There are many questions to ask yourself when selling through Amazon. Am I being undersold by other sellers? What is voice of the customer, and are my customer service channels up to scratch? Is it better to sell FBA or FBM?
These are all valid questions, but there is one concern that should be at the forefront of your mind above all others: What is my Inventory Performance Index score, and how can I improve it?
What is the Amazon Inventory Performance Index?
The Amazon Inventory Performance Index, or IPI as you may have seen it referred to, is a built-in metric that Amazon uses to keep track of how well you are managing your FBA inventory. Each seller is assigned a score that can be easily viewed from the homepage of Seller Central. The score can range anywhere from 0 to 1000, and is determined based on a number of factors, including:
- Avoiding long term storage fees
- Effectively resolving any issues with your listings
- Keeping a balance between sold and available stock
- Keeping an inventory of your most popular items so they don’t go out of stock
The higher the score, the better. A high score means that you are performing well as a seller, keeping a good level of stock to meet customer demand, while not using unnecessary space in the FBA warehouse and accruing excessive storage fees.
Amazon requires sellers to meet a minimum threshold IPI score, which at the time of writing is 450. If a seller’s score is below this, it means that they are not effectively managing their inventory, and Amazon may place storage limits on your account until the score improves.
Investing in improving your IPI should be looked at in the same way as investing in new bookkeeping software, VoIP services, or any other area of your small business. It may require an initial investment, but it will ultimately be more cost-effective and beneficial to your bottom line than baulking at that upfront outlay.
How to boost your IPI score
Having sellers with high IPI scores is beneficial to both the sellers and Amazon, so they make it as easy as possible to remedy any issues which may be dragging your score down.
You should keep a watchful eye on any notifications and suggestions Amazon has to make about your stock, as carefully as you monitor any other seller analytics tools you employ.
We’re going to take a look at the biggest four factors that impact IPI scores, and ways in which they can be managed in order to keep a healthy score.
- Excess inventory
One of the biggest factors which will influence your IPI score is how much excess inventory you have at any FBA warehouse. Amazon considers excess stock to be anything over its projected supply needs for a 90-day period. Anything over this figure is deemed to be taking up unnecessary room in the warehouse; remember, Amazon is operating as a fulfillment center, not a long-term storage warehouse.
The ideal stock level to maintain in an FBA warehouse is 30-60 days’ supply. At this level, you are not deemed to be taking up unnecessary room with overstock, but you are also not in any danger of selling out and having items listed as ‘out of stock’ for any period of time.
Amazon’s inventory management dashboard gives a great deal of helpful information about stock levels, projected sales, and resupply recommendations. Following these will help you well on your way towards maintaining a healthy stock level, without being in danger of racking up long-term storage fees.
Amazon will flag up any stock it deems to be ‘excess units’. This applies to any stock that it would cost more to simply leave in the warehouse, rather than marking it down to encourage sell-through.
You can also view your ‘estimated total storage cost’, which is the projected cost of storing units in the FBA warehouse, taking into account monthly storage fees and any projected long-term storage fees. This allows you to more accurately weigh up the costs of leaving stock in the warehouse, versus reducing it or removing it.
In order to see how well your products are selling through Amazon, you can look at your sell-through ratio. This is calculated by comparing the units of a product that have been sold, against the number of units available at fulfillment centers during the same time period. The figure is based upon data for the last 90 days, and is calculated on a rolling basis.
If your sell-through rate is low, it means that you are accruing stock in the fulfillment center, which could soon build up and become excess inventory. Amazon will offer you suggestions for how to improve your sell-through rate if they think it is low enough to cause a problem.
From the ‘FBA Inventory Age’ page, you will be able to see any products that have a low sell-through rate. Here you can see sales of the product over the last 90 days, the available inventory and how long it has been in the FBA warehouse, and any estimated long-term storage fees.
It is from this page that Amazon will show you your available options for increasing sell-through on these lines by improving traffic or conversion rates. You may, of course, devise your own ideas for boosting sell-through. These may include investing in sponsored advertising or an affiliate marketing program, lowering the price of the item, or simply updating the listing to make it more appealing.
It may be that customers have been having problems with your products and have left negative reviews. Are your customer service channels open and able to deal effectively with customer inquiries? Do you have a remote call center, and how is it being managed? If you are just a small business with a small team, services such as small business phone systems can help you provide the customer service of a larger competitor at a lower cost.
Although you want your sell-through rate to be high, it should not reach 100 either. This would mean that you have sold all the stock available at the fulfillment center, the item has gone ‘out of stock’ and you haven’t been able to meet the demand for it.
- Stranded inventory
Stranded inventory refers to any stock you have in an FBA warehouse that cannot be sold by Amazon. Usually, this will be due to an error with the listing. Stranded inventory is one of the biggest problems to look out for when trying to improve your IPI. Stock that is stranded cannot make you any money, it can only cost you in warehouse fees.
The best way to avoid having stranded inventory is to check for it regularly. Amazon will alert you to any stranded inventory, highlight it for you in your inventory pages, and offer you options for how to remedy it.
You have two options to fix stranded inventory: either relist it or remove it. Relisting the stock will give you the opportunity to fix whatever was wrong with the listing to get it available to buy once again.
Removing the stock, on the other hand, will involve creating a removal order. This tells Amazon to either dispose of the stock, or ship it back to you. Both options will involve charges which you will have to pay. You will have to weigh up whether it is worth paying the removal charge per unit in order to raise your IPI and be able to start selling fast-moving lines again.
- In-stock inventory
The in-stock inventory metric keeps track of how well you keep your best-selling items in stock. There is only one way to perform well in this area to positively influence your IPI: avoid going out of stock. After all, there is no point investing time and money into increasing your sales on Amazon, only to be unable to make sales due to being out of stock.
Amazon will show you any sales it believes you have missed out on by being out of stock on any particular lines, based on their forecasted sales. You can see this data for the previous 30 days.
There are a couple of ways to avoid going out of stock. Firstly, plan ahead for when items are likely to become unavailable. Aim to have replenishment stock arrive at the FBA warehouse a couple of days before the lines sell out. This will avoid having any days where products are unavailable to buy, stopping you from missing out on any sales.
Secondly, if you are selling lines that are unable to be replenished for any reason, list them as such on Amazon. Listing any limited edition or discontinued lines as ‘unreplenishable’ will stop your IPI from being negatively affected when they do sell out.
If you have a third-party warehouse where you keep stock, you could consider switching listings from FBA to FBM in the event they do go out of stock at the Amazon fulfillment center. This will mean that you can still make sales on the product while you get it restocked at the FBA warehouse. This should all be part of your inventory management for multichannel plan, which involves being aware of stock levels and keeping an eye on any lines which are dwindling.
Get your Amazon IPI sky high
Although there will be other steps to take to increase your profitability as an Amazon seller, those are the four main ways to improve your IPI, and therefore your profits. Before you start looking into fancy new computer software or video conferencing solutions, make sure you’ve got the basics right.
Ensure you always have stock available to purchase, but not so much that you incur long-term storage fees. Keep an eye on your listings and make sure everything is running smoothly, and do everything you can to increase your sales. Follow these tips, and your Amazon Inventory Performance Index will remain as high as possible, as will your profits.
About the Author:
Grace Lau is the Director of Growth Content at Dialpad, an AI-powered cloud communication with powerful features such as enterprise-level UCaaS solutions and call center interactive voice response. She has over 10 years of experience in content writing and strategy. Currently, she is responsible for leading branded and editorial content strategies, partnering with SEO and Ops teams to build and nurture content. Here is her LinkedIn.
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