Summer is winding down, which is good news for many businesses. With COVID-19 accelerating online shopping, Amazon Prime Day (slated for October) and the 2020 holiday season are on path to generate record e-commerce sales. However, a successful Q4 on the world’s largest online marketplace is largely contingent upon another event that will arrive much sooner: Amazon’s Inventory Performance Index (IPI) evaluation period.
Amazon IPI Overview
For a quick overview, every FBA seller on Amazon has an IPI rating of 0 to 1000. Amazon calculates your score based on how well you maintain inventory levels, fix listing problems, and drive sales. Essentially, Amazon wants your items in their warehouses to sell quickly. To incentivize businesses to better manage their inventory, Amazon penalizes those with low IPI ratings with storage restrictions and higher fees. You can imagine how this can complicate sales during the holiday season. Until recently, the IPI threshold to avoid penalties was 400, but with Amazon experiencing record demand, they’ve increased the threshold to 500.
Amazon IPI Evaluation Metrics
The good news is you have control over your IPI score. The bad news is there’s a deadline for meeting the 500 threshold in time for the holiday season. To avoid potential storage limits and higher fees for Q4 2020, you need an IPI score of 500 or above by mid-August (if you miss this deadline, keep reading to learn the next step to take).
Amazon uses four primary metrics to calculate your IPI score: 1) excess inventory, 2) sell-through rate, 3) stranded inventory, and 4) in-stock inventory. Remember, Amazon is in the fulfillment business; not the storage business. The more efficiently you occupy space in their warehouses and the quicker your items sell, the higher your IPI score.
Channel Key conducts frequent IPI reviews for our clients and provides recommendations for adjustments to help brands maintain and/or improve their score. These can include strategic edits to existing product listings, keyword optimization adjustments, updating product settings, Sponsored Ad campaigns, price modifications, inventory management tactics, removal orders, and more. The following graph details actual Q2 IPI score changes for Channel Key Clients in four Amazon categories:
Amazon FBA Protocol Changes
One of the most important components to maintaining a healthy IPI score is remaining up to date about Amazon protocols, which are constantly changing – especially in a COVID-19 era. Channel Key closely monitors Amazon policies to ensure our clients are meeting the latest requirements. For example, Amazon recently introduced ASIN quantity limits for items in FBA. This means if you have products with an ASIN storage limit, it’s a sign that Amazon doesn’t think these items will sell quickly. This hurts your IPI score. You might consider promoting these products to encourage sales or removing them from FBA and replacing them with products that sell faster.
Fortunately, Amazon is currently waiving removal fees as an incentive to create room for more productive inventory, which in turn helps you avoid storage fees. Sellers can view quantity limits for their products on the Restock Inventory page and the Restock Report in their Seller Central account. You can read the entire Amazon announcement on its new FBA quantity limits via the button below.
Prime Day and the holiday season are the two most important events for Amazon sellers. In 2019, Prime Day generated an estimated $7.16 billion in sales, while the holiday season topped $72 billion. With the rise in e-commerce due to COVID-19, this season is expected to be even more lucrative for sellers providing they avoid potential setbacks like storage limit penalties. For this reason, meeting the new IPI thresholds will help maximize your sales performance on Amazon in Q4. If you miss the deadline, don’t panic – Channel Key has developed calculated strategies for this predicament that will better position your business for holiday success. To learn more about them, contact us today for a free consultation.