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Understanding Amazon Vendor Agreements

Amazon Vendor Agreements

Receiving an invitation to become an Amazon vendor or thinking about signing up for Amazon Vendor Express is an exciting step for any product. With the recent global expansion of Amazon and plans to grow even further in 2017, the platform opens up access to billions of potential customers. Amazon Vendor Agreements can be tricky, however. A full understanding of what your options are is key to setting up and maintaining a comfortable relationship with the online giant. If you are a potential vendor looking to tap the Amazon market or an experienced vendor seeking a more beneficial arrangement, read on for information and tips on how you can negotiate the vendor agreement that suits you best.

What a Vendor Agreement Means

When you enter into a direct relationship with Amazon, you sell them your products as a wholesaler and they become a full-time distributor.  A vendor agreement makes Amazon the legal owner of any product they order from you. Amazon then takes care of most of the marketing, merchandising, and pricing of those products. This takes much of the burden off you, and you agree to give Amazon your best wholesale price and fulfill your part in shipping what they order to their fulfillment centers.

In addition, Amazon vendor agreements may include cash consideration, which consist of cooperative marketing reimbursements, rebates, and the like. Amazon looks at these as reductions of what they pay for products. They generally apply when Amazon meets minimum purchase thresholds, which they estimate based on past performance and forecasts for the current year.

Vendor Agreement Benefits

vendor agreement benefits

By entering into a vendor agreement with Amazon, you can benefit from their reach, reputation, advanced analytics, and premium services. Amazon boasts hundreds of millions of active customer accounts around the world. Even if you are not ready to launch your products globally, your vendor agreement opens up global access to your products, managed by Amazon. Amazon is fast becoming the go-to place for online shopping, not only in North America, but also in Europe. Soon, Asia could join the ranks of loyal Amazon shoppers. The Amazon experience continues to build customer trust, which you can take advantage of with a vendor agreement. Your listings will show as Shipped and Sold by Amazon, leveraging that trust in their logistics and customer service reputation.

As Amazon has grown over the years, it has developed a powerful system for collecting and analyzing customer data. Your vendor agreement gives you access to that data, helping you to better understand customer behavior. This system combines with premium services such as Lightning Deals, A+ Content, and targeted email campaigns that increase visibility. These various marketing and merchandising services available to Amazon vendors can significantly boost sales. Amazon Prime is the icing on the cake, giving customers the free shipping option on your product listings.

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Know Your Options

Before considering becoming an Amazon vendor, there are a few things that you need to be prepared for. First, you need to have a warehouse in the US where Amazon can conveniently pick up product. Second, you need to barcode your products with their valid UPCs and/or an ASIN-embedded barcode. These are Amazon requirements. Third, you need to know within what bounds you can negotiate the terms of your vendor agreement. This includes such aspects as accruals, setting up new items, optimizing listings, streamlining operations, and troubleshooting. You may be considering setting up a new vendor agreement or terminating an existing one. Before you decide on either, it is vitally important that you know your options for negotiating trading terms and fees.

Accepting Amazon’s proposed terms at face value can be a big mistake. Many times, these vendor agreements prove unfavorable, and may even be completely intolerable in the long run. In the excitement to join Amazon, many do not realize how much they are setting themselves up to lose. It is much more sensible to carefully review the terms beforehand to ensure that you are getting a deal that you will be happy with one, five and even ten years down the line.

Balance is the Key

Amazon is in business just as much as any would-be vendor on the platform. Any counter-proposal that you offer must therefore remain beneficial to Amazon even as it adds a few s to your basket. If your suggestions on the vendor agreement do not bring value to the Amazon marketplace, your application will not be accepted.

The Proper Approach

vendor agreement done

The vendor agreement is a partnership, and this entails getting to know the people you will be dealing with. Vendor Managers, also known as Buyers, have their own primary goals laid out before them when they assess new vendor agreements.

The first thing to note is that they have their hands full, and you will get a better response if you clearly and concisely communicate your proposed terms.

Second, Amazon Buyers are geared towards furthering Amazon’s drive to be the go-to spot for any product. You will do well to show them that you can add to their selection with quality variations, unique products, and ASINs that are in high demand.

Third, Vendor Managers will always pay closer attention to the accounts that hold greater potential for Amazon. If you can show them your profitability, you have a greater chance of successfully negotiating your seller fees.

Before you contact Amazon to propose alternate terms, make sure that you have already inked your minimum offer, your middle ground, and your solid bottom line so that you know what wiggle room you have at every turn. Remember what leverage you have so that you can offer concessions that will grab and hold Amazon’s attention. In addition to the qualities of your products, good press coverage, and participation in marketing campaigns, promotions and merchandising can tip the scales in your favor. Finally, note that the best time to open negotiations with Amazon is near the time when your vendor agreement is due for renewal.

Items to Negotiate

vendor agreement negotiate

Not everything on your vendor agreement is flexible. You are most likely to get somewhere in your negotiations if you ask for changes on cost price, allowances, accruals, returns, freight, and payment terms.

First, look at the sum of your cost prices and allowances before you settle allowances and accruals. Some adjustments can be made in costs if Amazon asks for more allowances. Amazon will want to get several types of accruals and allowances, such as marketing, damages, freight and Subscribe and Save (SNS), depending on the agreed product category, freight, and return rights. Amazon will push here to meet their minimums.

Second, press for no returns or at least a lower rate on overstock before you sign off on full return rights on undamaged overstock. You will likely have to accept full returns on defective products and those damaged by the carrier, but not for warehouse damaged returns.

Third, Amazon can be flexible on prepaid or collect for freight.

Fourth, Amazon will ask for the longest possible payment terms, but you can resist to get shorter payment terms that will be better for your business. Amazon will be more likely to agree if you are able to give them a quick pay discount, even if it is as little as 1% for payments made within sixty days from the date of invoice.

Fifth, try to follow the system that is laid out in the vendor agreement, for instance, how payment dates are counted. Understanding how they word things can save you a lot of headache.

Keep in Mind

Whatever points you are trying to negotiate or re-negotiate, remember that you will be in a much better position to get things to swing your way if you have a good relationship with your Vendor Manager. If you are in a very tough position and you are considering cancelling your vendor agreement, make sure that you are really willing to leave Amazon if you are set on taking an aggressive stance with them. Be clear about what you are risking in any case, and do not use last-resort tactics such as stopping all orders to push Amazon to enter into negotiations unless you are serious. At the end of the day, however, maintaining good relations with Amazon will benefit you even if you will no longer be selling on the platform.

Julia ValdezUnderstanding Amazon Vendor Agreements
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