The beginning of the year is often a crucial, yet dreaded time for most 1P sellers on Amazon– it signals the start of Amazon Vendor Negotiations (AVN). The annual AVN process is when Amazon meets with their vendors to share past performance metrics, and propose trade structure terms for the following year, which Amazon is almost always asking to increase.
This process is long and stressful, and many brands spend several months in negotiations with Amazon. As a 3P partner with Amazon, Pattern is very familiar with AVN and how to best navigate the process. One of the benefits of having a 3P partner on Amazon is that your brand can avoid the hassle of the annual negotiations.
But we realize that 3P isn’t for all brands, so here are a few tips to help you prepare for AVN this year:
1. Be Prepared– Know Your True Costs
One of the best ways to be prepared for AVN is to make sure you know your true costs of being an Amazon 1P seller. The costs of a 1P relationship can be difficult to identify, so we’ve created a cheat sheet of what should be considered to calculate the true costs of Amazon 1P.
Here are some of the key true costs you should know:
- PPM (Pure Product Margin)
- Net PPM
- Operating Margin
- Off-Amazon Costs
Calculating each of these costs will help you knowledgeably and confidently negotiate your terms of trade with Amazon. Being prepared with results and data will help to prove the value your Vendor account brings to Amazon, placing you in a better position to negotiate the best possible agreement in the interest of both parties.
2. Make Your Amazon Investments Work for You
Often brands don’t get as much data and statistics as they’d like from Amazon. For example, with Marketing Development Funds, or MDF, Amazon is not specific about what exactly this money covers. Vendors simply know that MDF supports the costs involved in helping drive impressions and sales to products such as in-store promotions, PR pitches, merchandising activities, emails, basic site placement, etc.
To make sure your dollar investments into Amazon are working for you, such as a marketing spend, make sure to ask for data and statistics from prior years. Knowing how it may have helped your brand will help you decide if it’s worth it to invest more or not. For example, make sure Amazon shares the information you need to know how your brand’s individual ASINs did on promotions or during a marketing event, and if it was the promotion or event that drove the growth. Having these details will help you in the negotiation process, as well as creating a budget for future promotions.
3. Ask Your Vendor Manager A Lot of Questions
Your vendor manager may not initially share all relevant data or statistics with you until you ask for it. Asking questions brings relevant answers, facts, and statistical information that will help leverage your negotiation.
For example, be sure to ask your vendor manager questions such as:
- Damage Allowance (DA): Is the amount shown the net or gross DA? Are unwanted returns included in the damage allowance or is it just truly damaged returns?
- Freight Allowance (FA): Is the amount shown the net or gross FA? What is Amazon doing to help improve the freight rates on your behalf?
Avoid Amazon Vendor Negotiations By Partnering With Pattern
AVN keeps many brand executives up at night. They are difficult to manage, exhausting, and can drag on for months. A huge advantage to having Pattern as your 3P partner on Amazon is that you can avoid all the chaos of AVN. Imagine that–you’d never have to go through AVN again–go ahead, take a deep sigh of relief.
Pattern has the marketplace resources and expertise necessary to navigate the negotiations and terms that are often overwhelming to 1P sellers. We’ve helped give back a good night’s sleep to many brand executives by lifting the heavy load of negotiating with Amazon for them so they can focus on selling their product and running their business.
If you never want to go through AVN again, partner with Pattern. Contact us.