How Is The FBA Sell-Through Rate Calculated? What Sellers Should Know
Amazon’s Inventory Performance Index (IPI) is a score that determines how good sellers are managing their inventory. There are several factors affecting your IPI score and one of these is the FBA sell-through rate.
Amazon sellers are at risk of higher fees and storage limitations if they overlook their sell-through rate. To address this kind of issue there are a number of steps to take to increase or maintain your IPI score at an optimal level. This will also help make your Amazon fees lower.
In this post, we’ll learn more about what an IPI score is, how your FBA sell-through rate factors in, and how you can improve it to boost sales.
FBA Sell-Through Rate Defined
The FBA sell-through rate is calculated as units sold over time as compared to initial inventory. It is the number of units sold and shipped over the past 90 days divided by the average number of units stored at the fulfillment centers during that time period.
To further boost your IPI score, you need to work on improving your FBA sell-through rate through constant monitoring of your stock.
To monitor and view your weekly sell-through rate, click on the ‘View inventory in stock’ link in the ‘SKUs to restock today’ section right next to the IPI progress bar in the dashboard. The report will also show you an estimate of how many more days worth of stock you have.
Preparing Inventory for the Q4 Holiday Shopping Season
As the holiday shopping season approaches, and also in preparation for the second wave of COVID-19, Amazon fulfillment centers are getting ready to accommodate the demands of consumers.
In an effort to maintain their name in the industry, Amazon has hired more than 175,000 employees and also invested billions of dollars in COVID-related initiatives to continuously meet the increasing demands of the customers and protect their employees as well.
There are capacity restraints in fulfillment centers. Therefore, Amazon will hold from third-party sellers.
And due to the pandemic, Amazon sellers will face a series of setbacks. Given this situation, sellers have to work smarter and think of ways to improve their inventory management skills.
Therefore, you should evaluate your fulfillment capabilities in preparation for holiday shopping in 2020 and throughout the next year. Moving forward, a diversified fulfillment strategy of FBA and FBM is the key factor in reducing the risk in Q4 and in the coming year.
Amazon has also begun displaying Seller business names and addresses. This step clearly shows that the retail giant will continue to put measures in place to minimize the risk from third-party sellers.
This is of great help for customers to learn more about the business of the seller and the products that they are selling. Such measures can include more Seller information in the Buy Box or storefront.
Keep in mind that your suspension guidelines will come into force in response to Negative Customer Experience (“NCX”).
FBA Sell-Through Rate: What is Amazon’s Inventory Performance Index (IPI)?
Good inventory management helps you know exactly how much inventory you need to have on-hand. It helps in reducing costs, expanding profitability, and improving business growth for FBA sellers. A mastery of this will help you get through the challenges and will boost your IPI score.
According to Amazon, the Inventory Performance Index 2.1k (IPI) measures inventory management over time including how well you balance inventory levels and sales for a good FBA sell-through rate.
To do this, you need to monitor your Inventory Performance Dashboard regularly and keep a close eye on influencing factors to make sure that you are maximizing your allotted storage space, which will also reduce your costs.
Limiting inventory at the ASIN level is a new strategy of Amazon’s. Established in March of this year, it continues as a way to help manage inventory during the fourth quarter and beyond.
All ASINs that are affected will be tagged ‘Limited restock’ and show the maximum inventory limits under the “Days of Supply” column. Sellers need to keep within these limits and plan FBA shipments accordingly to manage their FBA sell-through rate and overall IPI score.
How to Measure IPI
Tracking and monitoring your inventory will help maximize your profitability.
As much as possible, refrain from carrying too much stock. This decreases your profitability due to storage fees and holding costs.
Your FBA sell-through rate is calculated by taking your units sold and shipped over the past 90 days and dividing that number by the average number of units available at fulfillment centers during that time period. This FBA sell-through rate will help you to assess your inventory performance.
Here are a few tips on how you can improve your FBA sell-through rate:
- Create and adjust your advertising strategy
- Create Sales / Markdowns
- Audit your product detail pages
- Remove some of your inventory (e.g. slow-moving inventory)
Your stranded inventory percentage is the amount of inventory that is not available for purchase due to a listing problem that resulted in inventory without an active offer. To address this kind of concern, Amazon provides the “Fix listing” option to help lower this percentage. The exact reason why your inventory has been stranded is stated in detail and provides you with the steps on how to resolve the issue.
Another way to measure your IPI is through FBA in-stock rate. This is the percentage of time your replenishable FBA ASINs have been in stock during the previous 30 days. You may miss an opportunity to increase your IPI when you run out of stock of your best selling or popular items. When an ASIN is out of stock, you should flag that ASIN as non-replenishable in the Restock tool so it doesn’t affect your score.
Boost Your IPI Score
If your IPI score is 350 or under, it’s time for you to plan and execute what is needed. Here’s how to give it a much-needed boost:
1. Increase your FBA sell-through rate
Your FBA sell-through rate refers to the number of products you sell in relation to how much stock you have on hand.
Work smart on increasing your FBA sell-through rate to make it as high as possible. Amazon wants each seller to have a high FBA sell-through rate because it means more stock is leaving their warehouses faster.
Ideal sell-through rates depend on a number of factors, including your industry and the types of products you sell. Consider the following to help increase your sell-through rate:
- Bundling products – increasing the number of products sold with each transaction
- Discounting items – enticing customers with product markdowns
- Removing inventory – moving stock from FBA warehouses if it’s not needed
- Reducing reorders for less popular products – making sure what’s in stock is likely to sell
2. Avoid overstocking
Overstock refers to an excessive supply of a product. It means keeping more items in stock than is needed to meet demand. In most cases, overstocking comes down to poor inventory management practices that lead to excessive stock and poor ratings.
Here’s a formula to calculate the exact cost of overstocking products:
Cost of inventory on hand x excess inventory = annual overstock waste expense
Preventing overstocking is all about meeting (not exceeding) demand. With that in mind, overstocking can be avoided by:
- Forecasting demand – carefully plan for the future accurately. This will give you an idea of how much stock you’ll need at any given time.
- Pricing strategically – come up with a strategic plan for the correct pricing of goods. If the price is right the chances of selling more are high. Regular movement of stock from the warehouse will help avoid overstock.
- Automating reorders – adopt a trusted inventory management system that will make it easier for you to know when to place orders by automatically calculating your reorder point
3. Improve your in-stock rate for your best selling or popular items.
While you want to avoid overstocking, it’s also important to keep popular items in stock to avoid missed sales opportunities. It helps in improving your FBA sell-through rate over time.
Optimize your in-stock rate for popular products by:
- Utilizing key sales reports generated by an inventory management system to let you see the best selling products at different times of the year, and make sure those products are stocked when they need to be.
- Doing an ABC inventory analysis to categorize products and focus on keeping ‘A’ products in stock at all times. Find out more about how to do an ABC analysis of products here.
4. Fix stranded inventory
Stranded inventory refers to stock being held at an Amazon fulfillment center that isn’t associated with an active Amazon listing. The reasons why inventory becomes stranded include listings for products that were not created or have errors, resulting in inventory that is accumulating storage fees but can’t be sold.
Amazon penalizes sellers for stranded inventory because it costs the company to hold stock that will potentially never be sold.
It also entails costs on your part to store that inventory at Amazon warehouses, so it’s in your best interest to fix stranded inventory as soon as possible.
To fix your stranded inventory, access the Fix Stranded Inventory page from the Manage Inventory tab to remove or manually edit and relist your items.
Final Thoughts
Sellers must always be mindful of their IPI scores.
They should be extra careful especially mid-month of every quarter (February, May, August, and November).
If you receive a storage limit notice mid-quarter, work your way up and make sure your IPI score is back on track by the end of that respective quarter.
Note that not all third-party sellers will be subject to these restrictions. They only apply to FBA sellers on Amazon.com and there will be exceptions because IPI is still a work in progress.
It’s also important to note that there is some lee-way for seasonal sellers, subject to negotiation, and Amazon is prepared to consider special circumstances. Make sure you reach out to Amazon if you think you qualify.
Keep growing and improving your IPI score. Learn the ropes and master the process to enter a world of endless opportunities.
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