Damage Allowance Amazon CoOp Agreement: What Vendors Should Know
As a vendor, you're always watching out for how costs are impacting your bottom line. As a result, you should be keenly watching your CoOp agreements with Amazon. These agreements are what allow Amazon to pass on logistics costs to you to help their bottom line, so you've got to be vigilant to limit these costs to protect your profits.
A major CoOp agreement to monitor has to do with the damage allowance. This quick guide breaks down what the damage allowance is, where to find details about it within Vendor Central, and what you can do to lower this cost.
Note: Is your damage allowance too high and are you trying to find a solution? Read our guide: Why Is My Damage Allowance So High? A Guide for Amazon Vendors
What Is Amazon Damage Allowance?
The damage allowance refers to how much you're on the hook for as a vendor if your product is reported as damaged by the customer. This payment covers the costs of returning the product or disposing of it.
Vendors don't have to pay Amazon to deal with this through the damage allowance if they don't want to; they could opt to fund the returns themselves and receive the product back in their warehouse. This obviously makes more sense for more expensive products where losing the product would come at a much greater expense to you than paying for its return.
Damage allowances are typically calculated against net receipts each month. You should check your vendor agreement terms for more details.
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Where to Find Damage Allowance Info in Your Amazon Vendor Contract
You can find your damage allowance terms within the CoOp section of Vendor Central under your agreements. The damage allowance will be contained in its own separate agreement.
What Are Typical Damage Allowance Terms?
The typical damage allowance terms are usually 1% to 2% of net receipts, or the overall cost to Amazon. So if Amazon buys $100 worth of product, it will deduct $1 to $2 on average to cover damages.
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How Can I Lower My Damage Allowance Payments?
The best way to lower the amount of money you’re spending on the damage allowance is to get better terms during your annual negotiations with Amazon, and the best way to do that is to lower the rate of “damaged” products that you have. A good way to lower the percentage of products that are returned is to improve your packaging. For example, if you ship products that are fragile, you may need to invest in shipping materials that can better protect those products during transit.
Where to Find Damage Allowance Data
Damage allowance data is located under “Payment Details” within the distributor shipments, distributor cost variances, and distributor returns reports.
Note that these reports will have to be manually downloaded and combined to create reports you can use for business analysis. This can be difficult and time-consuming to do, so we have created a whitepaper to assist vendors with extracting data for Amazon Vendor Central analytics. It is available for free download below.
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