Preparing an FBA Business for Sale: How to Improve your IPI Score on Amazon

Boasting a high Inventory Performance Index (IPI) score makes your Amazon FBA business more attractive to buyers. It indicates a supply chain with solid foundations and reassures new owners that your business is stable, easy to manage, and an asset worth taking over.

Business valuation benefits aside, effective Amazon inventory management practices also help cut unnecessary storage costs, improve the bottom line, and avoid account suspensions.

So, how to improve your IPI score on Amazon?

This post seeks to answer that question by discussing in detail:

What is a good IPI score?
Four factors that affect your IPI score
Six ways to improve IPI score on Amazon
How important is IPI?

After reading this blog, you’ll be equipped with the necessary information to improve your Amazon inventory performance score and sell your store at a higher value.

What is an IPI Score, and How Is It Calculated?

Amazon IPI (short for Inventory Performance Index) is a metric used to determine how well sellers manage their inventory over time. It ranges from 0-1000 and aims to reinforce the following goals:

Strict monitoring of the inventory levels to avoid going out of stock
Abstaining from practices that could incur long-term storage fees
Focusing on creating high-quality and error-free product listings
Avoiding excess and aged inventory and maintaining a balance between on-hand and sold inventory

What is a Good Amazon IPI Score?

A good Amazon IPI score is anything above 500; the closer to 1000, the better. You can strive to keep your IPI score above 500 by removing unavailable items from your product catalog, reducing excess inventory, and maintaining healthy stock levels for popular SKUs (Stock Keeping Units.

Your IPI score will fall if you have excess inventory sitting in fulfillment centers for more extended periods or delayed shipments due to late product arrivals or other logistical issues.

Note: Amazon limits the number of inventory you can ship and store to the fulfillment center if your IPI score falls below the recommended IPI score threshold (set at 400 for 2022). Furthermore, you’re imposed a $10/cu. ft. fine on any excess stock. This penalty comes into effect at the end of every quarter.

4 Factors that Affect IPI Score on Amazon

There are many factors included in your IPI score which can affect your FBA storage limits. These include:

I) In-Stock Rate

The first factor is known as the FBA in-stock rate and, as the name implies, calculates how often your products are in stock during the last 30 days. In particular, the inventory performance of high-sale products is given special consideration and is tracked over 60 days.

Although the in-stock rate doesn’t harm or bring down your IPI score, it has the potential to improve it.

Note: When selling one-off or limited edition products, mark them as “non-replenishable” in the Restock Inventory section to safeguard your IPI score.

II) Overstock Inventory

Despite operating more than 100 fulfillment centers across the U.S, Amazon doesn’t want sellers to get complacent and would rather have products quickly move in and out of its storage facilities. As a result, inventory that lays idle for prolonged periods is classified as overstock inventory.

Overstock or excess inventory is triggered when you have more than 90 days’ worth of stock in FBA fulfillment centers based on forecasted demand. Failing to take corrective action negatively impacts your Inventory Performance Index score.

Amazon’s Seller Central Manage Excess Inventory tab allows sellers to take necessary action and avoid getting hit by unnecessary storage fees.

A proactive approach to avoid overstocking is maintaining roughly 30-60 days’ worth of supply.

Note: Overstocked items significantly affect profitability and may subject you to overage fees if your items are older than 365 days.

III) Sell-Through Rate

The sell-through rate accounts for the number of units sold during the last 90 days divided by the average number of units available during that period. It exists because Amazon wants to help sellers manage their inventory better and increase sales. This is a win-win situation as sellers escape extra storage costs, and Amazon earns bigger commissions from third-party sales.

If your sell-through rate falls below a specific limit, Amazon will recommend steps you can take to improve by clicking on the Improve sell-through option.

IV) Stranded Inventory

Stranded inventory refers to items that customers cannot search for or purchase due to listing problems, resulting in lost sales, increased storage fees, and reduced IPI scores.

The stranded inventory percentage bar reveals the amount of inventory that’s disconnected from your listings as compared to the total number of products in Amazon’s warehouses. This metric increases storage space efficiency and allows sellers to reclaim stranded stock.

The main reasons behind increased stranded inventory include inactive or deleted listings, ASIN restrictions, brand qualification, bulk upload template errors, or expired ASINs. Fortunately, most of these are easy to resolve, as Amazon will suggest the steps you need to take to get your inventory back on its virtual shelves.

6 Ways to Improve Your Amazon IPI Score

Now that you know the factors that affect your sell-through rate let’s discuss some actionable points you can implement today to improve your Inventory Performance Score on Amazon.

I) Improve Your Sell-Through Rate

As mentioned earlier, your sell-through rate is the rate at which a specific number of units are sold over 90 days.

You must balance your sales and inventory figures to stay in the green and maintain a high IPI score. So the first step is to inspect underperforming SKUs and identify the root cause – perhaps the product is seasonal, or probably the demand has decreased.

Once you identify the problem, work towards better managing your inventory and improving business operations. Possible solutions for improving your sell-through rate include:

Improve your product listing copy
Add images
Incorporate relevant keywords
Run effective PPC ad campaigns

II) Reduce Excess Inventory

Amazon doesn’t prefer to keep products that don’t sell well (or sell at all) inside its storage facilities because they occupy space that would otherwise go to store high-sale items, resulting in lost revenues.

Removing excess inventory helps cut down costs and bump up your IPI score. If you suffer from overstocking, consider offering products at high discounts or liquidating extra FBA inventory.

III) Avoid Long-Term Storage Fees

Sellers whose inventory sits inside fulfillment centers for more than 365 days are liable to pay long-term storage fees.

In addition to the standard monthly storage fees, such sellers must pay $0.83 per cubic foot—the value can increase or decrease depending on the product tier size and the time of year.

Amazon will notify you timely if your inventory is about to be classified as long-term. Possible solutions include inventory liquidation (similar to the previous point) or shifting it to a third-party fulfillment center (only if it’s cheaper than paying Amazon long-term storage costs).

Note: Q4 is extremely busy for fulfillment centers because of the holiday season. During this time, Amazon will charge higher fees than usual.

IV) Promptly Fix Listing Issues

Fixing pending product listing issues can significantly improve your IPI score.

Listing issues such as returns, unnecessarily high fulfillment fees, out-of-stock, and stranded inventory can cause discrepancies. To maintain and improve your IPI, you should fix any issue using the Amazon Seller Central Manage Inventory Health Tool to spot problems and their solutions early on.

V) Prevent Stranded Inventory

Stranded inventory is problematic because specific items within Amazon’s warehouse aren’t connected to an active listing and incur a monthly storage fee. Such products exist but aren’t available for purchase – hence the name stranded.

Amazon alerts sellers if an SKU is stranded and recommends swift action.

Prevent your IPI from dropping due to this issue by creating a new listing for the product, a removal order, or simply scheduling an auto removal if you’re unsure of your next step or need more time to move the inventory elsewhere.

VI) Avoid Going Out of Stock

Going out of stock (OOS) is one issue sellers should try their best to avoid due to its harmful effects.

Not having enough inventory to meet demand impacts both your revenue and your IPI (and eventually your restock limits) and, in general, limits ranking efforts as Amazon prefers to promote listings that are consistently in stock and available for buyers.

Prevent OOS situations by studying demand trends and ordering your inventory accordingly.

However, if you’re currently low on stock and are waiting for the next shipment to arrive, try slowing down your sales. You can do this by increasing the listing price, but don’t increase it too much, or it can reduce conversions.

This strategy will buy you enough time until the next inventory batch arrives while retaining sales. It may lower your revenue but will save you from further complications in the long run.

How Important is IPI on Amazon?

Your FBA IPI score is a crucial business health metric and a way to measure the strength of your business. It reflects how well you manage inventory levels, your sales velocity, and overall product listing quality.

Proper inventory management skills also contribute to reduced storage fees, inventory costs, and faster sales velocity, resulting in increased profitability and business valuation.

If an IPI score falls below the acceptable threshold, buyers will attribute it to inventory mismanagement, reducing the number of offers you receive.

Implement the steps mentioned previously to sell your FBA store at the highest possible price.

Improving IPI Score on Amazon – FAQs

We’ve gone through the basics. Now, let’s answer some commonly asked questions regarding Amazon’s IPI score.

Does Closing a Listing Helps IPI?

Closing listings or marking your SKUs as non-replenishable won’t affect your IPI. Amazon no longer considers those ASINs as an in-stock metric. The sell-through rate is a significant factor that drives IPI. If you have underperforming products, removing those ASINs from your Amazon seller central dashboard is the best decision.

But be careful; abruptly closing listings can cause remaining inventory to be stranded. Instead, eliminate such items by liquidating them or offering them at heavily discounted prices.

How Often Does IPI Score Update?

The four subcategories of the IPI score are updated daily, while your overall IPI score is automatically updated weekly. Amazon also reviews your inventory performance every three months, at the start of each quarter and approximately six weeks before the quarter ends, to decide your potential storage limits.

The eComm giant sends sellers a notification if they have an IPI score below 400. After that, they have an extended grace period of six weeks to improve their score before the quarter ends and avoid inventory limits.

If you raise your IPI score to acceptable levels, you’ll have unlimited storage space for each storage type (standard-size, oversize, footwear, apparel, aerosol, flammable).

What is a Bad IPI Score on Amazon?

A score below 400 is considered below average as it limits your storage space and brings about overage fees. Furthermore, Amazon will restrict the amount of inventory you can send and charge you higher if there is excess inventory in their facilities.

How Do I Find My IPI Score on Amazon?

There are two ways to find out your IPI score on Amazon. The first is to look for it right on your Seller Central homepage.

Log in to your Seller Central.
Looking at the top right corner, you will see “IPI” mentioned next to the “Total Balance” box.
When you hover on the dropdown, you can see your score for each marketplace.
Click on the hyperlinked number, which will take you to your Inventory Performance Dashboard to view further details.

The second option is to navigate to the Inventory performance dashboard. It is a feature within Amazon Seller Central that allows sellers to track and provide insights into your Inventory Health.

Log in to Amazon Seller Central.
From the homepage, select the “Inventory” Tab on the navigation bar at the top of the page or scroll right to the bottom and find the “Inventory” heading from the List.
In the dropdown menu, click on “Dashboard” under the “Fulfillment by Amazon (FBA)” heading, which will open your FBA dashboard.
On your FBA Dashboard, hover over the “Inventory” tab.
Select “Inventory Performance” from the dropdown menu and head to your Inventory performance dashboard.

When assessing inventory metrics on this page, it becomes easier to spot any bottlenecks or need for adjustments in business practices, such as reducing excess inventory or adjusting settings to meet the IPI score threshold.

Conclusion

This all-inclusive IPI score guide discussed how Amazon FBA business sellers could improve their IPI score and the importance of maintaining a healthy seller central account.

Put the knowledge you gained from this blog into practice and work alongside a reliable Amazon business broker to sell your store at the right price!