Amazon Vendor Negotiations: Secure Terms That Protect Your Profitability
It’s almost that time of the year. Amazon vendor negotiations (AVNs) are coming up, and flexibility in negotiations is expected to diminish. There's an increased focus on cost optimization and supply chain efficiency, which will be central to the terms Amazon sets.
Given this profitability-first mindset, vendors will face negotiations focused on cost efficiency and margin protection. What are the key areas where vendors will likely face the most pressure and what can be done to be best prepared? Let's take a look.
Profitability Over Flexibility
For some time now, Amazon’s primary focus has been safeguarding its margins. This year, Net PPM (Pure Product Margin) and supply chain efficiency will take center stage. Cost pass-throughs – such as inflation, freight, and currency fluctuations – are likely to be non-negotiable, with Amazon expecting vendors to absorb these costs or face penalties.
In practice, Amazon often tries to delay processing increases as long as possible (for example, with tariffs in the US or USD/EUR fluctuations in Europe). So, it's a good idea to consider building in cost assumptions during new item setup, since increasing a cost price later is significantly harder.
The Challenges Ahead
With these realities in mind, vendors should be prepared for several major challenges in the upcoming negotiations:
- Higher funding requests for co-op (cooperative marketing), returns, and freight are likely, as Amazon pushes for greater profitability.
- CRaP (Can't Realize a Profit) ASINs will continue to be an issue. Products that aren’t profitable may be flagged for delisting unless vendors provide additional support.
- Tighter compliance around OTIF (On-Time, In-Full) and chargeback policies will add further pressure. Vendors unable to meet these standards could face substantial penalties.
Behind all these demands is Amazon’s drive to protect not just profits, but also its cash flow. What Amazon pushes hardest for can vary – in some cases growth, in others efficiency or margins – but the pattern is the same: it will always ask vendors to give more.
That said, for brands able to plan ahead, Amazon’s scale continues to create unmatched opportunities for reaching customers quickly and building long-term category leadership.
How to Protect Position as a Vendor
With these challenges in mind, it's essential to come to the negotiation table prepared with a strategy that emphasizes your brand's value. One of the most effective ways to strengthen a position is by providing a comprehensive P&L scenario illustrating the impact of proposed terms on profitability. Price increases should be supported by solid evidence, such as data on supply chain costs and market conditions.
Equally important is knowing the drivers behind Amazon’s pricing, such as ASP or lost Buy Box reasons (e.g., internal sellers, competitors, promotion share, overstocks, or base price changes, etc.). Many vendors worry about price matching, but those lower prices often fuel higher sales, making it a trade-off between growth and margin. Aligning trade terms with growth initiatives – such as new product launches, Subscribe & Save, or media commitments – can also help shift the conversation from cost absorption to joint business-building opportunities.
At the same time, vendors should be prepared for escalation scenarios – stop ships, delistings, or CRaP outs – and come with contingency plans. Reinforcing current investments in Amazon (content, logistics, and customer experience) is also key, and in some cases, exploring alternatives like FOB (Free on Board) business can provide leverage.
AVN is also a critical moment to address operational challenges. Issues such as data connections, lack of support, and supply chain inefficiencies should be identified and integrated into Joint Business Plans (JBPs). These solutions will serve as leverage and demonstrate a commitment to resolving mutual obstacles.
The Power of Data
To succeed in Amazon’s increasingly data-driven negotiations, vendors must not only track key performance indicators (KPIs), but also demonstrate that their performance exceeds Amazon’s benchmarks. While having solid data is essential, it’s about how that data is positioned within Amazon's broader goals. The focus should be on metrics that show operational efficiency, growth potential, and customer loyalty, such as:
- Net PPM: Given Amazon’s profitability-first approach, this metric is crucial.
- Sales Velocity & Category Contribution: Amazon values products that contribute to category growth, not just those that generate short-term sales.
- Media ROI: Amazon is increasingly linking retail performance with media spend.
- Operational & Customer Metrics: Low return rates, high OTIF compliance, efficient chargeback resolution, Subscribe & Save penetration, and repeat purchase rates all reduce Amazon’s risk while showing customer loyalty.
The key here is to demonstrate that one’s brand not only meets but exceeds Amazon’s benchmarks. This can help businesses position themselves as a top-tier partner, one that drives growth and profitability for both parties.
Amazon’s Key Focus Areas for 2025
Given the slower growth retail environment Amazon is operating in, vendors can expect increasing pressure on several fronts. The company’s broader goals will shape the terms and conditions of vendor negotiations, and it’s essential for vendors to anticipate these priorities:
- Prioritize Profit Margins: Amazon will focus on cost optimization through higher co-op funding, freight, and return funding.
- Reduce CRaP: Products that don’t meet profitability thresholds will be scrutinized and potentially delisted.
- Integrate Media with Retail Growth: Retail terms will increasingly be tied to media investments.
- Push Supply Chain Programs: Amazon will continue to push programs like Vendor Flex and Direct Import, which reduce logistics inefficiencies.
In addition to these operational and financial demands, Amazon is anticipated to seek more control over its supply chain. Vendors may be asked to take on more responsibility for inventory management or adapt to Amazon's changing fulfillment network, further reducing Amazon’s operational costs.
Turn Shifting Demands into Margin Opportunities
To succeed in Amazon’s 2025 vendor negotiations, adaptability is key. Vendors must be prepared to pivot quickly as Amazon’s priorities shift. It’s no longer just about closing deals; it's about building a long-term, strategic partnership with Amazon throughout the year.
Vendors should stay engaged with Amazon’s account managers year-round, ensuring open communication and alignment on business goals. Maintaining a proactive, transparent relationship will help secure better terms, improve performance, and keep your brand ahead of Amazon’s expectations.
At Front Row, we specialize in helping brands adapt to Amazon’s dynamic approach. We help clients not only with the negotiation process but also with building the financial, operational, and media strategies that Amazon responds to. Reach out to us to ensure your brand not only survives but thrives in this year’s vendor negotiations.