5 Steps to Amazon Vendor Negotiations for 1P Vendors
Article by: Xuanmai Vo
Every year starting in January, first-party (1P) vendors on Amazon must thoroughly assess their prior year’s performance and propose new trade terms for the upcoming year. This process is called Amazon Vendor Negotiations (AVN) or Joint Business Plan (JBP); both are synonymous, so the name boils down to different preferences. Nonetheless, the information still pertains to both, and Amazon vendors must prepare strategically.
Since this happens annually, 1P vendors are likely to negotiate with a different Amazon buyer each year, making it hard to build a robust and strategic relationship.
Amazon is known for projecting growth without a clear plan to achieve it; as such, we suggest Amazon Vendors start preparing and strategizing sooner rather than later.
Read on to learn more about how to best prepare for Amazon Vendor Negotiations in 2023.
“I highly encourage these conversations to be dynamic and inclusive of not only the finance team, but also anybody else within your internal organization that would utilize the investment that you’re seeking with Amazon for the future season.”–
Client Management Lead @ Media.Monks
Whether you are new or experienced with the negotiation process, we understand a lot goes into navigating the conversations and trade terms with your Amazon Vendor Manager or Strategic Accounts Services (SAS) team.
This process can be complex, extensive, and time-consuming, so to best prepare for this, we break it down into five steps:
1. Gather your data
2. Prepare your budget
3. Prepare your scenarios
4. Align your business stakeholders
5. Know your business partner
Gather your data
The first step in preparing for a successful vendor negotiations period is to gather the necessary background data to understand your prior investments fully, how the funds and programs benefit your Amazon business, what your return on investment (ROI) looks like, and what your priorities are going into 2023.
Locate your contract within your Vendor Central portal to identify the different core components within your trade agreement, or work with your finance team, who should have all the data readily available. Typical investments to analyze include but are not limited to:
- Base terms
- Marketing allowances
- Freight allowances
- Payment terms (net, 30/60/90)
- Volume incentives
- Damage and/or return allowances
- Other pay-to-play programs (Vine, Subscribe & Save)
Megan Boyko suggests downloading your contracts once a week (or once a month) from Vendor Central to keep a running total on your end. By having this data at your fingertips, the negotiation process should be easier and smoother.
Be sure to give yourself at least 3-4 weeks before trade negotiations to digest and analyze the data appropriately.
Ensure the data can provide insight into the following questions:
1. Did these investments produce a healthy return?
2. Will they support your brand’s future priorities?
3. Are there other programs your brand should invest in?
Utilize external resources:
While gathering the data yourself is essential, you can also reach out to your Amazon resources outside of Vendor Central, such as your Vendor Manager or Strategic Account Service Contact, and ask for additional data for further insight into your ROI. Sometimes Amazon will ask for additional points within the programs, so the goal is to be armed with the data to support either a rationale for not investing in extra points, reducing your costs, or better understanding Amazon’s requests and increases.
If you have invested in damage allowances in the prior year, ask for the background data at an ASIN and category level. The goal is to identify which ASINs applied for damage allowances and if this is still an appropriate investment for the future.
Within marketing allowances, background data at a category level can answer the following:
1. How were the marketing funds used?
2. Was spending used to drive search?
3. Was spending used to drive brand awareness?
Prepare your budget
Now that you have your data, the next step is to plan out your budget and start thinking about the different needs that go into your budget, which goes beyond what your brand’s priorities are.
While it’s critical to consider your brand needs, you should also consider the overall market conditions and what Amazon needs. By thinking about this in a macro holistic way, you’ll come to a budget ahead of time that is more suited for the environment that you’re negotiating in.
As you prepare the budget, it’s necessary to bring in the appropriate internal stakeholders who will utilize the budget in the future to ensure alignment across the board. Always start with your internal stakeholders first. Some best practices are:
- If you are on the sales team and speaking to marketing allowances or other marketing spend, bring in the experts within your marketing team.
- If you are looking at other shipping initiatives, bring in your demand planning experts and consider how their priorities will influence this.
Consider outlining what your brand is trying to achieve by including ALL categories in your annual investment, which provides the following benefits:
- More support for your brand
- Increased brand visibility
- It keeps your brand from looking fragmented
But why is it important to consider the market needs as well? 👉👉👉👉
We’re in an environment where shipping has been pressured the last two years, inflation is on the rise, and fuel costs are increasing, so with this, Amazon might ask for higher freight allowances to offset shipping costs.
Determine if this is something you are willing to invest in to achieve your other priorities; so if your product launches are going to be challenged, investing extra to support your operations might be an avenue to take.
Prepare your scenarios
Once you have your data and your people, start preparing for different scenarios by analyzing from start to finish and asking yourself questions such as:
- What is acceptable, ideal, and non-negotiable for your brand?
- What does achieving all your priorities look like?
- What would make it most profitable and margin-healthy?
- What programs best support new product launches?
- How can you prepare the best presentation from a marketing standpoint?
- What is going to best support your back-end operations?
- Where can you make some concessions if you need to?
- Are you willing to give a little to get a little more?
Preparing ahead of time makes the negotiation process smoother as it keeps you from getting into a sticky situation and having to go back and forth. Since you will have the scenarios planned out, you’ll be much more comfortable as you lead into the next step of negotiations.
Align your business stakeholders
After preparing your budget and scenarios, the next step is aligning your stakeholders for effective decision-making, which means appropriately aligning your leadership team with Amazon’s leadership team. This alignment is because each person within this stakeholder matrix will have their own set of priorities and needs that must be achieved.
Amazon Vendor Negotiations can take a long time, so to avoid having to go back and forth, all parties from your internal team and Amazon’s team should be present to expedite the process. Try and match Amazon’s style, which tends to be much more intimate with a smaller group of people.
If you have a Senior Vendor Manager on the Amazon side managing the negotiations, your internal stakeholder should be appropriately aligned; whether that be a Senior Account Manager or a Senior Sales Director.
If you’re having conversations about enrolling in a Strategic Account Service, you’re not going to talk to the In-Stock Manager.
Know your business partners
Now that you have aligned the stakeholders, the last step is to spend some time understanding your business partner and their priorities. Assess what Amazon wants and draft a list of counter-negotiation points to support your winning requirements.
Knowing what data your business partner will use to support their negotiations can be highly insightful. Typically, Amazon stakeholders are going to be pulling the same metrics and scorecards that are available in Vendor Central, which covers all operational and retail performance metrics such as net PPM, lost Buy Box rates, out-of-stock rates, and more.
Some may think Amazon is aggressive with its demands, but it is usually rooted within data. Amazon is very transparent with its goals and supporting data, so by preparing ahead of time, you will be in a better position to get the most from your Amazon Annual Negotiations.
Use this AVN time to establish where you want your joint business plan and brand partnership to go in the next year and the next five years. From there, your Amazon Vendor Manager can help guide you and pair your priorities with Amazon’s to move forward with a successful business plan.