Principles for Managing your Net PPM in 2023.
Net PPM is a word that is frequently used but not always fully understood in the world of Amazon vendors. Net PPM stands for net pure profit margin, and it is a critical aspect of any Amazon vendor's profitability. This article addresses the function of net PPM in the day-to-day life of an Amazon vendor manager and how it may assist vendors develop their Amazon channel.
Net PPM = Amazon's profit lens.
Amazon's evolution as a retailer and their focus have shifted over time. Amazon's initial emphasis was on diversifying into new categories and expanding its selection. Profitability was not a major concern at the time. However, as Amazon has evolved, its emphasis has changed to profitability, and net PPM has become a critical determinant in its success.
The net PPM percentages vary by category, but the average range is between 30% and 40%. Vendor managers are held accountable for ensuring that their vendors bring 30% to 40% net PPM to their category. This laser emphasis on profitability is due to Amazon's need to profit from the sale of a vendor's products. If a vendor's goods does not generate a profit, Amazon has no reason to keep offering it.
There is a distinction between net PPM and an increase in trading terms. While vendor managers are focused on raising trading terms, the overarching goal is to maximize net PPM. This is due to Amazon's requirement to profit from the sale of a vendor's products.
Finally, net PPM is an important aspect in the success of any Amazon vendor. It is a statistic that vendor managers must pay attention to in order to verify that their vendors are providing a return to Amazon. Vendors may build their Amazon channel and maintain a successful partnership with Amazon by knowing the role of net PPM.
Measuring Net PPM.
Net PPM, or pure net product margin, is a critical number for Amazon vendors to track and measure in order to be successful on Amazon’s platform. It is the profit margin made by Amazon after deducting all costs connected with selling their products on Amazon. This includes any promotional discounts or allowances, as well as the cost of products sold.
Net PPM may be tracked at two levels: the account level and the ASIN level. Vendors must calculate their shipped revenue minus the product cost of goods sold, add any terms, and reduce any sales discounts at the account level. Vendors must determine their average selling price minus the cost price plus vendor-negotiated terms, divided by average selling prices at the ASIN level.
While these methods may appear complex, Amazon gives vendors the tools to conduct their own net PPM analysis. It is critical for suppliers to track net PPM on a regular basis, preferably quarterly, with monthly tracking. This allows suppliers to detect and address any problems in their net PPM margin.
Balancing their trade terms with Amazon is one of the issues that merchants encounter. Trading terms refer to the investments that sellers make on Amazon to advance their businesses, such as co-op payments and payment terms. Vendors must also consider any sales discounts or promotions they provide in addition to their cost price. It is critical to understand how much of any discount is financed by the merchant and how much is funded by Amazon.
It's also worth noting that Amazon advertising is a distinct element of the company and should be regarded as such. Vendors must understand that advertising costs are not included in the net PPM calculation and must be managed independently.
Overall, tracking and measuring net PPM is critical for any Amazon vendor's performance. Vendors can detect and address difficulties by understanding the value of net PPM and tracking it on a regular basis. This will assist sellers in maintaining a successful relationship with Amazon and expanding their company on the platform.
Managing Your Net PPM pro-actively
Failure to control net PPM, on the other hand, might have catastrophic implications. Vendors' products may be removed from Amazon's catalog, resulting in a loss of purchase orders. Furthermore, if a vendor's net PPM is low, Amazon may be unable to compete in the buy box, resulting in a loss of visibility for the vendor's products. This, in turn, may cause Amazon's algorithms to drop the vendor's organic page ranking, decreasing exposure even further. Vendors who spend in Amazon advertising without measuring net PPM may be wasting money on products that Amazon may delist.
Furthermore, controlling net PPM is about the vendor's relationship and engagement with Amazon, not only their items and brands. Vendor managers want vendors who hold themselves accountable for their net PPM and are easy to work with. While there are no guarantees that a vendor can reach a 35% net PPM, it is critical that suppliers understand the necessity of controlling net PPM and the dangers associated with failing to do so.
To effectively manage net PPM, vendors should track it regularly and conduct quarterly deep dives to uncover any issues. Vendors should also do internal quarterly net PPM evaluations to determine which goods are causing lower net PPM for their brand. Additionally, providers should perform root cause analysis to determine the causes of a decrease in net PPM. Vendors, for example, can analyze Amazon's pricing policy to determine who they are price-matching in the market sector.
Finally, maintaining net PPM is crucial for any Amazon vendor's success. Failure to manage net PPM can have major ramifications, such as product delisting and loss of visibility. Vendors who invest in Amazon advertising without tracking net PPM may be squandering their funds as well.
Vendors can detect and address difficulties by tracking net PPM on a regular basis and doing measures such as root cause analysis. This will assist sellers in maintaining a successful relationship with Amazon and expanding their company on the platform.
Take a category perspective
It is important to emphasise the necessity of portfolio management and channel management in net PPM management. Vendors should have a clear channel management strategy in place, including pricing policies, to ensure that their items are not marketed at reduced prices on third-party marketplaces. To enhance net PPM, they should also consider shifting low-ASP goods to a hybrid model or deleting specific ASINs entirely from their product mix.
Furthermore, advertising should be combined with net PPM tracking to verify that vendors are optimizing their PPC software in the backend and not pushing their net PPM between themselves and Amazon down. It is also critical for vendors to grasp the value of Amazon as a retailer of their products and brands and to deal with Amazon in a profitable manner.
Finally, vendors needs to understand their net PPM category average and how it changes per category. Vendors can use resources to calculate the category average and compare it to their own net PPM to identify areas for improvement.
Every Amazon category has a certain range of net PPM that it focuses on. In rough and harsh categories, for example, the net PPM fluctuates between 30 and 40%, depending on hard and soft lines. However, in electronics, net PPM estimates will be much smaller. This means that Amazon's net PPM projections will be much lower in some categories than in others.
Vendors must grasp the category average for net PPM and compare it to their own net PPM to identify areas for improvement. Vendors can use resources to determine the category average, and if they are unclear, they can consult their vendor manager.