Thinking like Amazon: Navigate Annual Vendor Negotiations

Amazon’s organisational structure for vendor is layered and complex. During your time selling on the platform you’ll probably encounter the following entities:

Profitability
Items must be profitable after accounting for all associated costs, including shipping, warehousing, and returns.

Consistency
Amazon prefers vendors who provide a stable supply of products with predictable sales and minimal variability.

They also value your category expertise and insights into market trends, which can help them optimize their offerings.

Amazon is driven by data, and understanding the metrics they value can give you an edge in negotiations. Here are some key metrics:

Net Pure Profit Margin (Net PPM):
This is Amazon’s main profitability metric, which subtracts your cost price and any backend terms from the average selling price.

In order to optimize your Net PPM you need to see where you stand. Evaluate your status quo with the Amazon Net PPM Compass

PCOGS (Shipped Cost of Goods Sold):
Reflects the price Amazon paid for your items, multiplied by the volume sold to customers.

Net Receipts:
Similar to PCOGS but accounts for the volume you’ve shipped to Amazon’s warehouses.

Lost Buy Box (LBB):
Indicates how often Amazon lost the Buy Box to other sellers, impacting your direct reach to customers.

Procurable Out of Stock (ProcOOS):
Measures your product availability. A ProcOOS value below 5% is considered best in class.

CRaP (Can’t Realize a Profit):
Refers to items that are unprofitable on Amazon. Managing these is crucial to maintain good standing and negotiation leverage.

Marketshare:
Get an overview of how your brand has performed compared to your competitors and what market share you hold within your category.
This way, you can present your clear standing to Amazon and enter price negotiations with confidence.

Download the FREE Digital Shelf Plugin and compare your products and brand performance at the ASIN and category level.

Navigating AVN with Amazon can be challenging, but understanding their tactics can help you stay ahead:

1. Come prepared:
   Before negotiations, gather data on your performance metrics, including Net PPM, PCOGS, and ProcOOS. Highlight your strengths, such as category growth or brand awareness.

2. Counter their initial proposal:
   Amazon often starts high to secure a better deal. Use your data to question and counter their demands. Emphasize what you bring to the table, like category expertise or exclusive products.

3. Ask strategic questions:
   Inquire about their goals, how you compare to peers, and potential opportunities. This can provide insights into their priorities and help you align your offerings with their expectations.

4. Handle pressure tactics:
   Amazon may use tactics like blocking communication with your leadership or delaying negotiations to pressure you into agreeing. Stay composed, educate your team, and consider escalating issues to higher-level contacts, such as the category leader.

Successfully navigating Annual Vendor Negotiations requires a deep understanding of their organizational structure, key metrics, and negotiation strategies.
By thinking like Amazon, you as a vendor can better align your offerings with Amazons priorities. Furthermore your understanding and knowledge functions as a safeguard for your market share and drives long-term success on the Amazon platform. The art of negotiation is not just about securing a deal, but about ensuring that the terms align with your business interests and set you up for sustainable growth on the Amazon Marketplace.