As of mid-April 2023, most Amazon 1P vendor brands are either attending Amazon Vendor Negotiations (AVN) also known as Joint Business Plans (JBP), or in the initial stages of working with their vendor manager to create a business plan for 1P sales for the next 12 months.
Here are a few tips designed to help vendors prepare for AVNs.
1. Download your sales and operations data from Vendor Central.
Brands should already have this habit, but in prep for AVNs go to Vendor Central, download the agreement, and prepare notes on the core elements of the latest agreement. Pay special attention to allowances (marketing and freight), terms (base and payment), incentives (volume), and pay-to-play programs.
2. Know your true 1P costs.
Ensure you and your team have a thorough understanding of costs – both on and off of Amazon. Calculate all the costs related to selling via 1P. What are your PPM (Pure Product Margin), Net PPM, and Operating Margin? Same for your off-of-Amazon costs.
PPM (Pure Product Margin) – This is based on the wholesale prices Amazon pays for your items in 1P purchase orders. PPM reveals the ratio of net profits to revenue.
Net PPM – This factors in all the operational costs that it takes to operate on Amazon’s platform such as labor costs of your Amazon team (or agency), logistics, and purchase order processing.
Operating Margin – Net PPM plus other costs that Amazon charges brands for not ensuring that the relevant products are available to consumers. < Proposed: This is the operating income minus all operating expenses including variable costs for production, wages, and raw materials
3. Ask the right questions.
When you can speak with your vendor manager – ask the right questions. Ask for details on how marketing development funds (MDF) were used at an ASIN level. Which ASINs were used during promotions and marketing events, and how did this impact customer impression numbers and of course, sales?
The Amazon Vendor Negotiation (AVN) process is potentially stressful but if you plan accordingly, and prepare scenarios and questions that are both relevant and attainable, you can help to ensure that the entire AVN process is beneficial to your brand.
This can be a complicated process full of moving parts, so take the time to prepare to ensure that your team is adequately informed and ready to interact in a meaningful way with your Amazon vendor manager.
If you agree, disagree, or would like to debate any of this, please reach out to Equity Commerce today. We look forward to hearing from you.