5 Tips for Negotiating Amazon Coop Agreements
Running an ecommerce business that sells through Amazon is about a lot more than building great products and marketing them. Amazon vendors also have to handle the costs on the back end and try to limit them as much as possible, and a big driver of costs are Amazon coop agreements.
These Amazon cooperative agreements are how the retailer splits the costs of marketing products with the vendors who sell them. The more Amazon can get you to shoulder the burden of those costs, the more they can keep for themselves. But you can negotiate more favorable Amazon coop marketing agreements for your company during annual negotiations, and this guide provides some tips on how to do that.
Related article: Amazon Accrual Agreements: How They Work and Why You’re Seeing Deductions
What Amazon Will Ask For, and What You Should Ask For
When you enter into annual negotiations with Amazon, be aware that you both have different goals. Your goals will be to cut the costs of your Amazon cooperative agreements as much as possible and get better deals with Amazon in general, whereas Amazon is trying to increase the amount of profit they get from each seller, including you.
As such, Amazon will probably want things like margin guarantees to ensure a certain amount of profit on each product, and participation in promotions that are important to the retailer. You, on the other hand, should be seeking for relief in terms of the supply chain or increasing costs, which are especially acute due to inflation.
5 Tips to Lower Amazon Coop Fees
The negotiation process requires you to know your stuff, understand your needs, and identify points of leverage to get some concessions. Here are five tips that will help you secure the best agreement.
1. Monitor Comparable Accounts
When it comes time for your cooperative contract renewal, Amazon doesn't actually care all that much about how well you're performing overall. They care a lot more about how you're performing in comparison to comparable accounts. So even if you're showing what you think is strong growth and profitability for Amazon, if you are being lapped by comparable accounts, Amazon will see you as underperforming.
Monitor the performance of comparable accounts and determine what improvements you will need to make in order to give yourself the best position at the bargaining table.
2. Gather the Data
When it comes to negotiating with Amazon, data is king. It’s impossible to secure good Amazon coop terms without strong numbers backing your argument. You should be able to immediately pull up data like revenue, margin, and other key metrics over the last 12 months to demonstrate your value to Amazon. Use Amazon Vendor Central reports to collect this data, although keep in mind Amazon data download is hard for businesses and you should consider using a third party to help you gather the data (see free whitepaper download at the bottom of this article for help with that).
The two biggest categories of data you should have at your fingertips are profitability and co-op spending.
Profitability: If you can show that your products are highly profitable to Amazon in relation to your competitors, that's a strong bargaining point. Use metrics like Shipped COGS, Ordered Revenue, and Shipped Revenue to build your case.
Co-Op Spending: By knowing how much you are spending on co-op agreements, you are in a better position to point out to Amazon how much it's affecting your company's profitability, which helps you make a convincing case on why you need to lower costs in this area. Use metrics like Co-Op Invoices to build your case.
3. Prepare for the Meeting Well in Advance
Amazon negotiations are not something to plan at the last minute. You must enter into these negotiations armed to the teeth with data and a plan of execution.
Know how you stack up to your competitors. Again, it's not just how you have performed, it's how you've performed relative to everyone else. Are you one of the top performers in your category? You should know that before you go into negotiations.
Review previous agreements. Examine any agreements you have had with Amazon for indications on what they promised you to see if they have lived up to their end of the agreement. If not, that's a negotiating point for you.
Create forecasts. Use past data to forecast future growth based on your current trajectory. Work with your finance team to come up with a plan that you can sell to the Amazon negotiator.
Have a strategy for each possible Amazon ask. Create some scenarios and practice how you'd react. For example, if you think Amazon will ask for certain allowances, at what point will you say yes and at what point will you try to negotiate? What will you offer them to get them to agree to different terms? You should have a plan in place for each scenario.
4. Know Your Own Asks
So what exactly do you want Amazon to do -- lower the freight allowance to make up for increased shipping costs? Provide discounts on advertising? Boost your product's visibility? If you know exactly what you want Amazon to do, that will make the negotiation process a lot easier -- and a lot more successful -- for you and your company.
When Amazon asks you to accept certain terms that may be generous to them, instead of balking at those terms, you may offer up these asks as a way to get something beneficial to your company in the process. That way, everyone gets what they want, instead of butting heads over numbers.
5. Be Patient
Patience is key during negotiations, especially since the process itself can be a bit intimidating. It's not uncommon to work with one person as your vendor manager one day and then a completely different person the next day, making it difficult to build rapport. This can be frustrating, but it just drives home the point that your case should be numbers-driven rather than relying on your relationship with your vendor manager.
Also, keep in mind that Amazon probably won't give you the best terms the first time around, so you should be prepared to take the time necessary to work on these negotiations. It may take a while, but don't just rush into an agreement to get it over with. A lot is riding on this for your business.
Ready to Start Prepping for Amazon Negotiations? Here’s How to Gather Your Data
The best way to prep for Amazon negotiations is to start early. A quarterly business review is easy if you already have your data and reporting in place, but it becomes crushing when you do everything manually and have to dedicate a week to prep.
But the truth is, this is completed by the fact that it’s not easy to extract your data from Amazon Vendor Central so you can conduct a thorough analysis. Vendors must download individual reports for their products for each day and then manually combine them all, which is time-consuming.
Fortunately, there are services out there that will help you extract this data. Unfortunately, there are a lot of them, so it’s not easy to determine which is best for your business. That is why we developed this whitepaper so you can compare and contrast your options, and make the choice that fits your business. It is available for free download below.
READ MORE:
Turn Amazon Data into a strategic Asset
The breadth of Amazon sales, marketing, and supply chain data lets brands find patterns and insights to optimize their Amazon business and other e-commerce channels. But only if you have a plan for extracting the data from Amazon systems, storing it, and preparing it for analysis.
This guide will help you take ownership of your Amazon data—by preparing your business for a data-driven future, and analyzing the most common methods for extraction, automation, storage, and management.
