The Amazon Vendor Negotiation (AVN) is an annual process where Amazon meets with its vendors, shares an assessment of past performance metrics, and proposes a structure of the terms of trade for the following year. While most retailers see these joint business plans as a way to build and nurture a relationship with their suppliers, Amazon uses them primarily to improve its commercial and operational performance. Here, we will break down the terminology vendors often encounter and top tips for getting the most out of your Amazon vendor agreement negotiations.
Understanding Vendor Agreements With Amazon
When vendors are in the process of negotiating new or revised contracts for their accounts, Amazon will push for several accruals and allowances in addition to the cost of goods that they sell to Amazon itself. These agreements typically come in the form of percentage discounts off-net receipts at cost and are often deducted from monthly payments unless agreed otherwise.
The agreements and percentage amount will vary by brand, marketplace, and product category. Unless the vendor agrees on different terms, these are annual agreements that will continually carry over. Amazon has minimums that they have to achieve for each account, and these benchmarks are continually changing. The terms agreed to will impact the profitability of the overall account and might influence how willing Amazon is to invest in that vendor.
Each year, Amazon reviews its terms and agreements with every account, and if it is not meeting its minimums, Amazon will ask vendors to make optimizations and provide them with a further discount. As you approach the renewal, be aware that your revised agreement might call for a higher percentage of allowances in regards to returns, marketing, and other related terms. It’s important to note that vendors will never get better terms, but they can avoid agreeing to unfavorable term revisions or find a win-win compromise.
Preparation and Strategy for the Amazon Vendor Negotiation Process
The annual negotiation process usually begins with a kick-off meeting, followed by a series of negotiations surrounding the commercial terms of the deal. Amazon is known for placing a hefty price tag on a projected growth scenario, often without clear plans on ways to achieve it. This is when the actual negotiation begins.
Typically, negotiations on trade terms follow a sequence of phases: preparation, negotiation, escalation, and implementation. The preparation phase involves both the vendor and Amazon reviewing the account’s performance in preparation for a negotiation strategy. The negotiation phase is then marked by an exchange of commercial and counter-proposals.
If both parties are unable to reach an agreement, they might move into the escalation phase. During this phase, meetings may be held amongst senior stakeholders, and both parties might introduce measures to emphasize their position. Once an agreement has been reached, the negotiation concludes with the implementation phase.
With this sequence of events in mind, it’s crucial for brands to adequately prepare to discuss terms with Amazon. Vendors also should consider gathering marketing plans and data from the previous year. This can help determine your Amazon Advertising investment and how that investment grew your business and benefited Amazon. Utilize the tools and metrics available in Amazon Ads and on Vendor Central to demonstrate any progress made.
One important thing to note during the negotiation phase is that vendors are bound to encounter several terms or phrases when discussing agreements with Amazon. Vendors must take it upon themselves to understand what each item means and how it might impact their business before agreeing to it. To help navigate this challenge, Ideoclick experts listed some common phrases used during Amazon Annual Vendor Negotiations and what each of them means.
Control the Outcome of Your Annual Vendor Negotiations With Amazon
Comprehensively understanding your data and having a future strategy in mind is key in controlling the outcome of your annual negotiations with Amazon. Brands not only need to be able to demonstrate and provide the results of their investments, but they also should highlight how their business is on the correct trajectory for success.
And to help brands be even more prepared, Ideoclick experts have created a negotiations tracker spreadsheet that enables you to enter vital information specific to your Amazon business prior to your negotiations call.
With this tool, you can instantly understand how proposed changes and terms will affect your total costs. Ready to get started? Download the Negotiations Tracker Spreadsheet