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How to Prepare for Prime Day with FBM

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Prime Day is coming fast, and for most Amazon sellers, it’s one of the biggest retail events of the year. Estimates for 2024 place Prime Day during the second week of July, similar to 2023. Normally, sellers prepare by sending more inventory into their fulfillment networks — primarily, FBA.

However, recent changes at Amazon (particularly around restock limits and inventory limits) have left even veteran sellers confused about their operations for Prime Day. Amazon sellers in the subreddit r/FulfillmentByAmazon posted about “Massive cut in restock limits. Many sellers seeing a 20-50% reduction overnight,” and a petition with 1,300 signatures called on Amazon to “Not Suddenly Decrease FBA Storage Space.” Since then, Amazon has gained control over their inventory limits, so it’s now easy for sellers to figure out what to expect based on their account standing.

This article will discuss what’s happening with FBA, how to prepare for Prime Day this year and going forward, and how to supplement FBA with FBM to back up your business and keep your sales flowing while expanding your FBA inventory limits.

What’s happening with FBA?

In early 2020, Amazon introduced restock limits in an attempt to make room in their warehouses and accommodate increased demand. Those restrictions came out to a hard 200-unit limit per ASIN. Amazon then switched to six storage type limits by 2021: standard, oversize, footwear, apparel, flammable, and aerosol. They’re still in place today, and Amazon will automatically categorize your products for you according to these types (be aware, storage limits are not interchangeable between them).

In 2023, Amazon also introduced the Capacity Manager. This system forecasts your sales over the next three months and sets your monthly restock limits for the quarter accordingly. The marketplace’s restock limits use past and predicted sales to calculate your utilization to sell-through ratio. This is the amount of stock sold between when an item is added to a shipment (not when Amazon receives it) and when Amazon sells it.

To review this ratio in your account:

  • Log in to Seller Central.
  • Go to the Inventory Performance Dashboard.
  • Look for Capacity Monitor or Restock Limit.

Restock limits are distinct from storage limits, which simply define how much cubic space your storage category can take up. Although restock limits apply regardless of IPI score, storage limits take IPI into account.

For example, if your IPI score was over 500 as of June, you may not have any storage limits for Q3 2024. If it’s less than that though, you should expect some restrictions. Amazon calculates IPI during the last month of the quarter, which will impact limits for the next quarter.

In theory, restock limits allow sellers to hold one month of inventory with Amazon. However, calculations start from when items are added to shipments, not when FBA receives them. Further, they’re maintained either based on forecasted sales — which sellers claim aren’t always accurate — or by calculating prospective Prime Day sales specifically. Therefore, you should consider increasing your fulfillment capacity for Prime Day on top of your FBA inventory limitations, especially since:

  • You have to shorten the time between adding stock to Amazon and receipt by Amazon as much as possible to maximize utilization.
  • Because total stock limits are based on storage type, if all your inventory falls into the same category, you’ll have much less space available with Amazon than a more diverse seller.
  • Even if Amazon allows higher restock limits for sellers participating in Prime Day, they don’t account for anyone expecting a natural uptick during the shopping event.
  • Longer shipping times decrease your stock capacity because it increases throughput time.

How to prepare for Prime Day with basic inventory storage limits

Inventory is now intended as one month of throughput capacity, which differs from the two-month period granted in 2022 and 2023. However, the Capacity Manager is intended to help you plan for a three-month period with three separate shipments to Amazon by taking the following criteria into consideration:

  • Professional accounts less than 39 weeks old have no volume storage limit.
  • Professional accounts older than 39 weeks have a volume limit based on throughput in the Capacity Manager.
  • Individual accounts have a set storage limit of 15 cubic feet.
  • You pay $10 per cubic foot for items over the limit, and your IPI score will decrease as well.

While these measurements are intended to free up Amazon warehousing so everyone can send in inventory, many sellers have taken a hit as a result. That’s especially true for organizations that normally purchase and allocate months of stock in advance for Prime Day, using Amazon for warehousing. Sellers note that decreases in stock capacity mean they can no longer meet peak sales periods such as Prime Day without going out of stock.

Worse, with the new algorithm in place, a stockout won’t only mean lost sales, incurred costs, and reduced search ranking in the Amazon algorithm — it’ll also further restrict your restock limit (since sales are lower).

That makes it critical to have a healthy IPI score and throughput during the first 39 weeks of sales; otherwise, Amazon’s limits on FBA inventory will force you to supplement with your own fulfillment solutions to later increase your FBA capacity. However, the Capacity Manager does enable you to increase FBA inventory and restock limits by fulfilling orders yourself. So, if you can boost your sales volume, your FBA capacity will expand as well.

What is Amazon’s IPI score?

The inventory performance index (IPI) is a metric that measures your inventory performance over a period of time. It essentially gauges how productive and efficient you are at managing FBA inventory.

Amazon computes this score every Monday based on your performance data over a three-month time span. Scores above 450 are considered good and mean sellers will pay fewer storage costs, as well as have more warehouse space. Amazon also uses this score to set storage limits, as mentioned above. The typical quarterly threshold is 400-450.

Your IPI score is also a rolling average and updates every two to 12 weeks. You can view it by going to Seller Central –> Inventory –> Manage Inventory –> Inventory Dashboard –> Performance Window.

IPI is based on:

  • Stale inventory: If you have inventory that isn’t sold after 90 days, it’s considered “stale” and will negatively impact your IPI score. You may also pay a storage fee.
  • Sell-through rate: This is the proportion of units sold and shipped over the last 90 days.
  • In-stock rate: The percentage of time your products have been in stock over the last 30 days. High-selling items are weighted extra so, for instance, a stockout event on Prime Day can negatively hurt your IPI.
  • Stranded inventory: This is inventory without an associated listing and should be at 0%.

Protect your sales during demand peaks with FBM

We advise Amazon sellers to take steps to increase their restock limits. For example, you could issue removal orders for slow-selling products, cancel non-urgent shipments, and hone operations to reduce the time from shipment to Amazon acceptance with FBA prep.

Fulfilled by Merchant (FBM) is an ideal solution for sellers who want to increase their sales volume capacity and later FBA limits (provided they can contract with a cost-effective fulfillment partner). The new Capacity Manager system places fewer capacity limits on FBA than in previous years as long as you can boost sales and fulfill them on your own. FBA sellers can easily sell via FBM alongside their existing setup by duplicating listings and adding a new SKU.

How to Prepare for Prime Day Tip: It’s a wise idea to add “FBM” to the SKU so it’s clear which items are which.

In most cases, the best strategy will be to leave as much of your high-volume stock with FBA as possible, while keeping a small amount in your FBM network ready as a backup.

At the same time, move low-volume or slower stock to FBM, which you can then sell yourself without it cutting into your restock limits. That’s a major benefit since current restock limits are based on total throughput (remember, your limits are designed to be one month of stock across the whole category).

Here are some steps you can take now to prepare for peak sales periods:

  • Identify slow-moving stock and recall it from FBA.
  • Create FBM listings for all products that might sell out through FBA on Prime Day.
  • Partner with a 3PL to handle your excess inventory and FBM orders.

How to Prepare for Prime Day Tip: We at MyFBAPrep are pros at prepping items for FBA and can help you fulfill with FBM as well, which means you can send all your excess inventory into our network and replenish FBA as your restock limits open up.

Bidding for extra FBA storage

In March 2023, Amazon introduced the option to bid for extra storage space in your category by placing a reserve on it in the Capacity Manager. In the system, you bid how much you’re willing to pay per additional cubic meter of space, and the highest bidder wins. Amazon suggests a minimum bid of $2 per cubic foot, but bids have gone over $5 per cubic foot in the past. You can bid for up to 20% of your original storage limit or 2,000 cubic square feet, whichever is greater.

Amazon offers some refunds for fast-selling inventory. For example, if throughput is high enough, you may be entitled to a full refund on the reservation fee. You can also earn a performance credit of $0.15 per cubic meter depending on performance.

Wrapping up — How to prepare for Prime Day with FBM

FBA is changing, and quickly. Storage space in the program is in demand, and restock limits are leaving many sellers wondering what’s next. However, you can safeguard your sales against the effects of these alterations.

Having an FBM alternative in place is one of the best protections you can adopt; it ensures uninterrupted selling no matter what shifts occur in FBA and will positively impact FBA restock limits for next quarter. This backup plan also allows you to keep slow-moving stock out of costly Amazon warehouses, which avoids expensive fees and benefits your profit margins in the long run. Understand your FBA storage limits, support your operations with FBM, and ready yourself for a lucrative Prime Day.