This is the second instalment in our guide to Amazon profitability. Read part 1 here.
Brand teams that work with digital shelf data typically look for opportunities to maximise sales. But when it comes to Annual Vendor Negotiations (AVNs), sales growth is only half of the success equation; the other half is minimising costs.
CPG margins on Amazon are struggling to keep up with the growing expense of doing business on the platform. The cost to serve Amazon disproportionately turns on the outcome of these negotiations – but too many brands allow Amazon to dictate unfavourable terms, setting themselves up for a year of profitability headaches.
In this blog, we’ll examine how most brands are losing out in AVNs. Next, we’ll explore some strategies brands can employ in the 2025 cycle to minimise their Amazon costs and grow sales.
AVNs are uniquely challenging
“Everything I do is mind games.”
—Jose Mourinho, former Premier League manager
If your AVN experience has been painful and drawn-out, you’re not alone. Research from Consulterce and Stratably found that 72% of brands struggled with their 2024 negotiation cycle.
Many of these challenges stem from Amazon’s relentless drive toward profitability over the past few years, exemplified by their all-consuming focus on Net PPM. Amazon has driven margins by encouraging brands to invest more through channels such as Amazon Vendor Services (AVS) and increasing trade terms – by 69 bps on average in 2024 alone. Brands are left with the task of driving additional sales growth to recoup these costs, or risk losing profitability.
It’s not just the outcome of AVNs, but the frustrating process. Amazon employs a variety of tactics (or “disincentives”) to pressure brands into accepting their terms – including sales interruptions, Buy Box loss, and unresponsive vendor managers. The average negotiation process in 2024 dragged on for 3.5 months. It’s no surprise many brands prefer to accept the terms offered rather than endure mind games and sudden sales fluctuations.
For the 2025 negotiation cycle, Consulterce founder Martin Heubel expects Amazon’s priorities to begin swinging back towards sales growth – meaning that on top of punishing costs, brands may face additional pressure from vendor managers to achieve growth of 10-15% or more in the coming year. And brands should continue to expect a highly transactional process with hard-to-reach vendor managers.
How to win at AVNs: come prepared and be proactive
Profitero’s 2024 Global eCommerce Benchmark Report found that a record-high share of brands have made eCommerce a central focus of their joint business plans. This is an encouraging sign, but it won’t guarantee that brands achieve their business objectives. Brands will only see the benefits when they achieve favourable terms in these negotiations. This requires them to take greater control of the narrative.
Digital shelf data is key to preparing for AVNs. Amazon will request specific terms, growth rates, and investment increases. With digital shelf data, brands can effectively evaluate Amazon’s requests and counter-propose when necessary based on their own sources of truth.
Leading brands are much more likely to take a proactive approach, setting specific goals, budgets, and requirements during the JBP process. Below, we’ll share some tips to help guide your brand through this process.
1. Recap the previous year’s performance
Martin suggests that brands propose kicking off the negotiations with an evaluation of the account’s performance over the past 12 months. This allows your brand to contextualise the inevitable request for further investment. Some topics to consider:
- Whether your brand’s 2024 investments into the Amazon ecosystem (such as AVS) paid off or not. Rather than letting Amazon lead with requests for further investment, discuss whether the current level of investment has yielded the anticipated return.
- Where Amazon fell short of expectations – such as lengthy turnaround time on business-critical tasks. This is an opportunity to clarify your expectations and argue that future investments will be contingent on better responsiveness.
Amazon sales & share data is the foundation of this approach. It provides your brand with an independent source of truth on your brand’s performance that complements commercial metrics from Vendor Central. Brands can come prepared knowing whether they’re growing faster or slower than key competitors or the category as a whole.
Within the Profitero module, brands can track both 1P and 3P sales at the ASIN level. In addition, they can deep dive into their Buy Box performance to understand which products lost the Buy Box, how often, and why. Vendor managers often don’t have access to this data, and our clients have shared these insights to spark productive conversations around 3P price interference, availability issues and more.
The question brands should ask every time investment is mentioned in JBPs: “Given the current strengths and challenges with our sales KPIs, will this investment help my brand, and how?”
Amazon is quick to demand greater investment. Instead of engaging immediately, take a step back and involve them in a discussion of whether even the current level of investment is justified, and secure a commitment to address any ongoing issues.
2. Benchmark your brand – and Amazon
Evaluating performance on Amazon doesn’t stop with your brand’s sales. Profitero’s competitor sales & digital shelf data allows you to benchmark your brand against competitors across share of search, pricing, content, assortment and more. Each of these modules can be overlaid with sales to understand what drives results.
Brands that explore this data can bring a level of category expertise to negotiations that vendor managers often lack. As a result, they’re able to shape the narrative of AVN proceedings to their advantage.
Below are some examples of how brands can use digital shelf data in benchmarking exercises:
- Search. Is your brand over-represented in sponsored search? How has that trended over the past 12 months – and is it actually correlating to sales growth?
- Content. Do you have best-in-class enhanced product content within your category? If so, your PDPs are driving an outsized contribution to category success by informing and inspiring shoppers. Is this fairly reflected in your share of the top organic search spots? If not, why should you have to pay to play? (And if your content isn’t best-in-class, consider whether investing in better conversion outcomes might be more cost-effective than increasing media spend.)
- Assortment. Within Profitero, brands can identify how their assortment range compares to the category. Does your portfolio include unique offerings that attract category shoppers? Do your sales terms on these products reflect their value to Amazon? Are there gaps in your assortment that can be addressed by new product launches and/or rightsizing?
These insights can lead to powerful talking points to negotiate advantageous trade terms and push back against Amazon’s default suggestions about where and how much to invest (which inevitably are made with Amazon’s best interests in mind – not the brand’s).
Each of these benchmark exercises can be extended to the retailer level, as well. If a product is performing better on another retailer than Amazon, discuss strategies to close the gap. For example, if your product content is breaking on Amazon but functions well on other retailer sites, bring this up.* Amazon offers best-in-class content capabilities that brands can invest in to convert more buyers. That would be a win-win-win for your brand, the category, and Amazon. But why invest in advanced content if Amazon is allowing 3P variants to hijack your PDP?
Pro tip: When benchmarking retailers, it’s important to understand differences in capabilities. Many brands use our retailer capability matrix to track what features are offered by different retailer sites across the U.S., U.K., and Germany. Brands can inform retailers if they’re lacking a core capability offered by other sites, and inquire whether it would be possible to add that feature or find a workaround.
* Note that while Amazon sales & share data can only be shared with Amazon, digital shelf data is publicly available. Discussing your digital shelf KPIs at other retailers during AVNs is encouraged!
3. Talk about inputs, not outputs
Vendor managers are focused on output metrics, such as net PPM and operational efficiency – outcomes that aren’t directly in your brand’s control.
Your brand’s job is to shift the conservation towards the input metrics: what steps must be taken by Amazon, and your brand, for that growth goal to be achieved. Some questions to ask:
- Is your availability stable?
- Does your product content consistently match the source of truth?
- How exactly does Amazon expect an investment increase to drive more sales, and does that explanation resonate for your brand?
If the answer to either of the first two is “no”, any discussion of uplift to output metrics may be premature. Tackling these problems first is essential.
Brands should conduct a thorough survey of their costs to serve Amazon, including chargebacks and disputes (as well as the additional staff needed to handle these). Make it clear where current costs are burdensome, and ask what Amazon will do to ensure that further investment doesn’t just scale these costs.
Pro tip: Profitero Autopilot automatically detects and resolves revenue leakage on Amazon, including chargebacks and invoice shortages. Moen, a leading home improvement brand, recovered six figures in fees with Autopilot. If you’re curious about the scale of your Amazon costs, request a free audit here.
4. Collaborate internally and externally
Brands often leave AVNs to the sales team, which makes it difficult to build effective strategic plans that encompass the full range of growth & profitability levers. Amazon will likely push for investments in media, supply chain, and packaging/assortment efficiencies. Teams such as marketing logistics and finance should be included to help determine the specifics.
Every portfolio mix is different, and brands will achieve more sustainable results when they can translate Amazon’s generic suggestions to the right products. For example – when considering an increase in media spend, focus this investment on products likely to achieve a significant sales boost. Profitero’s traffic and conversion data conveniently maps your portfolio across four quadrants. Products in the bottom-right are strong converters that would likely sell more if they attracted more attention – these are ideal candidates for testing the ROI of media investment.
Leading brands are 76% more likely to set specific digital shelf targets as part of their AVNs and JBPs. Vendor managers are eager to communicate the expected uplift of investing more, but the uplift they promise may not be realistic, relevant or easily measurable. Subject matter experts across the brand can suggest measurable digital shelf uplift targets for each investment decision (e.g., share of search). Then, during the 2026 cycle, your brand will have an easier time evaluating whether these investments are worth continuing.
Finally, involving more teams in the AVN process also promotes collaborative projects – from assortment to taxonomy and search. Your teams are better equipped to brainstorm mutually beneficial projects than the vendor manager.
Pro tip: Profitero’s placement module contains Amazon search frequency rank (ASFR) data that can be overlaid against share of page. Brands can use this data to identify opportunities for assortment innovation. High-ASFR terms where brands have low share of search are ideal targets to introduce win-win initiatives.
5. Be willing to play Amazon's game
For Amazon, the outcome of AVNs is all that matters, even if the path to reaching an agreement is rocky. The key is to be flexible without being a doormat. If you feel Amazon isn’t treating the negotiation seriously at the start, feel free to withhold access to senior brand leadership until you see a shift in tone.
It’s also appropriate to keep some cards close to your chest. If your brand expects to bring up a difficult item – such as increasing the price of a listing, or decreasing specific investments – having a sweetener in your back pocket can help seal the deal. This could mean making new product listings contingent on Amazon accepting certain terms.
CPGs shouldn’t be shy about requesting incentives to invest. Amazon offers substantial seller fee discounts to 3P sellers that agree to use eCommerce-friendly packaging. If your brand is approached to enroll in these initiatives, consider requesting a discount or another incentive to participate.
Finally, be prepared for a bumpy ride. Amazon uses “complex tactics” such as sales interruptions because they work: brands get rattled by unexpected sales fluctuations and return to the negotiating table. Build this expectation into your sales forecast, and create an escalation strategy of your own in case negotiations drag on without a satisfactory resolution.
In summary
Negotiating joint business plans – especially with Amazon – always throws up many challenges. It may be tempting to simply accept Amazon’s demands. But taking a proactive, data-informed approach can work wonders for getting off to a positive start. Identify win-win opportunities wherever possible, hold your ground and expect a few speed bumps. The long-term payoff is a 2025 profitability tailwind as well as a more sustainable growth model for the future.
Profitero can directly reduce your cost to serve Amazon through Autopilot. This automated solution handles operational tasks, content correction, chargebacks, invoice shortages and more across your brand's entire Amazon portfolio. While Autopilot works in the background to save money and time, your Amazon team can focus on growing the brand. Learn more about Autopilot here.
CPGs looking for assistance with their AVNs or JBPs at other retailers are encouraged to reach out to our Advisory team. Our experts have helped countless brands navigate omnichannel JBPs, build win-win strategies and secure the terms they need. Request a free consultation here.