Vendor Central – Business Value
Optimizing Amazon Vendor Agreements & Pricing
Other Vendor Central Agreements to Consider
• When it comes to choosing how you send your Purchase Orders to Amazon, Amazon allows you to select between two options:
* Collect – Which means that Amazon pays for the freight, which has the benefits of being able to make use of the highly favourable rates of shipping
that Amazon has negotiated with their carriers as well as leaving Amazon to make all the shipping arrangements using their preferred carriers; but the requirement of you having to agree to a Freight Allowance which is updated annually and which becomes a part of your initial standard Agreements with Amazon; or
* Prepaid – Which means that you pay for the freight of your Purchase Orders to Amazon’s Fulfilment Centers but at non-Amazon negotiated shipping rates and which requires you to make all the necessary shipping arrangements yourself, but where you can use your own preferred carriers.
• Whichever option you end up choosing is ultimately dependant on how you setup your costing model per ASIN to Amazon, that is, you would need to include the Freight Allowance percentage into your costing model per ASIN, otherwise, if you choose Prepaid, you would need to calculate your percentage freight per ASIN and include that in your model.
• The best approach would be to run both calculations BEFORE selecting a Freight Option. Calculate your freight percentage per ASIN to the furthest Amazon Fulfilment Center for your first costing model to calculate ASIN costs if you choose Prepaid as your Freight Method.
• For the second costing model, use the standard 5% for Freight Allowance for the Collect Option with Amazon.
• And for a third calculation for the Collect Option to factor in increases in the coming year or two, use up to 7% for Freight Allowance from Amazon.
• These models will then assist you in selecting the correct Freight Method for you and the one that will be the most economical and profitable for your business with Amazon.
• You have several options from which to choose when it comes to the handling of your returns:
* You can choose to not have any returns, which is a lot less effort and administration but can result in a higher Damage Allowance percentage on your Agreement.
* You can choose to accept any returns with no maximum or minimum value stipulated, which can greatly reduce your Damage Allowance percentage on your Agreement.
* Or you can choose to accept some returns, which you can specify. Perhaps you would only like to receive damaged products so that you can have your
Quality Control Department run investigations on them in order to improve production of the ASIN; or perhaps you wish to accept overstocked product returns only, in which case you can negotiate a percentage of overstocked ASIN, for example, if the ASIN is 20% overstocked, you will accept the return.
• Regardless of which of the above options you end up choosing and how you specify them, you would still be liable for the Damage Allowance Agreement and would need to factor this into your initial costing model per ASIN before uploading your Product Catalog onto Vendor Central.
• Running a variety of costing models with Damage Allowance percentages ranging from 2% (for full acceptance of all returns) all the way up to 6% or 7% (for no returns whatsoever) will enable you to make the best decision for your business with Amazon before agreeing to a Return Policy with Amazon on the setup of your account with them.
Other Ad Hoc Agreements – Vine Enrollment
• The Amazon Vine program allows Vendors to receive reviews on their products by paying a set fee per ASIN.
• The current fee per ASIN can be found on your account by going to the “Merchandising” tab on the top menu of your Vendor Central Dashboard and selecting “Amazon Vine” from the Drop Down Menu.
• This page will give you more information on what the Vine Program entails but it should be remembered that, as Amazon selects their reviewers for this program from what they consider the top reviewers of Amazon products on Amazon, known as “Vine Voices”, it does not necessarily mean that all of these reviewers are professional reviewers.
• It also doesn’t mean that you will get a good review from the reviewers, in spite of the amount of money you pay to enrol in this program.
• The fee is normally deducted from a remittance and is payable within a month or two of the program being completed, or at a time designated by Amazon itself.
Other Ad Hoc Agreements – Subscribe and Save
• The Subscribe and Save Program for consumers allows them to sign up for systematic deliveries of those products that they use often for which they also receive discounts and free shipping.
• For a Vendor, this means you would need to agree to certain terms to have your products eligible for this Program.
• There are two types of Subscribe and Save orders that consumers can engage in:
* Signup Orders, for the initial order placed; and
* Replenishment Orders, for the follow up orders. These are automatically generated by Amazon based on the frequency and quantities set by the consumer.
• As a Vendor (or a Fulfillment by Amazon supplier), you can apply for this program to see whether your products are eligible for it.
• If you are eligible, you can go to your Account Settings on Vendor Central under the “Settings” tab and “Account Management” to enable your participation in the Subscribe and Save program; or you can contact your Buyer directly.
• If you cannot find the option to enable your participating in Subscribe and Save in your Account Management settings then you are not eligible for the program.
• If you do become eligible, this option will automatically be enabled in your settings and you will be notified via email by Amazon or on your Vendor Central Dashboard Home Page under “recommendations”.
• Amazon bases its eligibility criteria on your sales history, operational performance metrics, etc. In order for you to be able to participate, you must be selling to Amazon via Fulfillment by Amazon and not Direct Fulfillment, you must be in good standing with Amazon, have a feedback rating of 4.7 or higher and have been active for longer than 3 months.
• Your products must have an in-stock percentage greater than 85%.
• For eligible offers, the Subscribe and Save discount is applied to your price for the product on the day the order is placed.
• The Subscribe and Save discounts range from 5% to 15% on most products, and up to 20% on selected items (such as diapers).
• The discount varies depending on the number of products the customer subscribes to.
• Customers used to be able to unlock extra savings on eligible subscriptions when they subscribe to five or more products (from any vendor, not just your products) to be delivered on the same day to the same address.
• Now, sellers can choose to offer a 5% or 10% discount immediately to customers who have up to 4 subscriptions.
• However, once a customer tiers up to 5 subscriptions, Amazon will fund the extra 5% discount, for a total of 10% or 15% discount offered to the customer.
• The decision on whether to offer a 5% or 10% discount upfront should be made with data: while you are likely to see an increase in subscribers with a deeper discount, you’ll need to determine whether the margin erosion is worth the increased sales.
• The discount will be calculated before other discounts except for any Deal of the Day offers on your products.
• You fund the Subscribe and Save customer discount from your monthly payments from Amazon, and only on the products enrolled in the program.
• Any coupons or other promotions you offer also apply to your Subscribe and Save products.
• For example, if you run a promotion offering a 20% discount on a product that is also available through Subscribe and Save, that discount will be added to existing subscriptions and will result in a total customer discount greater than 20% for subscriptions.
• Subscribe and Save is not currently offered for Media products.
• To register, click on the “Contact Us” button in your Vendor Support Center, select “Promotions and Marketing”, then “Subscribe & Save” and request the agreements for enrollment.
• Once a funding agreement is signed, all the products in your catalog that ship to Amazon fulfillment centers will be evaluated weekly based on a variety of criteria, including repeat purchase relevancy, operational and profitability metrics.
• Once products are enrolled in the program, the Subscribe & Save buy box will be enabled on your detail page.
• Remember that the discount applies to the selling price that you set for the products you offer as subscriptions and is deducted from your revenue.
• Once a customer is registered for the program, Amazon will pick, pack, and ship your Subscribe and Save order(s) for you.
• For Vendors, this percentage is normally calculated for the month and deducted from a remittance in the following month.
• It can also be negotiated at a starting percentage of 5% per ASIN only if you are a Vendor but we recommend you discuss this with your buyer initially.
Other Ad Hoc Agreements – Price Protection Program Policy
• The Price Protection Program Policy is as recent as February 2019 and means that, if you reduce the cost price of your products to Amazon, the Policy will allow Amazon to automatically apply the lower cost price to all outstanding purchase orders, products in transit, and existing on-hand inventory.
• The benefit is that, if you wish to lower the cost price of all products in the same range, or an entire ASIN family on Amazon, you only need to lower the cost on one child ASIN and Amazon will automatically lower the cost for the rest of the family of ASINs.
• The bad news is that, if you don’t want the full family of ASINs to be sold at this new cost to Amazon, you basically can’t stop them from changing the costs for all ASINs in this family of products, whereas before, you would need to approve this cost decrease first.
• Amazon explains the policy as follows:
* “Amazon will automatically deduct any amount under the Policy from subsequent payments due to you as reflected on price protection documentation that we will send to you.
* Due to the new automated nature of price protection, we are eliminating a requirement for you to log on to Vendor Central and manually approve price protection agreements.
* This will reduce the likelihood that you’ll receive returns of high-cost inventory and also allow our systems to incorporate the updated cost price of your product faster and more consistently, which may result in the retail offer being the featured offer on the detail page.”
• In the Agreement itself, it states that “We [Amazon] will calculate and claim credit for price protection on the on-hand inventory. We [Amazon] will pay the cost for the in-transit inventory as adjusted for price protection.”
• It is therefore imperative that, before you calculate your costs per ASIN that you are aware of how this policy works, as well as understand and know what your goals are with regards to the profit you wish to achieve per ASIN that you sell to Amazon.
• In order to limit future adjustments and position products at competitive retail price points on Amazon and across the Amazon Marketplace, you must know what your base profitability is first and then add on a buffer to accommodate discounts, promotions, and the event of a Price Protection Policy being issued on a family of ASINs.
• You can find more information on the Price Protection Policy by going to the “Support” center on your Vendor Central Dashboard, selecting the “Help” tab, clicking on “Policies and Agreements” and then “Automatic Price Protection”.
Other Ad Hoc Agreements – GMM, Net PPM and PPM
• Guaranteed Minimum Margin (GMM) agreements are used to ensure that a group of transactions meet an agreed-upon profit margin within a given billing period. Transactions may be grouped at the vendor, product, category, subcategory, or ASIN level; the term is set out in the GMM agreement. GMMs may use either a Pure Profit Margin (PPM) or Net Pure Profit Margin (Net PPM) calculation to measure profitability. For more information about defined terms in your GMM agreement, see the “Agreement Definitions” document in the Vendor Central Resource Center under the “Legal” Heading.
• Pure Product Margin (PPM) is a measure of profitability based on Pure Product Profit. Pure Product Profit = Product Revenue – Product COGS, or, in other words, a product’s offer price minus its vendor cost.
• Net Pure Product Margin (Net PPM) is a measure of profitability, similar to Pure Product Margin (PPM), but where the additional terms of Vendor Funded Contra Cost of Goods Sold (VFCC or Vendor Funded Campaigns) and Sales Discounts are also factored into the calculation.