Podcast transcript
James Dihardjo
Will, thank you again for joining me to allow me to pick your brain. So I'm just going to jump straight in with question one. We've just kind of been talking about Vendor Central, right? So my first question is, what are the major challenges with selling on Vendor Central from your seat?
Will Haire
Beautiful. I think it's a great question. And Vendor Central requires a, like one of the biggest challenges. It requires its own level of expertise. What we have found is there, the population of sellers, because it's really open, as long as you can have valid information to open an account. Anybody can really be a seller as long as they're following Amazon's terms of service, obviously. But with Vendor Central, because the relationship's more of a wholesale relationship where there's purchase orders, there's pre-negotiated fees. If you're lucky you have a Vendor Rep you could talk to. If you're like a lot of other vendors we talk to, you're kind of on your own.
So there's lots of challenges with just the nuance of proper operations in the dashboard. Different from Seller Central where you're kind of managing a lot of it. You're shipping the inventory, whether it be FBA, leveraging FBM, fulfilled by merchant, fulfilled by Amazon. For those viewers who don't know the acronyms or the merchant channel fulfillment, you're managing a lot of those feeds. You're controlling the flow of inventory. Amazon's going to just straight up cut your checks for products, but you're going to have to adhere to a lot of their policies.
And one of the biggest things that you lose, and one of the pain points we have all the time is, can't realize an actual profit, which is their crap policy, not making up the acronym with its Amazon. But what it means is that they're making these purchase orders. And what we find a lot with our sellers that have retail distribution, especially our national level, is that a lot of third-party purchasers will buy the product. They'll flood the market, and sometimes they come in at a lower rate.
When Amazon sees the lower price, pretty much anywhere else on the web and or they're seeing it come into the market on their listings at a lower price, they're going to hit you and they're going to say, Hey, we're not going to do a purchase order. And by the way, reduce your price. Reduce your price, reduce your price. They're obnoxious with these emails. And the caveat is like, yes, you want to have a good map policy. You want to have a tight range around distribution to make sure that the products that are on the market are legit, counterfeiting, especially in the beauty and supplement category is a major issue. But by reducing the price, you're setting a new level for the price.
So what we have found over time is like, it's better to run a promotion or something like that if you're going to handle some of these policies. But for us, the biggest challenge is, you know, a little bit around profitability, but it's around the pricing model that Amazon has and getting those wholesale orders. And then the other big thing is negotiating your fees. So especially when you're coming on, because like when you're first, it's invitation only. So if you're like, how do I get on Seller Central? If you haven't been invited, it's tough.
What we have found for vendors who get in, generally Amazon will approach them because they have great off-Amazon sales or presence. Or they meet these people at trade shows is how we have the vendors we work with the kind of get into these programs and when you're in that first phase, like this is a lot of people make the mistake where they're like, we just want to be on Amazon. They don't really negotiate their fees as well.
So real quick, Amazon has co-op fees and your co-op fees cover the cost of Amazon hosting your products. Sold by Amazon, fulfilled and sold by Amazon essentially. And they handle a lot of the customer service aspects of that. But the average co-op fee is between four to 10%. And generally, the co-op fee mix-up contains three sub-fees, and the first sub-fees are your market development fund, MDF fees. The second is your freight allowance fees and the third is your damage allowance fees. And this obviously allows Amazon to recoup some cost as things happen with your products, returns, different marketing initiatives, and different betas to different programs.
But generally, the market, the MDF market development fund, that's going to be your largest fee between 13-22% is typically the range we see for vendors' freight allowance, 2-5%. Obviously, it varies based on the size and weight of the product. And then damage allowance is anywhere from 2-11%, and that comes down to the category in the specific type. And I encourage all our vendors who are starting is try to get the lowest rate you possibly can. Because nine times out of 10, you'll have a Vendor Rep for the first year and they're going to bounce. Amazon is not going to put another Vendor Rep in there. For me, it's kind of something that's really going away, unless you're like really Fortune 500 top brands on the platform.
So when you're getting into the platform, this is like something we tell all vendors, work with an agency, go get a lawyer, like negotiate, negotiate, negotiate. Coming onto Amazon and being able to maximize your profitability, having margins for yourself or an agency to do Advertising. Amazon's a pay-to-play platform, so it's not just enough to be on the platform. Granted, there's programs, Born to Run program, bulk buy programs, so like they have different programs that allow you to move products and show the value. But if they're making these purchase orders and they're not selling this product, you're not going to get purchase orders from Amazon. And that's just kind of the nature of the beast. So I just totally ranted James, but hopefully, that answered your question and a bunch of others.
James Dihardjo
No, that's actually very interesting. All those different layers of things you have to negotiate and it certainly shows that it's a very different beast to the regular way of selling it. And all the more reason to have the right advisors when doing this right. I think that's what I took away from it. Which is a good kind of segue into my next point, which is what are some of the things you need to watch out for when you're working with your Amazon vendor relationship manager? Like obviously that's a bit of a tricky relationship, but what do you have to think about when dealing with them?
Will Haire
Yeah, I mean, they're going to push you to do Advertising. They're going to push you to reduce pricing. They're going to push you to kind of like if you look at their incentive, their incentive is to make Amazon as profitable as possible and to provide the best user experience for the end user, which is the shopper buying the products within the category.
So what we find is generally they're not as helpful as you like. Generally, everything needs to be run through case management. That's another drawback. It's like even the change, the title of a listing. Generally, you're open in the case to get these done. The bulk uploads and some of the backend features don't really work as well. So having a vendor manager and working with the vendor manager, just like always communicating, usually via email, and trying to do things in what we found. Like If I had a laundry list of stuff to do, so I had like 50 ASINs and I wanted to change all their titles at once. Sending that to your vendor Rep, they will do 50 at once.
So your Vendor Rep will generally take care of a lot of that. If you don't have a Vendor Rep and you're working through support, you need to take those essentially one at a time and open individual cases. Because if you send them a bulk file, they're going to jack it up and then you're going to have even more problems than you had before. So the Vendor Rep is a benefit. And if you have them, you can lean on them, lean on them to renegotiate rates, lean on them to get into betas, lean on them to get into programs. Content creation beta is something that's out there. A Vendor Rep could get you into that. Same thing with an Advertising Rep if you have an Advertising Rep . So those are all benefits. And Inevitably when you no longer have a Rep, be prepared.
Even in some of the annual negotiations we find, we have a couple of vendors that we work with that lost their Rep and we're just locked into their rates. We've opened cases, to a point where we had to consult a legal service and we're kind of working through the weeds on some of that. So, tying it back to my first point, when you're getting on the platform and you're negotiating these fees, be aggressive. Make sure you get yours and you have comfortable margins.
James Dihardjo
Interesting. Yeah, very pragmatic, kind of advice there. So, changing gears, talking about Advertising, is it any different with Vendor Central versus Seller Central, or is it the same? What's your view on that?
Will Haire
Yeah. My view is pretty much the same. What I would say is although Amazon won't admit it, what we have found across the board is that they prefer 1P relationships. So generally, from an organic standpoint, from ad placement, you tend to get better placement. We tend to get a little better results. And a lot of that has to do with like the incentive. They're not going to say it, but they're on the hook. They made this purchase order, they have these products, so they're obviously, they're incentivized to push it. But you know, they still have to maintain a fair and balanced market.
So from an Advertising perspective, it's pretty much the same. You want to make sure you're controlling the buy box. You want to make sure, as I mentioned, you have good margins on your product so you can afford to advertise it, especially if it's a new product, especially if it's a launch. And especially if you don't have a lot of brand equity. You need to make sure that you have funding in order to drive awareness and get to the top of results on relevant search pages. Attract, and send your products to the right audiences so that they're aware you're available on Amazon.
And you know, at this point, 50% of e-commerce, a lot of traffic, but a lot of discovery happens off of Amazon. So you don't necessarily, like, I totally get it. Like, we want to drive to our website, retention marketing, lifetime value, and all the benefits of controlling that relationship. But customers are going to check Amazon. They're going to check Amazon for reviews. It's part of the shopper’s journey.
So even just general awareness of likes is also available on Amazon. Simple stuff like that on your social media. A lot of our influencers that we work with will have a link tree and they'll have the different places, but they always have a link to Amazon and it's a great habit for brands to adopt, to make sure that they're providing a consistent user experience with no matter where that shopper is. And at every point of that journey is a consistent brand experience. And it'll translate into dollars and cents, whether it's from the Amazon console or through your other marketing and Advertising efforts.
James Dihardjo
Okay, interesting. That's an interesting point. Next thing I want to ask you Will is, what is this thing called Net PPM and why is this important to monitor?
Will Haire
Yeah, so the Net P is Net Pure Profit Margin. And it's how profitable are you on Amazon And what it is that you’re, the average selling price, your product subtract your cost price, plus your vendor terms. And that's going to get you essentially your Net PPM.
At BellaVIX, we use ship cogs, which is kind of the same thing. And then we have our profit margins and all the fees associated with that. So conceptually it's the same way and it's just like, How are you profitable? And for those of you guys who are having trouble raising prices, we've actually had several occasions where we've been able after the fact to get fees reduced. And we've also been able to raise prices through a lot of case management. But if we're able to show to Amazon support, especially if you have a Vendor Rep that your costs have went up, that your Net PPM is less than what it was, significantly. This is all data you could provide to make the case to justify a price increase.
So tracking this is important, however, you want to label it. And making sure that if you're losing that or if you're unprofitable, you have the proper paperwork and backing to be able to support a price increase. And it is very difficult and it does take time and it's a lot of case management if you don't have a vendor Rep. But those are all the reasons, that's Net PPM and why it's important.
James Dihardjo
Great. Well, look, I got a little bit scared when you said, it can be a bunch of case logs to change a price.
Will Haire
Yeah.
James Dihardjo
Your Net PPM. I almost felt my chair. Just on all of those points Will. So, how does BellaVIX actually help Amazon vendors, how do you kind of take all these issues of just articulate, how do you turn that into a nice, easy-to-digest service?
Will Haire
Yep. Yeah. And so we're kind of a turnkey option for any of our Amazon services. So essentially, we take over the management account, we do daily checks, and we minimize your chargeback. The fees Amazon charge if you don't adhere to, their shipping and purchase order policy. So we'll try to get your money back. We track this on a regular basis. We have a software stack that sends us alerts if your title changes, especially if you're a national retailer, you have a lot of resellers and, people are changing titles and stuff like that.
So, we provide a turnkey end-to-end solution. And generally, we act as a fractional marketplace team. So we'll meet with our clients pretty routinely. We provide regular reports and we're always hitting our KPIs, whether it's profitability, whether it's ROAS, whether it's adding more products to the catalog, optimizing and ranking better for SEO. So these are all things that we track. On the vendor side, we don't have to worry about customer service. And with some of those features, we're able to kind of double down on the operation and the Advertising components to drive long-term growth and value on the platform.
James Dihardjo
Awesome. I can imagine with all those headaches we were just talking about, I can imagine a lot of people find this useful. But yeah, look, I'm, it was been very interesting and I'm kind of, I'm very keen to get you back, later this year and talk about this again because I just feel like the Vendor Central. It's changing all the time. Yeah. But, thank you Will for sharing all those points and giving us a little bit of insight.
Will Haire
Awesome. Thanks for having me, James. I appreciate it.
