Negotiating with Amazon: The Strategies

Selling on Amazon is a great opportunity—but do you know the real secret to getting the most out of it?
Being present on the marketplace is not enough: what truly makes the difference is how you negotiate with Amazon. In this article, we’ll reveal the dynamics of negotiations with Amazon Vendor and the most effective techniques to grow your business. Get ready to discover everything you need to know to turn a simple sale into a strategic advantage.

What Is a Negotiation with Amazon Vendor?

The Amazon Vendor Program allows manufacturers and distributors to sell their products directly to Amazon, which then resells them to end consumers. In this model, Amazon acts as a retailer, managing logistics, retail pricing, and customer service.

This is why negotiations within the Vendor Program are essential for defining the terms of the collaboration between the supplier and Amazon. These negotiations, often referred to as Annual Vendor Negotiations (AVN) or Joint Business Plans (JBP), occur annually and aim to establish commercial terms such as purchase prices, discounts, promotional contributions, and other financial conditions.

It’s important to understand that Amazon focuses on operational and commercial improvements, using a data- and performance-driven approach.

These processes usually take place once a year and are initiated by Amazon through an invitation to participate in the annual review process. This invitation is typically extended to suppliers with significant sales volumes or high growth potential. The main goal is to align the business strategies of both parties, optimize collaboration for the upcoming year, and ensure that the conditions are beneficial and sustainable for both.

How to Effectively Manage Negotiations

Being well-prepared for negotiations with Amazon is crucial for suppliers, as a strategic and informed approach can positively impact profit margins and product visibility on the platform. Below are the key points to consider when preparing for negotiations:

Understand Amazon’s Strategies

Amazon often uses assertive negotiation tactics to maximize its competitiveness and profitability. One of its main strategies involves margin management: Amazon tends to keep very low profit margins on high-demand products to offer highly competitive prices to consumers. This is balanced by securing more favorable conditions on other products to ensure overall profitability.

The goal is to strengthen Amazon’s market leadership by offering competitive pricing to consumers while securing advantageous terms for itself. That’s why suppliers must be aware of these dynamics and prepare adequately to protect their margins and maintain a balanced partnership.

Be Ready for Contribution Requests

During Vendor negotiations, Amazon may ask suppliers to cover certain operational costs, such as:

• Market Development Funds (MDF): These funds support promotional campaigns and marketing activities for products sold by Amazon. Typically, MDF represents about 10% of sales, but it can vary between 5% and 15%. These funds aim to enhance customer experience, increase product visibility, and ultimately boost sales.

• Extended Payment Terms: Amazon often requests payment terms of up to 90 or 120 days. This can create cash flow challenges for suppliers, as it delays revenue collection. Some suppliers negotiate shorter payment terms in exchange for small price discounts (usually 1% to 3%).

• Return and Defect Allowances: Suppliers may be asked to cover part of the costs associated with returns or damaged goods. This “allowance” is a percentage of sales (typically 2%-3%) and depends on the product category. Suppliers can negotiate specific agreements, such as a “Damage Allowance,” to reduce return rates and better manage these costs. Understanding the financial impact of returns is crucial, as they can significantly affect your business’s profitability. Always factor in these costs when defining your pricing and profit margin strategy.

Analyze Your Sales Data

To optimize your Amazon negotiations and improve profitability, you must carefully analyze your sales data to identify product strengths and weaknesses. This process can be broken down into three phases:

1. Identify Best Sellers: These products are your main leverage during negotiations. Their market success gives you a strong position. Use tools like the “Purchase Behavior Analysis” dashboard in Amazon Seller Central to get a detailed overview of performance and customer preferences.

1. Evaluate Underperforming Products: It’s just as important to identify products with disappointing sales or low margins. Consider strategies such as reducing the assortment, optimizing costs, or renegotiating terms with Amazon. The goal is to minimize negative financial impact and focus on more profitable items.

1. Assess Amazon’s Impact on Margins: Before accepting any commercial term changes proposed by Amazon, always calculate how they will affect your net margins. Tools like the “Amazon Logistics Cost Calculator” can help you estimate revenues and costs under different conditions, making it easier to make informed negotiation decisions.

Adapt to Regional Differences

One key thing to remember: Amazon’s negotiation strategies vary significantly by country, reflecting the unique characteristics of each European market. Here’s an overview:

• Germany and the UK: These mature markets are highly competitive. Amazon typically demands very low margins and offers little flexibility in negotiations. The strong competition and Amazon’s well-established presence make it harder for suppliers to secure better terms.

• Italy and Spain: As emerging markets, Amazon adopts a more collaborative approach here compared to Germany and the UK. This presents more favorable negotiation opportunities due to lower market saturation.

• France: This market stands apart due to stricter consumer protection regulations. Local laws enforce high standards of safety and quality, which requires extremely detailed negotiations. While this adds complexity, it also provides stronger protections for both consumers and suppliers.

Evaluate Switching from Vendor to Seller

Beyond the Vendor model, where suppliers sell directly to Amazon, there’s another option: the Seller model. This can be an appealing alternative whether you’ve received a Vendor invitation and want to explore other options, or you haven’t been invited but still want to sell on Amazon.

With the Seller model, you sell directly to consumers on Amazon while maintaining full control over pricing, inventory, and sales strategies.

To operate as a Seller, you need to register on Amazon Seller Central, the platform for managing sales. There, you can list products, monitor inventory, track performance, and interact with customers. This autonomy allows you to quickly adapt strategies to market dynamics and consumer needs.

There are two selling plans:

• Individual Plan: Ideal for selling fewer than 40 items per month, no VAT registration required.
• Professional Plan: For those selling more than 40 items per month or who want access to advanced features like promotions and detailed reports.

You can also choose how to manage logistics:

• Fulfillment by Amazon (FBA): Amazon handles storage, shipping, and customer service. You benefit from features like Prime eligibility.

• Fulfillment by Merchant (FBM): You, as the seller, handle all logistics directly—from order preparation to shipping.

Tips for Successful Negotiations

Before entering any negotiation, come prepared with concrete product performance data and a clear understanding of your product’s value. Preparation will help you make a strong impression and secure better terms. If you come across as unprepared, Amazon is unlikely to offer you favorable conditions to join the Vendor program.

Remember, it’s a competitive battlefield where everyone seeks the best possible terms. That said, flexibility is just as important as determination. Be willing to make concessions when necessary—but always be aware of your non-negotiables. Think long term: while Amazon’s demands can be tough, the goal is to build a lasting commercial relationship in addition to selling your products.

Rely on BrandOn Group

You can’t improvise when it comes to negotiating with Amazon Vendor. Trust the professionals at BrandOn Group, who will guide you through the process and develop a negotiation strategy that best protects your interests. Working with us allows you to benefit from our deep understanding of Amazon’s dynamics and tailor strategies to meet the specific needs of your brand.
Contact us and learn how to successfully negotiate with Amazon and maximize your selling opportunities on the world’s most important marketplace.