How do IPI and Storage Limits affect your Amazon business?

by | Jan 8, 2022 | Uncategorized | 0 comments

IPI and Storage Limits – What are these and how do they affect you as an Amazon Seller?

As a relatively new seller on Amazon that has experienced a bit of success with a particular product, you’re probably thinking of increasing stock of that item. After all, the demand is there, and it’s generating quite a bit of revenue for you. But when you’re just about to restock that particular item, you get a notification on your shipping plan stating that “This product exceeds the allowed quantity for Standard-size storage.” Most beginners don’t know that there’s a limit on what they can send to Amazon. The eCommerce platform has a maximum inventory level allowed for each of its storage types.

Let’s say you find out that your maximum inventory level is 500 units. However, you are already utilizing 450 units! What can you do? We’ll discuss more on that later, but for now, let’s look at why Amazon imposes storage limits, what they are precisely, and how they are calculated.

Why are there Amazon storage limits?

So why does Amazon limit the storage of each of its sellers? Well, if they don’t limit the amount of incoming stock they’d have to house, Amazon would run out of space to store them real quick. Even though Amazon has been continuously building new fulfillment centers (FC’s) as fast as possible, it wouldn’t be able to hold every seller’s inventory if it didn’t set up storage limits. Aside from its 3rd party sellers, even Amazon limits the stock that they can store. So, they have to prioritize who and how much of each ASIN they will store in these FC’s.

Amazon may also limit its storage during emergencies. For instance, during the early days of 2019 and the COVID-19 pandemic, Amazon limited incoming stock to certain “essential” items, such as health and homewares. This decision was meant to help workers and families acquire sufficient supplies and necessities they may need.

Ever since then, they have tried various limits on incoming stock, including limiting new ASINs to 200 units for some time. As of the end of 2021, they have settled on both unit (called Restock Limits) and volume limits (called Storage Volume).

What are the Amazon storage limits?

As mentioned earlier, Amazon imposes two kinds of limits throughout its marketplace: Restock limits and storage volume limits. First of all, the Restock Limit provides an upper limit that concerns the number of units you can have in Amazon Fulfillment Centers. This limit is assigned per category, which includes standard-size, oversize, apparel, and footwear. Furthermore, different limits may apply to each category, even on the same seller account.

On the other hand, the Storage Volume is also an upper limit assigned to the volume of storage (calculated in cubic feet) across the different categories. For example, if you have 500 units of storage limit with Amazon and your product is 0.5 cubic feet in volume, your current volume usage is 250 cubic feet.

These limits act independently of one another so that you can’t exceed either limit at any point in time. For example, if your Restock Limit is 500 units, but your Storage Volume limit is 200 cubic feet (and your per product volume is 0.5 cubic feet), you can only have 400 units with Amazon. These values are obtained because 400 units x 0.5 cubic feet is 200 cubic feet. You can’t have 500 units, even though the Restock limit would allow, as you would be over the Storage Volume limit.

How are Amazon storage limits calculated?

Much similar to other information about Amazon, they have kept the exact process of how storage limits have been calculated a secret. However, the IPI Score or the Inventory Performance Index is one of the crucial determining factors regarding how much stock you can store with Amazon. Every quarter, Amazon reviews the IPI score of every seller. Afterward, based on how high your IP score is, Amazon determines how much of your stock and products you can store with them.

If you wish to have unlimited storage volume, your IPI score needs to be above 450 to have unlimited storage volume. However, this target score has changed from time to time, at Amazon’s discretion.

Things To Keep In Mind About IPI Scores

The IPI score is Amazon’s basis for measuring how efficient and productive you are regarding the management of your FBA inventory. Multiple factors could influence your IPI score. Even though most of these factors are primarily unknown to sellers such as yourself, keep in mind that the most important ones are based on your actions:

  •         Despite how tempting it is to stock up solely on your best-selling products, strive to maintain a more balanced inventory level between sold and on-hand inventory. Excess and aged inventory can negatively affect your IPI score, so it’s best to avoid holding on to them for long.
  •         Avoid long-term storage fees and dispose of unsold inventory before reaching a full year in a fulfillment center. Even if you pay to store your stock longer, letting your products lay idle in a fulfillment center will negatively reflect your IPI scores.
  •         Fix listing problems.
  •         As mentioned earlier, keep your most popular products in stock at the proper levels to meet customer demand and maximize customer satisfaction. Restocking too much of a popular product now may have some adverse consequences later when interest in said product wanes.

Given the significant impact of IPI on storage levels, the following question is to be asked:

What’s the best way to improve my IPI score, and what should I prioritize?

Now that you are familiar with Storage limits and IPI scores, you may be wondering, “How do I improve or attain a high IPI score?” Even though every seller runs a different business Amazon recommends following some general guidelines to manage and improve your inventory performance. This list is what Amazon has to say:

  •         Improve your 90-day rolling sell-through by maintaining a sell-through that places you in the green (or “good”) range year-round. Go to Manage Inventory Health to see recommendations on your inventory. You can filter by inventory age ranges or sort the FBA sell-through column to see products with the lowest sell-through. There are two main ways to improve sell-through. The first one is to increase your sales based on your on-hand inventory. Next, it’s vital to remove inventory that is not selling.
  •         Reduce your excess inventory. An excellent guideline to avoid excess inventory is to ensure you maintain enough inventory to cover 30 to 60 days of your expected sales. Go to Manage Inventory Health to see recommended actions on products that are aged or overstock. Use Amazon Outlet to sell your overstock and out-of-season products. On Manage Inventory Health, select the recommendation filter Create Outlet deal to see eligible products for Amazon Outlet. In addition, you can use Multi-Channel Fulfillment to sell your inventory on other sales channels, such as your dedicated online selling website.
  •         Avoid Listing fees – You need to reduce or avoid long-term storage fees by removing inventory before it reaches 365 days in a fulfillment center. Setup your account to remove aged inventory automatically. Even if you pay to store your stock longer, letting your products lay idle in a fulfillment center will negatively reflect your IPI scores.
  •         Fix listing problems on time. Regularly check the percentage of your stranded inventory. When you have stranded inventory, it means you have sellable products in an Amazon fulfillment center that doesn’t have an active listing and therefore can’t be sold to customers. If you have inventory that is currently incurring fees without the possibility of sales, this can reduce your IPI score. That’s why it is essential to fix listing issues quickly.

What can you do if you find yourself needing more storage volume or limits in time for Q4?

  1.       Create a removal order or use Amazon’s liquidation services. Once this is actioned, it is not considered part of the IPI score.
  2.       Increase marketing spend (PPC) or decrease price to sell through the stock more quickly.
  3.       List on Buy My SKU, sell it for more than liquidation or disposal and create a removal order to ship it directly to the buyer. Or you could do the removal order to a 3PL first, to clear the stock from the IPI score and your storage limits, and then sell with Buy My SKU. For more information, click HERE.

For more information on IPI scores, check out Amazon’s FAQ https://sellercentral.amazon.com/help/hub/reference/GZJF4DY2W6MERBAL.