Sellers want to become suppliers and negotiate with Amazon? Here are a few points to keep in mind...

Many sellers want to transform into Amazon's suppliers and need to negotiate with Amazon.

If well prepared, suppliers can face Amazon from a position of strength. It’s important to remember that Amazon doesn’t see itself as a business of selling goods, but rather a business of helping people buy goods. The company is focused on satisfying customers’ demands for the best prices. The key to Amazon’s profitability lies in the deals it strikes with suppliers.

When negotiating with suppliers, Amazon Vendor Managers evaluate contract terms called “ contra-CoGS ” , which is balanced against the cost of goods sold ( CoGS) and forms the core of Amazon’s incredibly successful business model. Vendor Managers want profitable merchandise, the widest possible assortment, reliable availability, and the most favorable contract terms. These terms are negotiated with suppliers, who can and should be well prepared for the process.

In negotiations, Amazon will use terms like “ co-op ” fees, return fees, and allowances:

Collaboration Fees: When Amazon uses terms like “ contra-CoGS , ” “ funding, ” or “ vendor spend ,” these terms are synonymous with collaboration fees . Through these fees, Amazon recovers its operating costs. These can be at the center of negotiation tactics and are often the most contentious.

They may be unfamiliar to those whose experience has primarily been brick-and-mortar. This is so because the return on investment that suppliers receive from them is not always obvious. However, co-op fees are the cost of doing business with Amazon. Plus, like most things in life, they are negotiable .

The return fee is optional, and some brands may prefer not to use Amazon for returns. For example, if a supplier has a refurbishment and resale program that makes return fees an issue, it may make sense for the supplier to opt out of this fee.

Quotas can be a big financial win for vendors , and one example of a perk is shipping rates. Often sellers can get a better deal if they have a stable distribution network that can ship to Amazon fulfillment centers at a lower cost than Amazon offers. Quotas are optional, and for larger brands, it may be better to handle shipping and returns in-house.

The “ nuts and bolts ” of negotiating with Amazon will vary based on the size of the supplier and whether they offer unique options, but there are a few things every supplier should know.

What to expect when negotiating with Amazon

Regardless of the size of the supplier, understanding Amazon’s pressures and priorities will make the negotiation “ playing field ” clearer. From that point on, good negotiation techniques will be employed, such as understanding your key business metrics, not expecting a “ partnership ” with Amazon , preparing for turnover from seller managers during negotiations, not rushing into a deal, and knowing which terms to avoid (such as security deposit guarantees) that may cause problems in the future.

Be prepared

Thorough negotiation preparation with an Amazon vendor manager will pay dividends for any size company. Each step and each piece of information in the process provides an opportunity to understand what is most important to both parties and move the deal in a more favorable direction. Sellers who understand what business means to Amazon and what to expect during the process, and ask the right questions, are the secret to success.

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