These changes amount to one thing: managing Amazon inventory is more important than ever.
Today, we’re going to answer the seven most common and important Amazon inventory management questions:
1) Why is Amazon inventory management important?
First, you avoid out of stock situations.
It’s aggravating to know that your product could sell and make you money, but you don’t have any units to sell.
Second, you retain the keyword ranking you’ve earned.
Keyword ranking is how high you show up in Amazon search results. BSR (best seller rank) works like golf—the lower the score, the better. ⛳️
If you don't always have items in stock, you could lose ranking to your competitors! Don’t let competitors take advantage of your absence and take all of the sales that you would have made in the time that you are out of stock.
Pro-tip! Should you run out of stock, you can preserve some of your ranking if you temporarily close your listing.
Third, you stop competitors from buying you out.
If your inventory gets low enough, your competitors might find out and buy your product out so that you have nothing left to sell to real customers who leave reviews and build your audience.
Fourth, you can capitalize when competitors run out of stock.
Instead of sharing sales with your competitors, you will rake in all the sales when your competitor runs out of stock. That will help you gain a better BSR.
Fifth, you can plan your cash flow, enabling you to scale your business.
There is no way to sell 1,000 units or more a month if you don’t have a good inventory management system in place. Some of our members sell over 15,000 units per month. Our team would like to teach you how to do this. Here is what we're talking about.
Sixth, you avoid Amazon FBA restrictions and limits with an Inventory Performance Index score of 450 or more.
You want to sell your product FBA when possible. When you sell FBA...
- Amazon sends product to your buyers for you—freeing you up to focus on other aspects of your business (or just free up your time in general).
- Amazon provides customer service to your buyers.
- Amazon handles all product returns.
Plus, when you sell your product as FBA or "Prime", your business seems more credible to the customer, making browsers more likely to buy.
But if you don’t manage your FBA inventory well, you may see restrictions as to how many units you can keep in Amazon’s fulfillment centers. The more units you're able to store in fulfillment centers, the less reliant you'll be on low minimum quantity orders (MOQs) from your supplier, 3PL services, or keeping units stacked in your garage.
2) What is the Amazon FBA IPI score?
Amazon’s Inventory Performance Index score (IPI) is Amazon’s algorithm that ranks you based on how well you manage FBA inventory. The score scales from 0 to 1,000.
As of January 1st, 2021, Amazon requires that you keep your IPI score at 450 or greater—or else you’ll face restrictive inventory limits.
It used to be that you could have an IPI score as low as 350 before Amazon would add inventory restrictions. But in August 16, 2020, Amazon has raised their standards to an IPI score of 500 as a response to the surge in Amazon sales during the pandemic. (Yes, Amazon sales went up by a lot—so much so that they had trouble fulfilling orders on time.) Then, Amazon relaxed the IPI score requirement at the beginning of 2021.
Expect the IPI limit to bounce up or down based on world events and the ecommerce marketspace.
3) What affects my IPI score, and how can I increase my IPI score?
Avoid excess Amazon FBA inventory.
If you have too much stock, your IPI score will fall.
Keep your inventory in-stock.
You want to be in-stock regardless of how it affects the IPI score.
Avoid having stranded inventory.
Make sure you that your inventory is purchasable. When a product is in an Amazon fulfillment center and cannot be bought by a customer, your IPI score will take a hit.
For example, if you close your listing while you have inventory at a fulfillment center, your inventory is stranded.
On one hand, you want to have enough units where you can avoid going out of stock. But on the other hand, you shouldn’t have so much stock that you have trouble selling most of it in a reasonable amount of time. That can be a difficult balance to strike.
4) How can I calculate how much FBA inventory to reorder?
Amazon wants sellers to optimize three months (90 days) worth of inventory at a time. When you order inventory, make sure that you will be able to sell all of your product within six months. After six months, Amazon will slap you with long term storage fees. Therefore, you should have between 90 and 180 days worth of inventory at a time.
To calculate how much stock you need for 90 days worth of inventory, multiple your daily sales by 90.
For example, if you average 10.7 daily sales ➡ 10.7 x 90 = 963 units
The resulting number is how many units you need for a three month cycle. In this example, 1,000 units would be a good order to go with every 3 months.
5) What if I have an FBA 200 unit inventory limit?
In 2020, Amazon limited the number of units you could send in your first shipment to fulfillment centers at 200 units. This applied to new ASINs for your first shipment.
Since then, Amazon has removed that policy. Before you receive an IPI score from Amazon, your first shipment can contain as many as 500,000 units. However, if you fail to sell the majority of your first shipment's units in 90 days, then you'll be slapped with restrictions and long-term storage fees. Therefore, you should still only send as many units in your first shipment as you are sure you can sell in the first 90 days.
6) How can I calculate when to reorder?
For non-seasonal products, follow these three steps:
First, determine your Amazon FBA product’s average daily sales.
Take note of how many units you currently have in FBA inventory.
Second, calculate how many days your product inventory has left in FBA.
Use this equation: Total Units ➗ Average Daily Sales = Days Left in Inventory.
In this example, after 167 days, you will be out of stock if you don’t order any more inventory.
Third, work out total inventory lead time.
Your lead time is how long it takes for your inventory to arrive in Amazon’s fulfillment centers once you’ve ordered your product from your supplier. Add your manufacturing time and your shipping time to work out your lead time.
Add on five days of lead time to what your actual lead time is in order to be safe. If your lead time is 55 days, calculate your total inventory lead time using 60 days.
Fourth, calculate your last possible reorder point.
Use this equation: Days left in inventory - Total lead time = Days until last reorder date (E.g. 167 days left - 60 day lead time = 107 days until last reorder date)
Because all of the months are not evenly divisible by 30, use Planetcalc or a similar tool to help you calculate the last possible reorder date on the calendar.
Input today’s date and put in your days until last reorder date.
But, you don’t want to only order on the last possible reorder point. Hiccups happen in the product pipeline. Subtract two weeks from the date you’re given and reorder inventory from your manufacturer on that date instead.
Google search can also perform this calculation for you.
7) How can I calculate when to reorder for a seasonal period?
Use an Amazon BSR tracking system.
You need to predict how your product will sell in each period of the year.
In this example, we will use Keepa. A graph of the product’s BSR history will show up on Amazon product listings just above the ‘frequently bought together’ section.
The graph looks like this (For this example, you care about the green line):
The lower the BSR, the better the product sells. When BSR rises, that means that sales slow down during that period. When BSR goes back down again, that means sales have picked up again. We tackled seasonal products and whether you should sell them here.
Look at an established competitors' listing BSR.
When you use a long term competitors' data (at least 365 days worth), you can predict how many sales you will get in the future. In order to view older data, set Keepa to ‘All’. Look at your competitors' previous year's data for the season that you need to know about.
Establish if your product will follow your competitors' BSR trend.
Look at your sales today and compare to your competitors’ sales at the same date from last year. If yours and their sales correlate, then you can plan along that trajectory.
Note your competitors’ BSR at its lowest point.
Calculate the number of your competitor’s sales.
You have two ways to calculate this:
1) Use FBA toolkit to calculate how many sales your competitors made according to their BSR within their product category.
2) Find a current competitor in the same product category who has the same BSR and use an FBA software research tool to analyze how many sales they’re doing today. This method will be more accurate.
Produce your product’s sales forecast from your competitor’s data.
In our example, the BSR dropped in November and December. The sales increased from 10 sales per day to 20 sales per day during that period. This growth in sales will shorten the last possible reorder point for our product—as we will sell more product than normal.
Calculate your FBA seasonal product’s reorder point.
Establish your seasonal period. For this example, it's November 1st to January 1st.
Account for the sales that happen during the 10 day period just before the seasonal bump starts. Add the estimated sales volume of that 10 day period to your seasonal period.
E.g. 11 sales/day x 10 days = 110 units
Then, the BSR drop will occur.
E.g. During the seasonal period: 20 sales/day x 60 days = 1200 units
Calculate the total number of units sold before returning to the normal daily sales.
E.g. 110 + 1200 = 1310 units sold by Jan 1st
Calculate the number of units left after the seasonal period.
E.g. 1792 units left in inventory - 1310 estimated sold by Jan 1st = 482
Factor in the days after the seasonal period.
E.g. 482 ➗ 10.7 = 45 days
Add those days together
E.g. 10 days before the season + 60 days of seasonal sales + 45 days after the season until the inventory runs out = 115 days
The result is the number of days your product has left in FBA inventory.
Determine your last inventory reorder point.
Run the calculation that we showed you for the non-seasonal product: Days left in inventory - Lead time = Days until last reorder date
E.g. 115 days left in inventory - 60 day lead time = 55 Days until last reorder date
In our example, the new reorder date is Oct 21 + 55 days = Dec 15th 2020
Deduct two weeks as a contingency for this reorder point as well.
December 15th - 14 days = December 1st is the new reorder point.
To get the full scoop on inventory management, shipping plans, and everything else involved in starting and running a successful Amazon store, visit JOD.com/freedom.
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What is your lead time? We'd like to know in the comments. Let's compare and see how long our various suppliers take.