Why Amazon Inventory Performance Index (IPI) is important
26 Jul 2019
Surely the majority of us know about Amazon – one of the most frequently used and top technology companies. There has always been a considerable amount of debates on the issue of whether selling on Amazon is profitable or not. This question arises because Amazon provides you with a huge customer base, but it is very difficult to set your own brand identity (just imagine, there are about two million other sellers, and each of them should try to be unique).
Nowadays the integration of Amazon inventory performance index (IPI) has become an important thing for sellers.
Here we will answer why it is worth continuing selling products on Amazon and how to improve your IPI.
Keep on reading, and you’ll see.
What is Amazon inventory performance index?
Let’s make it clear.
It is an innovation from Amazon regarding setting the performance standards. It is a tool that can help in the quick move of goods through warehouses. Each seller has a certain amount of scores. And those scores range from 0 to 1,000. If a score is above 400 it means that your business is excelling whereas a score below 350 means that you have to do some steps in the direction of improving your scores.
In other words, it’s all about the effective management of your inventory: it analyzes your inventory levels and sales, the list of the problems and the number of fixed ones, as well as restocked items. Information is analyzed for the last 90 days. If your score is below 350, at the end of each quarter you’ll be penalized. But there is also something positive. At the end of each quarter, you have time (6 weeks before the end of the quarter) to elevate your score.
By the way, eSwap cooperates with Amazon. Orders coming from Amazon are automatically synchronized here, so you can see real-time statuses of orders and stock from one place.
In other words, using our platform with Amazon enables you to monitor and update inventory more easily and accurately, which is of high importance for maintaining a high IPI score.
Regarding the calculation of IPI, Amazon keeps it as a secret. They just mention that several factors are affecting the scores, so we can discuss them and tell approximate schemes.
These are excess inventory percentage, FBA self-through rate, FBA in-stock rate.
Thus, following the first point, you can minimize your units and increase the IPI score. As for the second one, reducing excess inventory helps increase profitability. And finally, when you keep the most frequent and demanded goods in your stocks it logically increases your sales and improves your IPI.
Yes, you cannot calculate your own IPI as the formula stays unrevealed, but of course, your results are also displayed to you. You get notified when your IPI scores are lower than 350, and you should know what may happen when you don’t have a sufficient amount of scores. The ways of penalties are as follows:
- Limitation of your storage – you cannot send new inventory higher than your particular limit.
- Setting higher fees needed for more amount of items to be stored ($10 per cubic foot)
- An “overage fee” if your IPI drops and you have more FBA inventory than you’re allowed to.
- And finally comes the part we promised at the very beginning, the help from our side.
Some tips on how to improve your IPI
The first point is one of the most logically approved ones: the better your feedback – the higher your IPI. Improving feedbacks and product rating you maximize the possibility of customer engagement.
Of course, quality matters, but quantity is not less important. The more you sell the more it affects your IPL. Here your bestseller items can come to help you. Consider the popular items as a priority so that not to miss sales. The missed opportunity of sales means also missed the opportunity of increasing your IPI score.
As it’s all about attracting customers and providing higher sales, you should do everything to making an impression on them. Maybe you think it’s not so important. But your shop can get trusted when you simply work on your listings – minding your grammar and correct content.
Speaking about the listing, it’s crucial to remember that your inventory and stocks should always be in order. Usually, Amazon penalizes you if you have stranded inventory, as it demands several costs to keep a stock that can never be sold. Besides, Amazon has “excess inventory percentage”, which shows overstocks. As we know overstocking is usually a sign of ineffective management. So pay attention to details, for example, close or delete inactive listings regularly (would be perfect to do it every week). Calculating the overstock cost can also help to avoid such situations. IPI formula is simple:
Amazon Inventory Performance Index (IPI) = Function (In-stock inventory, Excess inventory, Stranded inventory)
This point refers to the sell-through rates. They are connected to the number of products sold by you and your current stock quantity. Your goods in Amazon have an impact on the common rate because if your sell-through rate is high it means that more stock is leaving their warehouses fast. So keep an eye on your shipment statuses and deliveries, as well as move more goods off the shelves, stocking only what you need. You can evaluate your sell-through rate using some common techniques, for example, enrich the number of sold-out goods for each transaction, discounting items, removing stocks, etc.
While restocking, you should remember that Amazon won’t penalize you if you have a smaller amount of units than they recommend. But when you completely run out of goods, it affects your IPI at once. So, the most important here is timing your deliveries and always having at least 1 unit in stock.
And finally, in the last point, we would like to remind (or inform, if you are still not) that here on our eSwap platform we have the opportunity to use it as a mechanism of inventory management. eSwap, integrating also Amazon to the system gives the variety of tools aimed at making your life easier. eSwap automatically synchronizes your orders, displaying their status and stocks.
Benefits eSwap gives you
- Simplify inventory management
- Manage your sales
- Get synced data
- Create custom price-lists
- Automate shipping orders to and from the fulfilment centre
- Easily transfer stock to fulfilment centers
- Control stock distribution between fulfilment centres
Try our a 14-day free trial.