CRAP, Net PPM and how to work with your Vendor Manager

James Dihardjo
Will Haire

Podcast Transcript

James Dihardjo
Will, thank you again for joining me to allow me to pick your brain. So I'm just going to jump straight in with question one. We've just kind of been talking about Vendor Central, right? So my first question is, what are the major challenges with selling on Vendor Central from your seat?

Will Haire
Beautiful. I think it's a great question. And Vendor Central requires its own level of expertise. The population of sellers is really open, as long as you can have valid information to open an account. But with Vendor Central, the relationship's more of a wholesale relationship with purchase orders and pre-negotiated fees. If you're lucky you have a Vendor Rep you could talk to, but often you're kind of on your own.

So there are lots of challenges with proper operations in the dashboard. Different from Seller Central where you're managing a lot of it and controlling the flow of inventory. Amazon's just going to cut your checks for products, but you'll have to adhere to a lot of their policies.

One major pain point is realizing an actual profit due to their CRAP policy, which makes it difficult to maintain pricing. When third-party purchasers flood the market with lower prices, Amazon will request a price reduction, affecting your profit. It's better to run a promotion instead of just reducing the price. The biggest challenge is both pricing models and negotiating fees as you come onto the platform.

Amazon typically assigns co-op fees ranging from 4-10%, including market development fund (MDF) fees, freight allowance fees, and damage allowance fees. These fees help Amazon recoup costs from returns and marketing initiatives. Vendors should negotiate the lowest rates possible as representatives may not be available long-term, and it’s crucial for profitability.

When negotiating with Amazon, it’s essential to be aggressive and ensure comfortable margins. This way, you can also allocate funds for advertising, as Amazon operates as a pay-to-play platform.

James Dihardjo
That's actually interesting – all those different layers show it’s a different beast to sell this way. What should vendors watch out for when working with their Amazon Vendor relationship manager?

Will Haire
They'll usually encourage you to do advertising and reduce pricing, as their incentive is to maximize Amazon's profitability. Often, communication with them can be cumbersome, requiring case management for simple changes like title adjustments. A Vendor Rep can be beneficial in managing cases, renegotiating rates, and accessing promotional programs that might not be available otherwise.

Losing a Vendor Rep can lead to locked rates and complicated price adjustments, which might require legal consultations to resolve. It’s essential to negotiate thoroughly from the outset – make sure you secure favorable rates.

James Dihardjo
What about Advertising? Is it any different with Vendor Central compared to Seller Central?

Will Haire
Not much, but generally, Amazon favors 1P relationships that typically get better placement. Control over the buy box is crucial, and adequate margins allow for effective advertising, especially during product launches. Despite the desire to drive traffic to their own websites, many customers will still look for products on Amazon for reviews, making it imperative for brands to maintain a consistent presence across platforms.

James Dihardjo
What is Net PPM and why is it important to monitor?

Will Haire
Net PPM stands for Net Pure Profit Margin, which tracks profitability on Amazon. It is calculated as the average selling price minus the cost price and vendor terms. This data is vital for justifying price increases, especially in cases where it may be difficult to raise prices without proof of increased costs.

James Dihardjo
How does BellaVIX help Amazon vendors?

Will Haire
We provide a full-service management account with daily checks to minimize chargebacks and ensure compliance with Amazon's policies. Our service acts as a fractional marketplace team, providing regular reports and hitting varying KPIs like profitability and search optimization. This helps maximize long-term growth and value on the Amazon platform.

James Dihardjo
Thanks for sharing all those insights, Will. I'm keen to talk about this again, as Vendor Central is ever-evolving.