How the IPI (Inventory Performance Index) works on Amazon FBA

The IPI is the indicator Amazon uses to evaluate how well you manage your inventory in its fulfillment centers. A number between 0 and 1000 that determines how much space you can use, how much you pay for storage, and ultimately how viable your FBA operation is. Many sellers only discover this when they already have active restrictions.

What exactly does the IPI measure?

Amazon calculates IPI as a composite index that weighs four operational factors. It does not publish the exact formula or the specific weights of each component, but it does document which variables it considers and how they impact your score. The index is updated weekly and reflects your performance over a rolling period of the last 90 days.

The four components are: excess inventory, sell-through rate, stranded inventory, and inventory on hand. Each one answers a different operational question: Do you have too much stagnant product? Are you selling what you ship at a good pace? Are there units that cannot be sold due to listing issues? Do you maintain availability of your active products?

Breakdown of the four components

Excess inventory

Amazon identifies units that have been in storage for more than 90 days and whose storage costs exceed the projected profit from selling them as excess inventory. The system compares your historical sales velocity with storage fees to determine whether it is better for you to keep that stock or liquidate it. A high percentage of excess inventory indicates that you are using FBA space as a warehouse rather than a distribution center.

Sell-through rate

Measure how many units you sell in relation to how many you send to FBA in a 90-day period. The formula is simple: units sold and shipped divided by the average number of units available. A low sell-through rate means that you are feeding inventory faster than the market can absorb it. Amazon prefers sellers who rotate product, not those who accumulate it.

Stranded inventory

These are units that are physically in FBA but are not available for sale. Typical causes include deleted listings, category issues, product information errors, or brand restrictions. This component carries significant weight because it represents pure inefficiency: you pay storage fees for products that do not generate sales. The system expects you to resolve stranded inventory in less than 30 days.

Inventory in stock

Assess whether you maintain availability for products that have proven demand. Amazon prioritizes sellers who do not generate stockouts for their popular ASINs. This factor only considers products with sales in the last 60 days and gives greater weight to those with higher volume. Running out of stock on a high-turnover product has a negative impact, even if the rest of your catalog is perfect.

Thresholds and operational consequences

Amazon sets a minimum IPI threshold that varies depending on the season and the capacity of its fulfillment centers. Historically, it has ranged between 400 and 550 points. When your IPI falls below the threshold during the quarterly evaluation, Amazon imposes storage limits by product type: standard-size, oversize, apparel, and footwear.

Storage limits are not suggestions. If you exceed your allocated capacity, you pay overage fees that can exceed $10 USD per additional cubic foot. During peak season, these restrictions can make it unfeasible to compete if you don't have the IPI to support the inventory you need. Most sellers with an IPI below 450 operate with compressed margins solely due to storage costs.

Sellers with an IPI above 550 generally receive more generous storage limits and priority access to additional capacity when Amazon releases it. This benefit is not explicitly stated in the documentation, but the pattern is consistent across accounts with this profile.

How to improve the IPI structurally

Raising the IPI is not a matter of a one-time adjustment but rather sustained operational discipline. The first step is to resolve stranded inventory, which is the component with the most direct solution: review deleted listings, correct categorization errors, and eliminate units that cannot be reactivated. This adjustment alone can move the index 50-100 points in accounts with significant stranded inventory.

Excess inventory requires tougher decisions. The options are to create removal orders, liquidate through Amazon's program, apply aggressive discounts to accelerate turnover, or accept that certain SKUs do not work in FBA. In competitive categories, it is common for 15-20% of the catalog to generate the bulk of sales, while the rest consumes storage space without justification.

For sell-through and availability, the solution is more accurate forecasting. Ship inventory based on actual sales velocity, not optimistic expectations. Amazon provides restocking recommendation tools that, while imperfect, are a better starting point than intuition. The goal is to maintain between 30 and 60 days of inventory per active SKU, enough to avoid stockouts but not so much as to generate excess.

Limitations of IPI as a metric

The IPI has structural biases that should be understood. It favors small catalogs with high turnover over large catalogs with variable demand. A seller with 10 high-speed SKUs will have a better IPI than one with 500 SKUs in a long-tail niche, even if both are profitable. This does not mean that the long-tail model is unviable in FBA, but it does require more active inventory management.

It also penalizes aggressive seasonality. Sellers in categories with concentrated peaks—Christmas decorations, school supplies, summer items—will see their IPI drop out of season if they keep stock for the next cycle. The alternative is to use FBA only during peak season and handle fulfillment yourself or use a 3PL the rest of the year, but that has its own operating costs.

IPI is a measure of storage efficiency, not profitability. A high IPI does not guarantee healthy margins, and a low IPI does not necessarily mean that the operation is loss-making. It is an operational constraint that must be managed, not the ultimate goal of the business.