Annual negotiations with Amazon are key to ensuring profitability and a successful year for first-party vendors.
What is the Amazon Vendor Negotiations (AVN) program?
The Amazon Vendor Negotiations Program, sometimes referred to as Joint Business Plans (JBPs) or trade negotiations, is an annual process where Amazon collaborates with its vendor partners to establish trade terms for the coming year. These discussions cover a range of key topics, including pricing, marketing investments, promotional activities, payment terms, and growth targets.
The AVN program is an opportunity for both parties to align their goals and establish a mutually beneficial partnership. Vendors use this time to showcase their impact on Amazon’s platform—highlighting sales performance, product visibility, and their contribution to customer satisfaction. In turn, Amazon seeks to ensure competitive pricing, efficient operations, and continued growth through collaborative efforts.
By coming prepared with clear data, goals, and strategies, vendors can secure favorable terms that support their business objectives while contributing to Amazon’s overall success. The AVN process is a vital part of maintaining a strong and productive vendor relationship with Amazon.
Understanding Amazon's Priorities
To succeed in vendor negotiations, it’s crucial to understand what are Amazon’s priorities. At its core, Amazon’s ultimate goal is to remain the dominant marketplace by continually attracting and retaining customers while optimizing operational efficiency.
Understanding their goals allows vendors like yourself to align your strategy with Amazon’s priorities and strengthen your negotiating position. By showing how you contribute to these outcomes, you enhance your value as a partner.
11 Best practices for Amazon vendor negotiations (AVN)
1. Have a robust strategy
If you approach an AVN (Amazon vendor negotiation) without a solid plan, you will stand very little chance of getting an outcome you’re happy with. It’s important to have clarity around your goals and limitations right from the start.
Product Manager, Amazon Vendor at ChannelEngine
No matter how much negotiating experience you have, you should take the Amazon annual meeting very seriously and prepare intensively.
Let’s take a look at what it takes to achieve a positive outcome from your Amazon Vendor Negotiation (AVN).
2. Focus on contra COGS negotiation
The primary focus of negotiation will revolve around Contra COGS (Cost of Goods Sold). These are the fees Amazon deducts from the product's cost price. This aspect constitutes a significant portion of the negotiation, approximately 80%. Typically, cost prices are fixed, and Amazon calculates its standard product margin (from cost price to RRP) using historical data.
Amazon expects this margin to remain consistent and its system flags any attempts by vendors to alter the product margin for new items. Due to rising material and logistics costs, vendors seek to increase their cost prices with Amazon to offset these additional expenses.
3. Optimize CoOp agreements
Joint marketing activities between Amazon and its vendors are done through arrangements referred to as "CoOp agreements." Tracking your data in these agreements is important, though Amazon doesn’t make this easy.
Amazon shifts some operational costs to vendors through accrual agreements. These include fees for freight services, damage allowances covering product damages, and return allowances.
There are also fixed payments vendors make to Amazon for specific merchandising opportunities, such as securing spots on promotional landing pages.
Vendors can receive discounts to reach specific sales volume targets, encouraging them to keep Amazon’s shelves stocked with popular products. The discount could be a fixed percentage or increase with higher sales volumes.
To secure better terms during annual negotiations with Amazon, vendors should focus on meeting or exceeding the benchmarks set by Amazon in previous agreements. Demonstrating consistent sales volume, maintaining stock levels, and ensuring product profitability can strengthen your negotiating position.
4. Prepare your offers and limits
Before entering negotiations, establish your initial offer, counteroffer, and the boundaries you’ll stick to before you engage in talks. This groundwork will help you steer the discussions to your advantage (or at least away from your disadvantage) and help you avoid making concessions under pressure. For example, if you’re negotiating the cost price of a product, know exactly how low you can go while still protecting your margins, and don’t budge from this. Finally, it’s always a good idea to be able to reflect and assess any proposals before committing to them.
Co-founder, Marketplace Maniacs
5. Review past agreements thoroughly
When preparing the document, take into account any previous negotiation rounds with Amazon. What commitments were made? Were there any that weren’t honored? Knowing what’s gone before will help you inform your strategy and ensure you don’t face any unwanted surprises. It will also help you identify patterns in Amazon’s negotiation tactics and might provide insights into how they might approach future discussions. You can use this information to prepare strong counterarguments and reinforce your proposals.
6. Take the initiative during discussions
Amazon often comes prepared with extensive presentations and data points. This means you need to be proactive rather than reactive. Prepare your data and proposals well ahead of time. This will ensure you’re able to lead the discussion rather than just respond to Amazon’s points. Crucial to this is an understanding of your product's market positioning, competitor pricing, and Amazon’s retail analytics. By anticipating its demands and framing your responses around mutually beneficial outcomes, you will be better placed to steer negotiations in your favor.
7. Know your numbers
Understanding your data at a granular level is crucial for making informed decisions during negotiations.
Co-founder, Marketplace Maniacs
8. Track profitability at the ASIN-level
For first-party vendors, profitability isn’t just about the overall account; it's also about understanding your products’ performance. Know how to track your sales and profit metrics at the ASIN (Amazon Standard Identification Number) level. Knowing which products are driving profits and which are dragging down your margins will help you to make robust data-driven decisions. By regularly analyzing the profitability of individual ASINs, you will be able to identify your underperforming products and take any corrective actions, such as adjusting prices or renegotiating cost terms.
Some Amazon Vendor services can be difficult to use and somewhat inflexible. ChannelEngine’s Vendor Hub provides a seamless solution to help identify pricing errors, understand Amazon’s margin support requests, and optimize vendor operations.
9. Be thoughtful about your offers
Creating a robust negotiation strategy involves more than just knowing your numbers; it’s about making strategic moves to protect and enhance your profitability.
Consider the long-term impact of your negotiation offers and think carefully about how each proposed change will affect your portfolio's overall profitability. This approach ensures that any concessions made do not disproportionately impact your margins.
10. Balance cost decreases and strategic increases
It’s important to understand your profit margins on each ASIN. This approach helps you manage your overall account margins effectively, even when some cost prices need to change.
Negotiating cost price adjustments with Amazon requires a deep understanding of your product's profitability and a well-prepared case for negotiations. Amazon is likely to reject your suggestions so be ready to highlight how any adjustments can drive higher volumes, based on the profitability of individual ASINs to maintain or improve overall account margins.
Consider also bundling cost price increases to ensure a timely review and make sure you use the tools available to demonstrate your commitment to the cost change.
11. Minimize your direct cost support to Amazon
Direct cost support, such as giving discounts directly to Amazon, can erode your margins. Instead, focus on joint cost-saving initiatives. Consider negotiating bulk-order discounts or looking at logistics efficiencies that benefit both parties. Some proposals might offer mutual benefits, such as shared marketing initiatives or co-funded customer acquisition strategies. This can help reduce costs without directly impacting your margins.
Doing Amazon vendor negotiations well requires a clear strategy, data-driven insights, and a focus on mutual benefits. Key recommendations include:
- Strategic preparation: Define your offers and limits, review past agreements, and take the initiative.
- Detailed data analysis: Understand your profitability at the ASIN level and monitor ASP fluctuations.
- Thoughtful negotiation strategies: Balance cost decreases and increases strategically and prepare to lead the negotiation.
- Mutual benefit exploration: Reallocate promotional funding effectively and focus on joint cost-saving initiatives.
By putting these strategies into practice, Amazon vendors like you can be better equipped to enhance negotiation outcomes, protect margins, and achieve greater profitability.
