Today, we are going to do a deep dive on IPI scores. Yes, I know, not very exciting... However, it's critical to monitor and maintain for your long term health on Amazon!
Amazon uses many metrics that are unique to its marketplace and are important for Amazon sellers to understand and keep track of. Your IPI score is a particularly important metric, given that it can have a direct impact on your inventory and storage limits as a seller. In this newsletter, I’ll break down what the Inventory Performance Index score is and what you can do to improve yours.
What is an Inventory Performance Index (IPI)?
The Inventory Performance Index (IPI) is a metric created by Amazon that determines “how well you drive sales by stocking popular products and effectively managing on-hand inventory”, according to Amazon’s definition. This metric is calculated on a scale of 0 to 1000, with any score above 400 indicating that your inventory and stocking are in good health.
Why is Your IPI Important?
Amazon sellers with IPI scores of under 400 are subject to ASIN-level quantity limits on their product listings and to warehouse storage limits across their entire inventory. These limits can have a major impact on your sales and your store’s performance, especially during hot sales times like Prime Day and the fourth quarter. Improving your IPI will help you to avoid these limitations, and should theoretically also be beneficial to your operations on Amazon overall.
What You Can Do to Improve Your IPI Score
While Amazon hasn’t revealed the exact algorithm that it uses to calculate IPI scores, we do know that sell-through rates and stranded inventory, excess inventory and in-stock inventory all play a major role in determining your score. With this in mind, here are some actionable steps you can take to improve your Inventory Performance Index score.
Take Care of Your Stranded Inventory
This is perhaps the easiest element of your inventory to take care of and one that should be a part of your business practices anyway. If you have any stranded inventory, take the time to review it and make the fixes you need to make to ensure that all of the listings associated with your brand are active and working properly. And be sure to keep tabs on your stranded inventory in the future as well.
Cut Back On Excess Inventory
Amazon doesn’t want too much inventory just lying around in its warehouses because it takes up valuable space that could be utilized by faster-moving products. And sellers shouldn’t want too much inventory in Amazon’s warehouses because those overstocked items can lead to expensive monthly and long-term storage fees. Some sellers naturally lean towards overstocking so they are ready for big bumps in sales, but it will save you money and improve your IPI score to keep your inventory accurately stocked.
Avoid Out-Of-Stock Events
Being overstocked is bad, but so is being understocked. Amazon doesn’t want to lose out on potential sales due to your hot-selling item being out of stock, and obviously you don’t want to lose out on potential sales due to being understocked either. Whether you use a third-party service or keep your own records, it is critical that you have an excellent understanding of the sales expectations of each ASIN that you sell so that you can plan ahead on stocking. And make sure to have a back-up plan in place for being sold out, whether that’s having units on hand to send in as soon as you are getting low in stock or having a sell by merchant listing ready for those instances if you have the capacity to fill those orders.
Focus On Your Sell-Through Rate
Sell-through is determined by taking the number of units sold and shipped over the last 90 days and dividing that by your average number of units on hand in fulfillment centers during that time. Your sell-through rate will organically be improved on simply by working on the inventory issues listed above. But if your IPI scores are in trouble and you need an extra boost, focus on stocking your top-selling items and avoid launching new products for a bit to keep high turnover rates on your inventory long enough to improve this metric.
Final Thoughts on IPI
It’s not always easy playing by Amazon’s rules, and the Inventory Performance Index can be particularly frustrating since we don’t have direct access to the algorithm that calculates it. Fortunately, the changes required to improve on the factors listed above are all beneficial to your store anyway. So in this instance, making Amazon happy could also lead to increased sales and lower fees on your end.
Now, go show that IPI score who's boss!