By Martin Heubel, Amazon Strategy Consultant at Consulterce
Most 1P brands lose profitability on Amazon because they don’t operate a playbook that reflects the commercial reality of selling to the online retailer.
So when Amazon:
- Suppresses the Buy Box, vendors start paying cost support,
- Stops ordering, vendors improve their negotiation offer,
- Removes ASINs (CRAP), vendors lower their cost prices.
It’s no wonder suppliers cite declining margins as the number one concern in 2024.
They simply haven’t adapted their operating model to the realities of trading with Amazon. And still believe that the online retailer’s focus on profitability is a short-term phenomenon whose margins they can recoup later.
The problem is:
Any profit concession you make today sets the stage for Amazon’s investment asks in the future. If you increase your account’s Net PPM to >40%, Amazon will not accept anything below that level in 2025 and beyond.
So unless you control your distribution, stabilise your Net PPM, and reduce the variable handling and shipping costs that Amazon incurs from selling your products, Amazon will keep asking for more investment year after year.
And interrupt your sales operation to get what it wants.
In other words:
Amazon wins because you prioritise achieving short-term KPIs over the long-term needs of your Amazon business.
So the best way to improve your vendor margins is to stop cutting corners.
Instead, focus on long-term profitability levers:
- Supply chain efficiencies (Vendor Flex, Direct Fulfilment,…)
- Channel-specific product packaging (SIPP/FFP)
- Optimised price-pack architecture
For further information and support, contact Martin Heubel here
