Amazon FBA’s inventory re-stock limits feel like a mystery to most sellers. Amazon frequently changes how these limits are calculated. Since eCommerce growth surged in early 2020 driven by COVID-19, Amazon has frequently cut sellers’ limits as well.
You don’t have to let changing Amazon FBA limits hurt your business growth. Read on to learn how the inventory limits are calculated, how to maximize the limits you do have, and what to do when FBA still won’t accept all of your inventory even after you optimize.
How are Amazon FBA inventory limits calculated?
Amazon FBA sellers were hit with 20 to 65% drops in their inventory storage limits in April 2021 when Amazon changed its algorithm from ASIN-level quantity limits to storage-type quantity limits.
FBA inventory limits are now classified into six different storage types:
Each storage type above has its own limit for each Seller account. Unused capacity in one category unfortunately cannot be used for products that fall into another category. These limits are driven by your Inventory Performance Index (IPI), which measures how efficiently and productively you’re managing your FBA inventory. Your Amazon IPI score is computed primarily using the following four metrics:
- Excess inventory
- Sell-through rate
- Stranded inventory
- In-stock inventory
Scores range from 0 to 1,000, and while Amazon does not disclose the exact algorithm on how they calculate this score, we do know that sell-through rate is the most important factors. If you have little excess inventory, sell quickly, don’t let inventory get stranded, and avoid going out of stock, you’ll have an excellent IPI.
How can merchants maximize their existing FBA inventory limits?
If you’re determined to rely on FBA, then you need to maximize your Inventory Performance Index.
Reduce excess inventory
You need to be ruthless in cutting out SKUs that aren’t selling well and thus have months’ worth of products backed up in Amazon’s warehouses. Removal or disposal orders immediately improve IPI score and will free up space to add more fast movers. The SKUs, though, will continue to rack up storage fees until Amazon actually moves them.
Removal or disposal orders are incredibly inefficient, so multi-channel sellers should also consider turning on Amazon Multi-Channel Fulfillment (MCF) to let Amazon FBA fulfill orders for other channels. While this is more expensive than FBA, it’s much better for your bottom line than disposal.
Maximize sell-through rates.
It’s simple: the sell-through rate is equal to the total sales of each ASIN divided by the average inventory level of each ASIN for the last 90 days. Of course, every seller wants to improve their sell-through rate; this means lots of sales. The challenge, though, is that an improvement in sell-through rate means faster and faster replenishment orders. Sellers need to be ready to send replenishments as often as three times a week to excel in this category.
Immediately fix stranded inventory
Stranded inventory hurts IPI scores and is bad for business. Occasionally inventory in FBA gets inadvertently listed as FBM and thus gets stranded. Sometimes it’s a situation where the listing itself has been closed. It is also possible that pricing triggers an alert, and Amazon shuts down the listing to prevent it from selling outside of the minimum or maximum selling price set by the merchant. Keep a close eye on your seller tools and fix any issues with stranded inventory ASAP.
Avoid FBA stock outs at all costs
This is an immense challenge in Q4, as sellers who have been increasing their sell-through rates become more and more vulnerable to a surge in demand. The surge can easily knock an SKU out of stock, which triggers a death spiral of lost search rank, lower IPI score, and lower inventory limits. There’s only one reliable way to avoid stockouts – duplicate Amazon FBM listings. With a duplicate FBM listing powered by the merchant or an FBA alternative, sellers can rest easy knowing that if there’s a run on their Amazon FBA stock, they can turn on their FBM listing and keep selling without risking their business.
How can Amazon FBM help merchants grow?
Amazon Fulfilled by Merchant (FBM) option is now a necessity to protect the business you’ve already built on Amazon. FBA’s inventory limits are simply insufficient for seasonal surges in demand. Furthermore, Amazon’s slow inventory receiving process can create stock outs even when you’re on top of your inbound shipments and the process ties up expensive capital. Finally, seasonal sellers often don’t get special consideration from FBA – so your limits leading up to your peak season may be based on your lower-selling months and won’t be high enough.
An effective Amazon FBM fulfillment solution can power affordable fast & free shipping so that you keep selling when FBA stock runs out. Customers expect fast and free shipping online, period. Sellers that meet that expectation see more impressions, higher conversion, and higher repeat customers. Sellers that can offer the same level of service with their FBM fulfillment as FBA stand to gain the most.
FBM is difficult to get right if logistics and fulfillment aren’t your core competency. The challenge for sellers trying to do it themselves is that unless they already have 4+ warehouses strategically placed around the United States, they either have to sacrifice fast shipping or free shipping.
Offering 2-day shipping to the entire US from just one location puts the majority of customers in Zones 4 and up, which racks up express rates – completely erasing profit margin. On the other hand, delivery times of 5-7 business days will lose customers left and right in the checkout stage (if they even get there). That’s why most sellers turn to an eCommerce order fulfillment platform to power their FBM. Need help thinking through which Amazon FBM solution is right for you? This 3PL RFP Template is a great resource to help you collate the critical information you need to make an informed decision.
About Author – Manish Chowdhary is the founder and CEO of Cahoot. Cahoot’s innovative network taps an alliance of top-rated merchants to fulfill orders (for each other) faster and at a lower cost than anything else out there. Manish has founded multiple industry-leading companies, first starting from his dorm room at the University of Bridgeport, where he earned his B.S. in computer engineering. Manish’s specialties include e-commerce strategy, business methods innovation, supply chain and logistics optimization. He has been featured in The New York Times, Internet Retailer and many other leading publications.
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