The FBA storage capacity system on Amazon has recently been updated, and this update may have an impact on you.
In the past few years, Amazon has changed its FBA storage limits multiple times, leading to confusion and annoyance among sellers, who saw their inventory being restricted or decreased in some cases. The weekly restock limits and quarterly storage volume limits implemented by Amazon created further perplexity. However, as of March 1st, 2023, Amazon has eliminated the weekly restock and quarterly storage limits and has introduced a new system called FBA capacity limits, which encompasses a monthly capacity limit. Keep reading to discover more about Amazon’s newly simplified FBA capacity management system.
What are FBA capacity limits?
FBA capacity limits are a monthly constraint that dictates the quantity of inventory that sellers can ship and store at Amazon. This new system offers greater inventory capacity and control than the previous FBA inventory storage and restocking limits. These limits are established during the third week of each month, allowing sellers to plan for up to three months ahead with approximate capacity limits specific to each storage type in their account (e.g., standard size, oversize).
Your FBA capacity limits are heavily impacted by your IPI score in the Inventory Performance section of Seller Central. The higher your IPI score, the higher your capacity limits will be.
Who is subject to FBA capacity limits?
Amazon will not impose capacity restrictions on new professional sellers as the company hasn’t had the opportunity to evaluate its inventory performance yet. However, professional accounts that have been in operation for a minimum of 39 weeks will be subject to capacity limits.
How does this new streamlined FBA capacity management system work?
- Sellers indicate a reservation fee for every cubic foot of supplementary storage capacity.
- Amazon will objectively approve the request by beginning with the reservation fee with the highest value per cubic foot until all assigned capacity is provided.
- Once Amazon grants extra capacity, sellers can offset their reservation fees by obtaining performance credits from the sales they generate using the additional capacity.
What if you need more storage space?
If you find that you require more space for your products or are introducing a new product and need additional room, you can ask for more capacity by paying a “reservation fee.” The reservation fee involves bidding against other sellers, and those with higher reservation fees will be given priority over those who bid lower. Once extra capacity is granted, a seller’s reservation fee can be offset by earning performance credits from the sales generated through the added capacity.
The aim of the performance credits is to compensate for up to 100% of the reservation fee, which means that sellers won’t have to pay reservation fees if their new inventory sells out. This emphasizes the importance of the sell-through rate once again.
How FBA capacity limits affect Amazon sellers
As a seasoned seller on Amazon, you must be aware that remaining vigilant is crucial while selling on this platform. This is because Amazon keeps updating and modifying its policies and functions, compelling sellers to adjust quickly.
However, in the case of this specific change, we believe it is a positive development, particularly when compared to past inventory storage changes. This is because it offers sellers a more transparent understanding of how much inventory they can send to Amazon per storage type. Moreover, Amazon has stated that this change will allow most sellers to enjoy increased capacity limits, which is a positive aspect.
Amazon will reward sellers with more storage capacity if they can sell their existing inventory quickly. However, if inventory remains unsold for an extended period, do not expect additional space. If you require more room for a new product launch or other items, you can bid for more storage capacity. However, we recommend doing so only if you are confident that the new inventory will sell, as Amazon will compensate you with performance credits that can offset the reservation fees.
The primary factors that have the most significant impact on your IPI score are:
- Excess inventory: It is advisable to prevent the accumulation of stagnant inventory that remains unsold and incurs monthly storage charges.
- Sell-through rate: It is desirable to keep this rate as high as possible. The sell-through rate is calculated by dividing the number of units sold and shipped in the last 90 days by the average number of units available in Amazon’s fulfillment centers.
- In-stock rate: Amazon encourages sellers to maintain a stock of fast-selling items as much as possible.
- Stranded inventory: Stranded inventory refers to the stock that is present in Amazon’s fulfillment centers but has no active offer for the product. It is recommended to maintain this percentage at 0.
Focus on your IPI score
A crucial lesson to take away is to concentrate on enhancing your IPI score, which is a significant factor. Amazon requires your score to be at least 400, and if it falls below that, you may anticipate a reduction in your capacity limits.
Amazon will display the top contributing factors and the elements that have a negative (and positive) influence on your score. Therefore, use this information to enhance your inventory performance.