In fact, Pat Petriello, Senior Marketplace Strategist at CPC Strategy, believes it’s the biggest mistake a new Vendor can make:
“New Vendors sign whatever agreement Amazon presents them…without realizing those terms are negotiable. It’s much more painful down the road for a Vendor to realize they’ve agreed to unfavorable or even financially untenable Vendor trading terms than it is to take the time upfront to make sure those terms are negotiated upon.”
Know How Amazon Vendor Managers Work
First off, if you’re interested in being a part of Amazon’s Vendors program, but you haven’t received an invitation to join, you can still sign up for Amazon Vendor Express. It’s a slightly more limited self-service tool. Learn more here:
Now, onto the negotiation. It’s hugely important to see this negotiation not as a self-centered deal, but as a win-win scenario for you and Amazon.
Carina McLeod, Amazon Consultant and former Vendor Manager, shares why this is important: “Whilst Vendors can negotiate, they want to get the right balance and ensure that Amazon still benefits. If they don’t, Amazon won’t invest in them. The Vendor should be working with Amazon in partnership, focusing on a win-win situation so all agreements are mutually beneficial and profitable for both parties.”
In order to negotiate with Amazon Vendor Managers or “Buyers,” you have to know how they think. Here are some key things that will shape your approach to negotiating your seller fees:
- Amazon wants as much selection as possible.
Amazon wants to be the first resource buyers choose for a product, and that means they need a great selection. Vendors with a lot of high-demand ASINs will be seen as more desirable to a Vendor Manager.
- Vendor Managers are busy.
This means they don’t have time to discuss your thoughts in long emails. Make sure every piece of communication is to-the-point.
- Vendor Managers focus on key accounts.
Vendor support is in most cases your first point of contact, and for smaller accounts—your only point of contact. However, Vendor Managers are swamped and they will always focus most on their biggest accounts. All other Vendors must be self-sufficient and rely on Vendor Support to solve issues.
What are the Best Amazon Trading Terms to Negotiate?
These are the terms that are included in a Vendor agreement with Amazon:
- Payment Terms
- Freight Allowance
- Damage Allowance
- Subscribe and Save (SNS)
- Terms and Conditions
However, not all of these are negotiable. Here are some of your best options for negotiating:
The most important thing to do is to ensure your Vendor Central business is profitable from the outset. We recommend you look at cost prices and allowances as a total before you settle allowances and accruals. For example, if you have a total 40% margin to offer, you can divide this across the various allowances and cost prices. If Amazon wants more allowances, you can increase the costs to accommodate.
Before you agree to full return rights for undamaged overstocks and damaged products, try to push for no returns or at least push for a lower rate e.g. 25% on overstocks. For damaged products, you may choose to accept returns on defective products and items damaged by the carrier but not the warehouse damaged returns.
You can either negotiate “prepaid” (you pay) whereby you pay to ship the items into Amazon and manage the shipment, or “collect” (Amazon pays), where Amazon pays for the shipping and shipments are made by Amazon’s third party carriers. Amazon receives very competitive shipping rates and often Freight Collect is the most attractive option. However, the Vendor does pay for these shipments in the form of Freight Allowance.
Accruals & Allowances
Amazon will push for a variety of accruals and allowances including marketing, damages, freight and SNS. These accruals and allowances depend on the product category, freight terms and return rights agreed with Amazon. Amazon has minimums they need to achieve and this will vary across product categories. Build these allowances into your costs. Also, remember that Amazon may ask for further allowances on an annual basis.
Amazon will push for the longest payment terms, but shorter payment terms are better for most businesses. To incentivize Amazon to agree to shorter payment terms, you may have to offer a quick pay discount, which can be anything from 1-3%. For example, this could be 60 days from the date of invoice or 30 days with a 1.5% discount. In addition, be careful with the terminology, and try to agree on payment from the date of invoice or net as opposed to the end of the month. The end of month wording can sometimes add an additional 30 days if the invoice is sent at the start of the month.
How to Plan Your Trading Terms Negotiation
When planning a negotiation, you should plan out the minimum you will offer, a middle ground or ideal situation and the maximum you can give in advance. You should know exactly where you can make sacrifices before you start.
As we stated before, brands with many ASINs that are high in demand have more leverage in a negotiation with Amazon.
Here are some concessions you can offer to get a better deal overall:
- Product Exclusivity
- Press Coverage
- Promote as stockist on website
- Merchandising (Supporting A+ pages, Vine program)
The main key is to not focus too much on any single area, but work on an overall shift in terms that works for both you and for Amazon. Let’s say you already signed your contract with Amazon, and you wish you had this information earlier. Can you renegotiate?
Negotiating Amazon Trading Terms on Current Agreements
There is a possibility that you can renegotiate those contracts. However, there are a few questions you should ask before attempting to renegotiate your contracts:
- Are you one of Amazon’s key accounts?
- Do you have a solid relationship with your Vendor Manager?
- Can you offer anything in exchange for a renegotiation (perhaps a larger selection of ASINs)?
- Is anything at stake if you aren’t able to renegotiate?
Danger Zone: If you are seriously debating removing your brand from Amazon due to hardships caused by fees, you can choose to stop all orders until a Vendor Manager will engage in a negotiation, or provide Amazon 60 days written notice and cancel agreements. This could be effective, however we only recommend you take this path if you are truly in a tight spot, and not simply because you want to manipulate Amazon into renegotiating with you.
Keep in mind agreements are typically annual, and in most cases, automatically renewed when a purchase order is confirmed. Right before the annual contract ends, it’s a good time to renegotiate those terms.
Keep in mind if you move forward with a cancellation, the following provisions will still be in place once the contract terminates: warranties, product information license, indemnification, insurance (up to 12 months after end date), confidentiality, payment obligations, choice of law and jurisdiction, and Amazon will still need the Vendor to be available to help with any product/customer issues.
The Bottom Line
Throughout this entire process, it’s important to maintain a good relationship with Amazon—even if you do decide to part ways and move on to other selling channels. The chances of being taken on as a Vendor again after you break it off are slim, but you will have a better chance if you part on good terms.