How Amazon's Inventory Performance Index Works & How You Can Qualify For 1 Day Shipping
Updated: Jan 14, 2021
Understanding IPI is going to be worth your time and essential for your Amazon store's future.
As we discussed in our last blog post, we are going to look a little deeper at how the Inventory Performance Index (IPI) operates.
Firstly, you can track your IPI on the Inventory Performance Dashboard, where Amazon also provides you with ways you can improve your inventory's performance:
Reduce excess inventory: Take action on the Manage Excess Inventory page to reduce your storage fees and carrying costs.
Improve sell-through: Take action on the Inventory Age page to increase your FBA sell-through rate on low traffic and low-conversion products.
Fix listings: Take action on the Fix Stranded Inventory page to ensure your inventory is available for purchase.
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 the 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 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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