The Ultimate Guide to Amazon CoOp Agreements
If you’re running a business on Vendor Central, you’ll be signed up to at least a few Amazon CoOp agreements that set out your business relationship with Amazon, including the way you promote your products through Amazon-owned channels, your inbound freight costs, and other policies.
Though many vendors aren’t especially clued-in about the CoOp agreements they’re a part of, these contracts can have a major impact on the costs of doing business on Amazon, and in turn, your bottom line.
If you’re looking to take stock of your operating costs and optimise your profit margins as an Amazon vendor, this guide is for you.
Let’s take a closer look at what Amazon CoOp agreements are, the impact they can have on brands like yours, and some of the key best practices for managing Amazon CoOp agreements as a vendor.
What Are Amazon CoOp Agreements?
Amazon CoOp agreements, sometimes referred to as Amazon ContraCoGS agreements, are contracts between Amazon and their vendors (i.e. suppliers) which outline different aspects of the business relationship between the two parties.
CoOp agreements can cover fees relating to various vendor operating costs, such as the freight costs needed to ship vendor products to Amazon fulfilment centres (if using “WePay”), the costs related to returns caused by damaged or defective products, as well as very specific “programs” Amazon offer to vendors, such as PICS (reducing the number of warehouses you’re delivering into), AVS (account support) and Acapulco (pallet ordering).
Amazon CoOp agreements fall into one of five main categories:
- Freight or damage allowances, which are calculated based on the monthly receipts into Amazon fulfilment centres, and billed according to a schedule set out in your Amazon seller agreement terms.
- Volume incentives, which are discounts given to vendors in return for achieving a certain sales volume.
- Straight payments, which are fixed amounts agreed on by Amazon and the vendor for a specific service or program.
- (SPA)/FLEX promotional allowances, based on the net product sales during a promotion run through an Amazon CoOp agreement, usually as Vendor Funded Sales Discounts.
- Price protection, which allows Amazon to recover “lost profits” when they have to price products competitively within the market.
As a vendor, you can view all your invoices, agreements, and payments relating to any CoOp programs you’re enrolled in through Amazon’s Co-Op Portal.
It’s worth noting that because CoOP deductions are made through Amazon’s recurring payments on PO invoices, payments made for your CoOp programs come under the category of accounts receivable deductions. As they’re made through pre-negotiated terms based on your trade budget, CoOp payments are also classified as trade deductions.
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5 Types of Amazon CoOp Agreement
The basic concept of Amazon CoOp agreements are easy enough to understand, but what do they mean in practical terms for your business on Amazon?
Here’s a closer look at the five types of Amazon CoOp agreement, and how they might affect a business like yours.
Freight or Damage Allowances
Freight and damage allowances require you, the vendor, to shoulder some of Amazon’s operating expenses, in return for accessing Amazon’s logistical solutions, which ensure more efficient distribution. Some of these solutions include Amazon PICs, full truck load ordering, direct fulfilment, and direct import.
Freight allowances are simply the cost charged to you in exchange for Amazon picking up your products and shipping them to their fulfilment centres (known as “WePay” and not applicable to “PrePaid” vendors).
Damage allowances, on the other hand, are part of an Amazon vendor agreement that requires you to compensate Amazon for any product damage that leads to a customer returning their goods within a warranty period. Though this is a common element of many vendors’ CoOp agreements, it can be hard to judge the legitimacy of damage allowances due to a lack of data shared by Amazon.
If you’re selling electronics through Amazon, you may be invited to join the Amazon Warranty Repair Programme, which can facilitate customers getting repairs from a registered service centre, rather than having to contact the vendor.
Volume Incentives
Volume incentives, sometimes called VIRs (volume incentive rebates), are awarded for achieving a certain sales volume. These incentives come in the form of either a percentage or a tiered payment, increasing based on sales volume brackets.
These Amazon CoOp agreements are more mutually beneficial compared to some others, as it incentivises Amazon to order more products from your brand and affords vendors the potential to achieve stronger margins through discounts.
If your brand doesn’t achieve a given sales target, then the investment in this program is refunded.
Straight Payments
There are certain promotional activities that Amazon will charge a fixed “straight payment” for, rather than a percentage of your sales or another type of charge that’s adjusted based on your performance on Amazon.
If, for example, you’re planning to enrol in Amazon Vine, or you want to get your products featured through one of Amazon’s marketing packages, this will incur a straight payment set by Amazon.
While it can be hard to project the return on these kinds of CoOp agreements, the explicit up-front cost and the benefits you’ll receive from Amazon tend to make them more manageable on the vendor’s part.
(SPA)/FLEX Promotional Allowances
Promotional allowances are offered to help vendors run promotions on Amazon.
Vendors fund their promotion through Lightning Deals, coupons, or another activity, and the exact amount of the allowance is adjusted based on the number of units sold during the promotion, excluding any orders that are cancelled.
Once a promotional period ends, Amazon will set a schedule of when you’ll pay for the total allowance used.
Unlike some other Amazon CoOp agreements, a promotional allowance isn’t directly tied to your performance, and is instead calculated based on sales volume.
Price Protection
Price protection CoOp agreements are used to protect Amazon from price fluctuations.
These policies state that if you lower the price of an ASIN, Amazon will automatically apply the reduced cost to any on-hand units, open purchase orders, and goods in transit to reflect the change in pricing.
Because price protection agreements affect Amazon’s outstanding orders, they can lead to lower profits on the sales affected. We don’t recommend entering into these agreements.
The Impact of Amazon CoOp Agreements
At first glance, some Amazon CoOp agreements such as AVS and PICS provide clear benefits when you’re doing business as a vendor. These agreements can help you to simplify the shipping and marketing costs involved with selling on Vendor Central, and allow you to benefit from increased visibility for your products through the funds allocated for marketing activities.
However, Amazon CoOp agreements can also make managing your vendor operations more challenging, giving you more variables to think about and optimise to make sure you’re getting the most from these policies.
Volume incentive rebates, for example, require vendors to calculate achievable sales targets and negotiate appropriately with Amazon in order to make sure the rebates are attainable. (SPA)/FLEX promotional allowances require an upfront investment and a keen understanding of Amazon’s marketing channels to ensure you’re getting a healthy return on your marketing budget.
To minimise your operating costs and maintain a high level of performance on Amazon, it’s crucial to understand how the variables of Amazon CoOp agreements can impact your bottom line, and actively negotiate for mutually beneficial arrangements with Amazon.
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6 Best Practices for Negotiating Amazon CoOp Agreements
While CoOp agreements can have potential for helping you develop your brand on Amazon and optimising your cash flow, they can also be very complex.
In one study on MDF and CoOp agreements by 360insights, 38% of surveyed partners reported facing challenges with an excess of paperwork, and 25% complained about difficulties stemming from poor communication.
To make sure you’re shouldering a minimum share of the costs and achieving favourable terms, you’ll need to have a proactive approach to negotiating each Amazon vendor agreement and managing the long-term impact of your active CoOps.
Here are six best practices for negotiating Amazon CoOp agreements as a vendor.
Keep An Eye Out for Errors from Amazon’s Side
When you’re looking to optimise your Amazon CoOp agreements, it’s important to note that Amazon can often make errors with these contracts and fail to hold up their side of the bargain.
Some possible errors Amazon can make with CoOp agreements include:
- Charging a vendor for CoOp benefits outside of an agreed effective period for the agreement.
- Charging incorrect amounts.
- Carrying forward rates from previous agreements when they should have been adjusted.
Know Your Offers and Limits
Before entering negotiations around your Amazon CoOp agreements, it’s crucial to spend some time reviewing your initial offer, counter offers, and any specific limitations you’ll hold to. This will save you from being pressured into making concessions you hadn’t planned for.
If, for example, you’re negotiating on the sales percentage you’ll contribute to AVS or PICS, knowing exactly how high you’ll be willing to go will help you project the maximum impact on your profit margins, and steer clear of CoOp agreements that are unsustainable in the context of your wider Amazon strategy.
Setting out these guidelines well in advance and getting familiar with them will help you establish certain protections for your business during negotiations, and keep you in the right headspace for more successful negotiations.
Review Your Past Agreements
Unless this is your first negotiation round with Amazon, it’s important to review your past meetings with Amazon and use these to better contextualise your upcoming CoOp negotiations.
Look into the commitments that were made by both parties, how closely these commitments were honoured, and whether or not you may be able to leverage areas where Amazon hasn’t held up their end of the bargain.
Making sure you’re up-to-date with previous discussions and what was agreed on will help you keep on top of what to expect and avoid any surprises.
Organise Your Data
In most vendor meetings, you can expect Amazon’s representatives to come prepared with a wide array of data points and presentations. To give yourself a strong negotiating position, you need to be proactive about bringing your own data to back up your arguments.
We recommend using Vendor Central reports to organise key metrics from the past year such as revenue, margin, and anything else that’s pertinent to your performance on Amazon. When you’re planning to negotiate favourable Amazon CoOp agreement terms, the two most important things to emphasise are:
Your products’ profitability, and how much profit they’ve generated for Amazon compared to other brands in your category. To demonstrate this, you should be highlighting ordered revenue, shipped revenue, and shipped COGS to prove that your brand’s performance has been an asset to the platform.
Your CoOp spending figures, which will allow you to prove how much your ongoing agreements are costing you, and make it easier to explain to Amazon why you need to lower your expenditure. Your CoOp invoices will be the key data points to use in this area.
Study Competitor Benchmarks
As a vendor, your primary concern is obviously going to be your own business’s performance.
However, it’s important to remember that Amazon’s representatives are going to be thinking “big picture”, and care more about how your metrics stack up next to comparable vendor accounts, rather than how well you’ve met or exceeded your own targets.
Before entering negotiations, take some time to research the kind of benchmarks Amazon will be using to contextualise your CoOp agreements, looking for any useful data points from industry reports, online communities focused on vendors within your product niche, and any other sources you have available (including us!).
With realistic benchmarks for comparable vendors’ performance, you’ll have a much easier time determining any improvements you may need to carry out, and secure a stronger position in the negotiations.
Clearly Articulate Your Asks
Once you’ve carried out enough research to get a clear idea of your negotiating position, it’s always good practice to set some time aside for articulating exactly what you want from Amazon’s end.
This might involve asking for rates that are more reflective of Amazon’s cost to serve for services such as PICS and AVS, as well as ensuring aspects such as damage allowance actually align with the true damage and returns metrics associated with your products.
Whatever you’re hoping to gain from your negotiations, spelling it out for future reference will help you keep your eye on the prize and recognise good opportunities for introducing your “asks” to the conversation.
When Amazon tables their own needs and asks you to accept terms that are beneficial to them, finding a compromise that protects your interests too can be a good way to keep the negotiations amicable, and help both parties come away feeling that they’ve achieved what they set out to do.
Making CoOp Agreements Work for You
Managing your Amazon CoOp agreements can be more than a little confusing, but by taking a proactive approach to this topic, you can maximise the potential benefits of your agreement while capping its potential expenses.
If you have other concerns about your active CoOp agreements, our ProfitGuard service can help you simplify some of the jargon, resolve common CoOp issues, and make sure you’re getting the best deal possible. Schedule a call today!
