What Sellers Need to Know About Changes to Amazon’s Inventory Performance Index

Amazon Sellers Club

The Inventory Performance Index (IPI) is a score Amazon uses to assess Third Party Seller’s inventory management practices. The score ranges from 0 to 1000 – the higher you score, the better.  Recently Amazon increased the IPI minimum score to 500 if you want to avoid punishment in the form of added fees ($10 @ cbm) and storage limits.  With Christmas coming, and the added time Amazon historically takes for receiving inventory shipments, storage limits may be very costly and turn what might have otherwise been a very profitable season into a heartbreaking loss of opportunity.

While Amazon does not reveal how they calculate an individual seller’s IPI, we can safely assume that they are heavily reliant upon the sell through rate of each individual product. This suggests that high profit, slow moving, more expensive products will not be viewed kindly by Amazon, regardless of how profitable they may be. Conversely, Amazon IPI likes fast moving products of any profit margin. 

Sell through rate = Units sold during the past 90 days/average number of units available at fulfillment centers during the same time frame.

For seasoned sellers, this is a frustrating change. We were used to the 350 IPI and then the 400 was not a big change, only to be hit with the new 500 IPI.  For newer sellers, all the gloom and doom conversations online may be discouraging. But it shouldn’t be. Remember – there was a time when any idiot could order a widget from Alibaba, put it up on Amazon and make money. Since those early days, selling Amazon has gotten increasingly complicated. Like anything else, play the hand you’re dealt. Had I never known the IPI to be 350, I would never have gotten lazy and would have worked within the IPI that was valid when I started.  So don’t get bogged down by the noise, finding excuses to not take action. This is not a big deal and there are always solutions.

To be honest, we look at these increased hurdles as a blessing. They cull the herd, driving out sellers who are not nimble enough to roll with the changes.

Seasoned sellers probably have alternative storage setup for excess inventory, even if only for short term storage. So how does a new seller or smaller seller plan for new products while now having inventory performance standards much higher than ever before? You can’t – just give up and keep your day job.

Well, if you give up that easily, then it might be the right decision.  However, if you still believe there is a way, you are correct. That is the mindset to make it work. 

Here are a few of the simple solutions for minimizing the impacts of stringent IPI standards:

Simple Stuff First

  1. If you already have access inventory already in Amazon – remove it. Find a warehouse or clear out space in the garage because you do NOT want to have strict storage limits placed on you.
  2. Run a clearance sale for slow moving products. No one wants to lose money or lower profits, but sometimes it is cheaper to take a haircut than it is to pay for removal and storage. In addition this can increase your rank and sell-through as well as increase your IPI.
  3. Clean up stranded inventory. This can be the easiest way to improve your score if you have a lot of stranded inventory. Figure out what to do with it and get it done. We set ours to automatically be destroyed.

A few tricks for managing the new IPI

  1. If you are concerned with having storage limits placed on your product and want to avoid issues with holiday delays – create inventory shipping plans in ADVANCE of having the limits placed. This way if a limit is placed, you can use the existing plan to get your inventory past the Amazon gatekeepers
  2. If you have storage or warehousing – USE IT. Obviously slower selling products with a higher profit margin and higher MOQs are always better stored away from Amazon. Many sellers send their inventory directly from the port to the Amazon warehouse. That may no longer be wise. We are often splitting our inventory at the port, having a percentage sent to Amazon and the rest to our warehouse. 

How IPI impacts new product selection is one of the questions new sellers must face. As always, we advise you figure out your budget before choosing a product and base your product on that budget rather than picking a product and trying to make your budget fit. This is one more consideration in the product selection process.

  1. Do you have storage or warehousing available?  If not, slower moving products – even with a very high profit – may not be a good fit. 
  2. Can you order smaller MOQs until you have the product established and selling well?  If so, they may cost a little more but the added per unit cost may be lower than the cost of storing those products until they start to move.
  3. If the product does not move well immediately, how much space will it consume? Remember, you will be storing these products at either a fulfillment center, a private warehouse or your boyfriend’s back room. It is important to know the cbm you will be charged either for paid storage or damage to your love life.

These are not insurmountable issues, but they are very important to consider when starting new products or starting your new business.

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