Vendor’s Guide to Amazon Negotiations 2022

Every year ecommerce brands negotiate their contractual terms with Amazon. This year’s negotiations are expected to bring plenty of new challenges in the face of a rapidly changing industry and ongoing inflationary pressures.

From supply chain issues to a thriving retail media landscape, vendors are increasingly looking for new ways to maximize their product sales on Amazon. In fact, last year saw over 30% growth in brands investing in Amazon advertising, with the $31B marketplace giant now making up 13.3% of the United States’ net digital ad revenue, according to Insider Intelligence.

With more investment on the table, it is more important than ever for brands to take stock of their own businesses and changes occurring at Amazon to successfully navigate their annual negotiations.

Know the Numbers

Surprisingly, many brands go into negotiations without a solid understanding of the full scope of their relationship with Amazon. Don’t make this mistake. When negotiating, brands need to understand what their goals are, their own profitability, total spending — and anticipate what Amazon might ask for. Remember, negotiations are a two-way street and the best solutions drive mutual growth and profitability for the brand and Amazon.


Profitability: It is key for a business to know both its pure profit margin (PPM) and contribution profit for anything sold on Amazon. Any changes to these numbers over the last year are relevant as well. For instance, increases in profitability show potential for more growth and give a brand leverage in their negotiations.

Brands need to consider not just their numbers but also how they stack up next to their competition in the category. Sometimes brands can get this information from their Vendor Manager (VM), but attempting to run a competitor analysis before going into the negotiation can give brands a better picture of the position they are negotiating from.

A critical driver of profitability is having the right items in your assortment. Brands that have done due diligence with ecommerce-friendly, thru-the-mail-ready items with higher Average Selling Price (ASP), or multi-packs to help offset shipping costs, as well as pricing parity across retailers, will be in a better position for success during negotiations. For items that are low ASP and continue to get footballed on price across the retail marketplace, you may need to go back to the drawing board internally to think about the right price-pack architecture designed with ecommerce in mind.

Spending: One of most important numbers with Amazon is a brand’s CoOp spend. CoOp is an umbrella term that covers several costs for Amazon, including marketing development funds, as well as damage and freight allowances. If brands can make it out of the negotiation without their CoOp rising, they’re doing well. However, Amazon’s VMs are incentivized to increase CoOp costs year over year, so being prepared to mitigate or eliminate a rise is an important lever.

While the goal is to land a total CoOp cost that is favorable to driving profitability on Amazon, brands should negotiate on each aspect separately to drive the desired wholistic output. If brands do not deep dive individual terms, they may miss critical opportunities. For example, rather than accepting an increase on freight terms, it may make more sense for a brand with a robust supply chain to handle freight to Amazon fulfillment centers internally or via a 3PL. 

One change that vendors might see this year is their ad spend with Amazon is now being considered during CoOp negotiations. If a brand is considering increasing their ad spend on Amazon, it’s a good idea to discuss how budget for an increase in terms will be allocated through a reduction in ad spend. This can be used as leverage and brands can negotiate a CoOp that includes more ad spending, reducing the percentage of overall cost to do business on Amazon’s marketplace.

Positioning: The more a brand knows about its positioning on Amazon going into the negotiation, the better. Brands should understand the key metrics within their respective categories. What products are popular in your category? Where do you rank among those? If a product is underperforming, what can be done to increase its exposure?

Throughout the year, brands need to be asking their retail team for insight into these questions. Brands will benefit from using this information to isolate the value that they bring to Amazon as leverage during negotiations. For example, if your product is a true category leader or provides unique selection without 3P offers, Amazon may concede on some of the AVN terms in order to retain your selection.

Know the Asks

It’s best for brands to come into negotiations with a list of things to ask of Amazon. It’s also important to be prepared for what Amazon might ask for.

What Brands Want from Amazon

Prior to the negotiation, brands should assess what is and is not working for them with their current Amazon contract. Keep focus on your overall goals and get creative, as in the end everything is negotiable. This year, brands should consider the following:

  • Supply chain Issues: Recent pressures on the global supply chain resulted in shipping and receiving issues across the board, and Amazon is not immune. Any disruptions on Amazon’s end of the supply chain can be used as a bargaining chip. For example, if brands participate in the Amazon Logistics infrastructure, they need to understand the delivery experience. Were orders picked up in a timely fashion? Did customers receive their purchases on time? How many orders were cancelled due to delivery delays?
  • Cost increases: Many brands experienced increased costs in their supply chain over the last year as inflation and disruptions to the supply chain drove up prices worldwide. It’s challenging for brands to negotiate a higher price point for their products on Amazon. However, asking for cost increases to be considered during the negotiation can help create leverage for brands to keep other costs down. Given the dynamic environment, arming yourself with detailed data and specifics that are driving up costs and delivering requests in batches of ASINs can help ensure success across the marketplace and protect future margins.
  • Map out touch points and leadership changes: There is a lot to be learned about Amazon, and the more brands know about — and participate in — the overall landscape at Amazon, the better. Brands should take the time to understand the role of various decision-makers as well as what’s important to them, and stay abreast of Amazon’s evolving capabilities and new programs. Seek out opportunities to align your objectives with Amazon and formulate a strategy with terms that are mutually beneficial.

What Amazon Will Ask For

There are four key things Amazon will ask vendors for during negotiations:

  • Margin guarantees: Amazon has been pushing margin guarantees recently, which allows them to control the price of a product while guaranteeing its profit margin. If the product does not make the right margin for Amazon, the brand can be left to pay the remaining difference. Avoid this at all costs. Amazon may present it as the “cost of doing business,” but they would rather keep products on the shelf than force margin guarantees. Brands should identify the root cause of poor margins and work to resolve those drivers before entering into an agreement that will live over time.
  • Global pricing strategies: This will not apply to every organization, but any global brand needs to stay away from the global pricing strategy. Amazon can use this to set global prices according to the lowest rate possible, and this prevents companies from being nimble in the market and developing different strategies across geographies.
  • Participation in programs: Amazon has several different programs and promotions, which can offer various incentives for select categories of products. Sometimes these are a great way to position a product in a place where it can gain access to the right consumer base. However, brands should be wary of untested programs. Participating in brand-new programs that haven’t shown value can raise costs without much benefit. However, these programs also offer an important negotiation lever; if the program could be a potential fit for the brand’s goals, trading off program participation in return for retaining or improved terms can be a win-win.
  • Strategic Account Services: Amazon’s Strategic Account Services (SAS) program assigns an Amazon account manager resource who can help the participating brand develop strategies for using the platform. Some brands have seen Amazon allow for cost increases when signing up for the program, so while there is a monthly cost required to join the program and cover costs of the resource, it can potentially allow for much better margins overall. For brands with a strong strategy, this tactical resource inside Amazon can help execute the strategy by connecting directly with key stakeholders within Amazon.

Final Thoughts on Negotiating with Amazon

Negotiations with Amazon can be very complex. Brands need to start with detailed awareness of their product portfolio, including how they are positioned, profitability and unique goals for each one. With this data-led foundation, brands should have a prioritized list of requests and be prepared to negotiate against Amazon’s own asks.

Keep in mind, every conversation with a Vendor Manager can be an opportunity to learn more about Amazon’s programs, the product categories and the direction they are headed as a company — and everything is negotiable. By taking a holistic view of total investments with Amazon, brands will have an edge to get creative and find leverage during annual negotiations.

Working with the world’s largest online retailer can be a great benefit to any brand; understanding how to approach negotiations with Amazon will help brands maximize their relationship and set themselves up for long-term success.

Jamaal Hackett-Cook is a Senior Director of Strategy and Client Development at Ideoclick, where he drives the creation of innovative strategies for brands to own more of the digital shelf. A five-year former employee of Amazon, he worked on the launch of Amazon Home Services, innovations to the Vendor Contact Support Process, and has partnered with dozens of brands to improve their marketing and supply chain strategies.

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