What Is Amazon's Inventory Performance Index (IPI) And How Do I Find My Amazon IPI?
In October of 2019, Amazon announced a promotion to give free inventory removal for all Amazon sellers with an Inventory Performance Index (IPI) score of 350 or above at any point in October 2019. This promotion provides an opportunity for Amazon sellers to improve inventory health before the IPI threshold for storage limits changes to 400 (from 350).
This left some Amazon business owners wondering, What Is Amazon's Inventory Performance Index (IPI) And How Do I Find My Amazon IPI?
Well, Amazon's inventory performance index, or IPI score, combines three months of historical sales, inventory levels, and costs into a single metric. This metric helps you identify how well your inventory is performing in FBA, areas to improve, and determines if you are eligible for unlimited storage.
Now you are probably wondering, how can I find my Amazon Inventory Performance Index (IPI) Score?
Well, that's easy! You can easily see your IPI Score on the Inventory Performance Dashboard.
How is my Amazon IPI Determined?
Amazon's IPI is determined based on two factors, 1. Excess Inventory and 2. Inventory Sell Through.
The dashboard will provide tips for you to increase your IPI and thus reduce your excess inventory fees.
Now, Amazon is looking to streamline yet another aspect of its business, namely, its 3rd party sellers (YOU!). This can be a great thing, though as they will incentivize you to have high turnover rates and will penalize you for having excess inventory. In layman's terms, they don't want to have to hold onto your stuff for too long anymore!
According to Amazon: "carrying too much inventory decreases profitability due to storage fees and holding costs. Track your performance in this category and identify opportunities to improve profitability using Excess inventory percentage, which is the percentage of your FBA inventory units that have been identified as excess.
In addition to the performance bar, three related metrics of interest are displayed with the Excess inventory percentage on the Inventory Performance dashboard.
The Excess units quantity is the number of units for which the cost of holding your inventory would likely be more than the cost of taking action (such as reducing prices to increase sell through or removing excess units). This value is based on product demand and your costs (including fees, unit costs, and cost of capital inputs).
Total estimated storage cost is the sum of estimated costs you would incur if you take no action to boost sell through or remove your inventory. This includes storage fees (such as the Long-term Storage Fee) and the holding cost of capital, if applicable.
The Manage excess inventory button indicates how many SKUs have recommended actions to sell through inventory more quickly."
It is now prudent to be able to calculate your IPI. Amazon calculates "IPI for you based on how well you maintain inventory levels, fix listing problems that make your inventory unavailable for purchase, and keep popular products in stock." In other words, the better you manage your seller account, the more you sell through your items, and the more popular items you keep in stock, the better your IPI will be. To see your current IPI click the link. It will be located on your inventory performance dashboard page of your seller account.
FBA sell-through rate is the next important thing to understand. Improving your sell-through rate can help you increase your IPI, and conversely, a decrease in sell-through (holding too much inventory compared to sales) may decrease your IPI score over time. To calculate your FBA sell-through rate we turn to Amazon's instructions:
"your units sold and shipped over the past 90 days divided by the average number of units available at fulfillment centers during that time period. We calculate your average units available by taking a snapshot of your inventory levels today and 30, 60, and 90 days ago, then we average those numbers. For example: You shipped 120 units in the past 90 days, and you had an average of 80 units available during that time period. Your sell-through rate would be 120/80 = 1.5"
Be sure to get a full grip on what to do to keep a high IPI by following the link to Amazon's information page on the subject.
Be as diligent as ever to keep your 1 day shipping status. It seems as though it will be very important in the coming years.
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