That time of year is upon us once again, and stress levels for Amazon vendors are starting to build. The arrival of spring means renegotiating your vendor terms with Amazon, which seem to grow stricter year-after-year. However, with more than 50 percent of all Amazon sales coming from third-party sellers, the pressure is also on for the other side of the table.
The platform’s new terms could include a higher percentage for accruals, increased freight costs, more Amazon Marketing Services spend, raised AMS budgets, and numerous other costs — but this should not be cause for panic. These negotiations should not be viewed as a list of one-sided demands, but rather as an open conversation that lets you make your case for a continued, fair partnership.
Following are five key strategies that will stand you in good stead when negotiating your terms for the year ahead.
1. Better Reporting
As a vendor stepping into negotiations with Amazon, you have to be prepared with the right metrics to showcase your annual performance trajectory. Demonstrate the different investments you made in the last year to support the growth of your Amazon business. Even if you did not hit your plan’s targets, it’s important to show that you made strategic decisions to try to increase growth.
You also should be able to provide metrics on profitability, including figures on your pure profit margin (PPM), net PPM, and net PPM from sales discounts. These three benchmarks are critical for Amazon to evaluate the health of your business ahead of terms negotiations.
2. Deal Placement
Amazon vendors need to think strategically about the levers that they can pull on their own to grow their Amazon business. Deal placement plays a huge role in this — and ultimately can make or break your business.
For some vendors, as much as 60-70 percent of their business takes place in Q4, so it’s vital to understand what the deal calendar looks like for your category. There are big-traffic events — often called “power windows” — that many vendors should participate in. These include Valentine’s Day, Mother’s Day, Prime Day, “back to school” and “back to business,” and of course Black Friday and Cyber Monday (Turkey 5).
Using these opportunities for deal placement can become a negotiation tactic if your growth has been plateauing and you’re challenged to come up with solutions. Last year, online sales on Cyber Monday hit a record-breaking US$9.4 billion, so it’s important to demonstrate how you’ll capitalize on these power windows to drive growth this year.
3. Vehicles to Solicit Customer Reviews
In order to set yourself up in the best possible way for vendor negotiations, it’s key to show how you intend to solicit those all-important customer reviews — especially if Amazon claims that your reviews are not where they need to be.
With 84 percent of customers trusting online reviews as much as personal recommendations, your vendor manager needs to see that you’re not neglecting them and their importance in driving growth.
One way to do this is to leverage Amazon Vine, a service that Amazon offers to its vendors by invitation only. With Amazon Vine, you pay a fee to receive independent, genuine reviews on your product by sending it to selected Vine reviewers.
If you are facing challenges during negotiations based on the extensivity of your existing product reviews, you could negotiate Amazon Vine credits to demonstrate that you are seeking ways to solicit more customer reviews.
4. Facetime With Vendor Managers
Amazon’s vendor managers (VMs) are a busy bunch, and generally don’t have time to meet with any vendor valuing less than $10-15 million in a given category. They could be managing between 50 and 150 accounts at any given time. However, they are critically important in securing favorable terms during negotiations, so finding ways to communicate with them directly is valuable.
As most vendors don’t have direct access to their vendor manager, they will need the help of a third party. Partnering with an external organization that has years of experience negotiating vendor terms across a multitude of categories can be a golden ticket to gaining visibility with your vendor manager.
Many of these partners have spent years nurturing these relationships and building a great track record with the VMs. They can provide an opportunity to break past the wall of automated emails and get some real facetime with your VM to negotiate your terms.
Amazon hosts several events throughout the year, including seminars, conventions and beta events. Some of these include AdCon, Home Category Vendor Summit, re:MARS (AI and Machine Learning Conference), and invite-only Fulfillment Workshops.
These events can be extremely valuable for vendors, as you learn about Amazon’s strategic plans for the coming year and beyond. Amazon is notoriously secretive about what it does and how it does it, but getting a ticket into one of these events can give you a peek behind the curtain.
Not all vendors get invited to these events, but if you do manage to communicate directly with your vendor manager during negotiations, you could leverage that connection. For example, you could agree to the proposed terms on the condition that you are able to attend one (or more) of these impactful events.
It’s no secret that Amazon’s vendor negotiation terms are set to become more straightlaced as the company channels profits into resource-heavy projects like expanding same-day delivery. This should provide some food for thought for vendors that are over-reliant or entirely dependent on selling on the platform alone.
While there’s no doubt that Amazon dominates the e-commerce industry, providing a huge marketplace for sellers, there is a chance that the ROI could dry up, and selling on the platform could become too costly. Vendors should have a Plan B for the day when that might occur and start building a presence on other popular e-commerce websites, such as Walmart, whose e-commerce sales grew 37 percent in Q1 of 2019.
Ultimately, whether it means negotiating your vendor terms with a strong footing or future-proofing your business with a solid Plan B, you never should lose sight of the importance of preparation and strategy in what can be a hostile business environment. By using the above tips for securing a good deal and always thinking three steps ahead when it comes to the e-commerce ecosystem, you will be well on your way to building both short and long-term sustainable growth.