How to improve your Amazon Inventory Performance Index

So much of your effort as an Amazon seller is focused on the screen - advertising KPIs, Sponsored Products and Brands, bids, clicks and conversions. It is equally important to look at the physical part of your business, the actual movement and storage of the items you are selling. 

Plenty of metrics measure your advertising efficiency and your sales power, but how do you track the inventory backbone that supports it all? Through Amazon’s Inventory Performance Index (IPI).

The IPI is a measurement of how efficiently and productively your FBA inventory is managed over time and how well you can drive sales by stocking high-demand products. It will rate your business on a scale from 0 to 1,000, quite conveniently presented on sliding scales from red to green. Anything over 500 indicates very good performance, while a sub-450 score typically means you need to optimise your inventory. 

It is meant to give you a view of your overall inventory performance, taking into account both your recent and long-term performance. Inventory will of course see fluctuations in behavior during seasonal ups and downs, but the IPI is designed to factor those into the score, weighing the long-term performance to protect from potential downside in short-term fluctuations.

It's something you will want to keep track of, which you can do straight from the main page of Seller Central via a link to your IPI dashboard where you can see your red-to-green scales.

Ultimately, the higher your score, the more stock Amazon will take on at fulfilment centers - an allowance you always want to maximize as a seller.

What determines the score?

There are a number of factors that will affect your IPI score, but the ones that have the most influence are: 

• Your FBA sell-through rate - how many units sold over 90 days divided by the average units in storage during the same time period. You'll want to minimize this number.
• Stranded Inventory - percentage of your inventory that does not benefit from a corresponding Amazon listing.
• Excess Inventory - defined as the percentage of inventory units held in fulfilment centers for more than 90 days. Keep this as low as possible
• Your FBA in-stock rate - this is calculated by taking the percentage of time your replenishable inventory has been in stock during the past 30 days, weighted by how many units have been sold for each of them during the previous 60 days. The lower the better
  

If you keep your score above 500, you will not be subject to Amazon storage limits. Dip below the threshold, though, and you will enter into a quarterly cycle of inventory limits that you cannot exceed, as Amazon will prioritize storage for sellers that have a higher likelihood of offloading theirs. This may have potential knock-on effects on your overall revenue prospects.

The score is calculated on a quarterly cycle, both at the end of the quarter and six weeks before the end of the quarter, leaving you some warning time in case you are at risk of going under the threshold.

Tips to improve your score

This will vary from seller to seller depending on a number of factors, but there are several general guidelines Amazon gives that will make it easier for the score to go up. 

• To stay clear of long-term storage fees, make sure you are taking inventory away before it gets to a full year - 365 days - in an Amazon fulfilment center. This is actually something you can set up automatically through your seller account so that aging inventory gets removed before you incur fees. 
• Don’t leave it too late to fix listing problems - be sure to often check in on your stranded inventory percentage to see how much sellable stock you have piling up in a fulfilment center that doesn’t have an active listing on Amazon. Not only does having stranded inventory remove potential revenue, but it will end up losing you money in fees.
• Try to keep enough inventory to cover between 30 and 60 days, but not much more than that in order to avoid having excess inventory, which is likely the single biggest factor that moves the IPI needle. You can also use Amazon Outlet to get rid of products no longer in season or other overstock. Make use of multi-channel fulfilment if you want to sell overstock through other means like your own website.
• Remove inventory that is not selling and improve the sell-through rate, which describes units sold relative to your units at an FBA warehouse over the past 90 days. You can get an better view under the Manage inventory health section on seller centraL, and be sure to keep yourself in the green range, thereby improving your 90-day rolling sell-through. 

Amazon will actually give you somewhat customizable help here - if you go on your FBA Inventory Age page you can access a list of your low sell-through items over the past month-and-a-half, and it will give you suggestions to improve sell-through, such as advertising the listing, improving keywords or creating removal orders. 

Don’t stress too much if you are just bringing new products into your lineup, as you will be given a sort of grace period to iron out the wrinkles in your inventory for it, as the first 90 days of a new ASIN will not count towards your IPI score.

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