick enough. One method that Sellers can use to effectively manage their inventory is the 3Ws process. This helps ensure Sellers always have inventory on the shelves and will help support a healthy In-Stock Rate.
Utilizing a 3PL (third-party logistics) service to manage additional inventory helps FBA sellers to avoid excess inventory.
Where do I find my IPI?
Amazon Sellers’ IPI is available on the Inventory Performance Dashboard. Navigating to your dashboard is pretty simple! First, log into your Seller Central account and go to Inventory. Then, click on “Manage Inventory/Manage FBA inventory”. Finally, select “Inventory Dashboard” and click on the Performance tab. This will show you your IPI score, and where you stand on the top factors that influence your score.
Lisa Kinskey is the Marketing Assistant of Noviland, Inc., a rapidly growing sourcing & purchasing solution making sourcing from overseas factories simpler. Lisa has a background in sales, marketing, and event planning, and currently resides in Duluth, Georgia.