You’re at a trade show and one of the Amazon Buyers shows interest in your product. 2 Days later you receive the email..
‘You’ve Been Invited to Amazon Vendor Central!’
Great! You’ve been invited to begin negotiations with the buyer at Amazon to sell your ‘stuff’ directly to Amazon as your customer. The thought of supplying your products to a huge retail giant like Amazon can be exciting, although how do you begin to negotiating with a retail giant and category buyers who are expert negotiators and who do this every day of the week?
The following points describe good practices that have proven useful on how to negotiate prices with Amazon Vendor Central buyers and successfully come out the other side, without losing your shirt in the process..
1. Take a deep breath, relax and plan you’re strategy. You’ve received the invitation to setup your Amazon Vendor Central Account (AVC) so although there’s work to be done and you want to strike whilst the iron is hot, you’ve got your account open which is you’re foot in the door with Amazon.
As you’re probably aware, AVC in strictly invite and YOU”RE already invited. Even though you don’t want to keep the buyer hanging around the last thing the buyer is going to do is kick you out before negotiations even begin. Remember ‘they’ approached you. Amazon want a continuous fresh supply of new products populating their site pages so you do have time to get organized and plan your negotiation strategy before proceeding.
2. How far can you go when negotiating with Amazon? You would expect to be able to negotiate and Amazon are very open to negotiations. Although of course just like any other business, they would expect to make a reasonable amount of profit from their investment in purchasing your products to resell, (reasonable being in line with current products they are selling in the same category).
Negotiations will also depend on the individual category buyer. Each Amazon product category has a different buyer assigned and Amazon rotate their buyers from time-to-time which makes it a pain if you’ve already established a good relationship with one buyer.
If Amazon have sent you the invite to setup the AVC account they definitely won’t simply disallow you to continue based on the pricing you submit. Rather they are open to negotiations. In my opinion its better to start with high pricing than low since you can always negotiate down, as long as your pricing is reasonable.
3. Negotiate the Amazon Vendor terms. Prior to offering your first prices, the buyer will probably send you the ‘standard’ terms offer to supply Amazon. This is a requirement for all suppliers. Depending on the category of your product (all categories have different allowance percentage and terms that possibly vary) you’ll generally expect to receive something like this..
‘Amazon Vendor terms include the right for Amazon to return overstock at 100% recuperation’.
This is normal for all vendors so you should expect this to apply to you also. Amazon want to be able to return any stock they order in the event it doesn’t sell. This could apply to items that maybe include expiry dates and are nearing the 6 months expiry window (Amazon won’t keep inventory with an expiry date less than 6 months) or, it could possibly be very old inventory that just hasn’t sold.
You should also expect to receive percentage discount terms, something similar to this.. (keep in mind these figures vary for each product category so when you receive the terms the numbers might be different)
1-3% discount if they pay before 60 days.
1-5% damage/returns allowance
5-15% marketing
These figures usually differ from category to category and the outcome of the negotiations could depend on how badly they want to find vendors for your particuly category, to fill their online portfolio with more products at any given time. The percentages obviously are a percentage of the pricing you submit so make sure you build these percentages into your pricing.
Here’s a brief description for each of the terms..
Early payment discount
You should definitely try to negotiate the early repayment fees (they nearly always pay just under 60 days to get the discount so build this into your pricing). You should also try to negotiate firmly but politely on the other terms percentages. If you come across fair and polite, the worst that can happen is that the buyers tells you its not possible.
Damage/returns allowance
Hopefully you wont have any returns although if and when products are returned, if Amazon can put these items back into stock, this is what this charge is for. If the damage/return fees are set as a percentage of your wholesale cost then any charges incurred will depend on what your agreed wholesale cost is going to be.
If you have any history of receiving returns from other customers I would use this as a guide to build any potential fees into your wholesale cost. Again I would negotiate on the low side at say 1.5% to 2% to begin with if your pricing model can withstand this.
As a side note, even with the best product there will always be a customer willing to return a product. There’s also a possible chance of damages occurring during transit etc or when the item reaches the customers home. Amazon don’t argue with customers, they tend to refund first and ask questions later so for these reasons and if a product IS returned, you should also think about how you would dispose of those goods.
If Amazon are able put the item back into stock this is what the damage/return fee is for. Although if the product is damaged and if Amazon want to return the item to you, are you able to withstand the loss if you request Amazon to dispose of any damaged goods? Or could you possibly recoup your costs with a second sales outlet for ‘slightly damaged’ goods? Something to think about maybe?
Marketing fees
The marketing fee varies from category to category and from feedback from consulting clients can vary greatly between 5%-15%. This is a standard line they charge for although I wouldn’t expect any ‘special’ marketing or exposure from Amazon simply because you’re paying the fee. Every vendor will be asked to pay the marketing fee although it seems that Amazon tend to commit more resources and exposure to the products that make them the most profit.
4. Submit your favorable pricing to the buyer. Once you’re happy with your pricing model taking the term fee percentages into consideration you should submit your wholesale pricing along with your proposed revised percentage fees at the same time. This way the buyer is able to calculate potential profitability.
You would simply come up with a wholesale price you are happy with making sure you cover the percentage fees above that Amazon are suggesting. If Amazon decide not to budge on the fee percentages, you’ll still be covered because you’ll build the suggested fees into your pricing from the start off.
To summarize you should definitely negotiate to keep your profit margins healthy.
Maybe try to find other similar products being sold in your category on Amazon and see what the selling prices are. Of course products in the marketplace differ and each would have its own unique pricing depending on the perceived value of the product.
All said and done, you should start your negotiations off with higher pricing to begin with – you can always work your way down to secure the deal.
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It would be interesting to hear your experiences with the Amazon Vendor negotiation process. If you have any questions and experiences dealing with Amazon Vendor Central leave a note below this post and tell us what the outcome was..
