At the end of last year, I received an email from Amazon with an invitation to join their Vendor program. After careful consideration, I decided to decline their offer and not participate in this program. Why? Let’s find out!
Amazon Vendor program—what it is and how does it work?
First of all, the Amazon Vendor program not a public program, so you can’t join without an invite, even if you wanted to. Amazon manually selects sellers with a good track record and strong sales and then invites them to join the program. There’s a special job role at Amazon called Vendor Program Managers. These people handle the vetting process and actively look for brands they want to include in this program.
When you join the Amazon Vendor program, you basically give away keys to your brand on Amazon TO Amazon. Essentially, they become the seller of your product and you become a supplier. In practice, you sell your products to Amazon at wholesale prices and they sell the products for you. On your product listings, the seller will change from your name to Sold by Amazon.
Sounds great, right? It’s a dream come true for many businesses to work directly with Amazon! Not so fast, my friends…
Yes, at the very beginning, I was excited and thought that I would join. However, I started to do some research online and tried to find more information, such as other sellers’ experiences, but I couldn’t find much. There were some, but they were mostly posts from US-based Amazon sellers. Plus, there weren’t many from private-label brand owners. The general feedback wasn’t positive either. People mentioned problems with deliveries (more on that in a minute), cash-flow challenges and other issues.
Still, I wanted to get all the information directly from Amazon, so I scheduled a call with my Vendor Program Manager to find out all the bits and pieces that were missing from the puzzle at that time.
On that call, I got all the information I needed to make my decision NOT to join the Vendor program. Here’s why I decided to decline the offer:
With the Vendor program, Amazon places an order with you on a weekly basis. Essentially, each week, they send you a purchase order for the items they need from you at the quantities that they want. You have to send that stock to Amazon within five days and then raise an invoice.
This means that I would be spending extra time on this process and using courier deliveries instead of pallet deliveries, which would add extra cost and would make my inventory planning process more complicated.
Amazon offered to pay me £4 per unit (+VAT) for items that I sell for £9.99 (inc. VAT). Plus, they take a 10% rebate off that for marketing and damaged/defective products. So, the final price I would receive from Amazon is £3.60 per unit sold. After my product costs and shipping costs, that would leave me with approx. £2.60 NET profit per unit sold.
I didn’t like that at all. I currently make an average of £4 profit per unit sold, which is a big difference. From the research I did online, some people said that you can negotiate the pricing with Amazon, but I didn’t do that. It is very unlikely that they would move from £4 to £5, and even without this issue, taking everything else into consideration, I had already decided not to proceed with the application. But if you’re in a similar position, make sure to negotiate the pricing of your products because you could most likely improve on the initial offer.
Lack of control
With the Vendor program, Amazon becomes the seller of your product. They can then do whatever they want, like lower the price over time, offer discounts, etc.
They could basically squeeze your margins even further if they think that your pricing is too high at that moment or that they could make more money by selling your product for less. The idea of this potentially happening was a big red flag for me.
Amazon is very smart, and I don’t blame them.
With the Vendor program, they place an order with you on a weekly basis, but they pay you for those orders 60 days later.
What a clever model, right? Order items from suppliers that cover say two to three weeks of sales, SELL THEM, and then only pay the supplier after 60 days have passed. For them, this program is totally risk-free. They get free products from suppliers, sell them, maybe make some extra money on the financial markets, then only have to pay the supplier 60 days later. Fantastic!
For me personally, this wouldn’t be such a huge issue. I could support that model as I have cash reserves. Plus, it’s not like we’re getting our money into our bank accounts instantly right now anyway, but I think 60 days is extreme. 30 days would be perfectly fine, but 60 days is simply too much.
And yes, I know that NET-60 terms are very common in the traditional wholesale/retail game and that some large retailers push even harder with NET-90 or NET-120 terms. But when I was considering the Vendor program, this was yet another reason why I decided to pass the offer.
Although these four issues were good reasons to be on the fence with my decision, the most important reason why I decided not to join the Vendor program is very simple: I could not see how it would BENEFIT me to join.
Let me explain by showcasing the key benefits that Amazon promotes as reasons why sellers should join the Vendor program:
- Prime and “As sold and dispatched by Amazon” on your full catalogue: products listed with this have significantly higher conversion rates, as it boosts customer trust in your brand by association.
I’m using FBA, so I already have the Prime badge on all my listings. Joining the Vendor program wouldn’t make any difference to me in that regard.
“Sold by Amazon”—yes, this could be a conversion booster, but the question is: by how much? We know from surveys that most customers on Amazon don’t even realise that most of Amazon’s products are sold by third-party suppliers, so “Sold by Amazon” may not even be that important.
Yes, it could be that Amazon is prioritising their own listings in the search results, but even if that is happening right now, with all the investigations going on by the EU into Amazon, they will probably have to stop doing it. Online marketplaces are becoming subject to stricter regulations, so they won’t be able to play nasty games like this anymore in the near future.
- Streamlined operations: a direct-to-Amazon relationship, which means you won’t need to deal with customer service and logistics for each sale.
As I’m already using FBA, so I don’t have to deal with customer support anyways. I get just a few messages per week and they are all people asking for an invoice (which, of course, is already available on their Orders page because I’m using a VAT invoicing system), so this is not a real benefit to me.
- No selling or warehousing fees: you sell your items at trade price and we take care of the rest.
Yes, there are no FBA or seller fees, but Amazon is actually paying me LESS, so my NET profit per product sold is LESS than what I make now while paying FBA and seller fees. So, there’s no real financial benefit at all.
- Volume boost: our vendors typically experience a 2-3 times sales uplift (against their previous marketplace volumes).
I find it hard to believe that I would get a two to three times boost in sales just from the “Sold by Amazon” feature. I think that they get this number by taking into account customers who were not previously using the FBA and Pan-EU programs. More on that later.
There would most likely be a small boost in sales, but not two or three times my current volume. This promise is based on nothing.
- Control over product listings: as a direct Amazon supplier, you take control of your brand’s images and item information.
I already have 100% control of my images and listing descriptions. Yay! What a great benefit!
- In-house training: you’d be invited into our headquarters for training and receive an account manager to support your Amazon business.
I can’t see how I could benefit from this. From watching Amazon’s webinars, the training seems to be fairly simple and only covers basic stuff. I think my fifteen years of e-commerce experience is more valuable than that.
- UK and EU online presence: no additional cost to distribute your products across the EU from our warehouses and no need to be VAT registered in each market.
I’m already using the Pan-EU program and sell my products on all five marketplaces. Again, not a real benefit—at least, for me.
As you can see, taking into account my current business situation and the fact that I’m already using FBA, Amazon’s invoicing system and the Pan-EU program, there’s really not that much I can benefit from with the Vendor program.
When I take into consideration the lower profit, weekly deliveries and delayed payments, suddenly the whole thing doesn’t look like that good of a deal, right?
The “Sold by Amazon” certainly carries some weight, but how much? It’s very hard to tell…
The only other real benefit for me would be that with the Vendor program, you get access to more marketing tools. For example, I could upload a video to my product listings. But knowing that this feature is already available in the US for all sellers, I predict that it will also be made available in the UK/EU marketplaces later on this year.
Amazon also told me that I would be able to use variations for my listings, which is currently not an option for my product category. But again, in the US, variations are available for my product category, so it’s probably just a matter of time before they make the same feature available in the UK.
Taking all the “benefits” and drawbacks into consideration, I decided NOT to join the Amazon Vendor program, and I think I made the right choice. I will probably lose out on some extra sales, but overall, I don’t think this program would benefit me that much.
Does it mean that the Amazon Vendor program is total rubbish, and no one else should use it?
No, I do think that there are two scenarios where sellers could greatly benefit from the program:
1) If you’re currently selling in just one marketplace (say the UK or Germany) and you’re not using the FBA program or the Pan-EU program, and don’t have VAT numbers in European countries, this program may actually be a good fit.
Amazon will handle the order fulfilment, customer support and sell your products in Europe. You get the Prime badge, the “Sold by Amazon” listing status and it will definitely boost your sales. I think these are the types of sellers who could see that two to three times sales increase Amazon mentions in the benefits list. Going from a single-market FBM seller to a multi-country seller with Prime/Sold by Amazon listings will definitely boost your conversion rates and sales.
Plus, this is an easy way to get your products exposed to the EU marketplaces without going through the VAT registration process and doing monthly VAT returns.
2) If you’re a wholesaler or importer with hundreds of thousands of product lines and not using FBA at the moment.
From doing research online, I found that many sellers in the US who have tried OR are part of the Vendor program are actually wholesalers. For them, this program makes total sense as they deal with Amazon just like any other retailer. They’re used to frequent purchase orders, NET-60 payment terms and everything else. Perfect fit!
However, I did find some negative comments about shipments going missing, Amazon doing incorrect sales forecasts, lots of stock getting returned to the seller, etc., so it’s not all rosy. But I can at least see the benefits of joining the program if you’re a wholesaler or distributor.
If you fall into either of these two groups, you could consider joining the Vendor program, and it may actually work out well for you. You’ll still have to wait for that invitation, though, as there’s no official way to apply for this program.
If you want to, you can search for “Amazon Vendor UK” on LinkedIn to find the contact details for Vendor Program Managers. Then, you can send them a message to at least inform/raise awareness that you have such a brand and you’re interested in joining the program. Of course, look for UK-based managers if you’re targeting the Amazon.co.uk platform.
You will still have to have a great product and brand, as well as a proven track of record of sales for them to even consider you, but you may get lucky.
Also, from the phone call I had with the Vendor Program Manager, I understand that each manager has a yearly quota to fill, so December is probably a good time to use this strategy (LinkedIn contact), as the year is ending and they have to fill those unused places! Maybe that’s why I received my invitation in December—I was probably on the B or C list (lol) and was only invited because they had to fill up those empty spaces! 🙂
And that’s about it! That is my experience and thoughts on the Amazon Vendor program. It would be great if there was more information available online—at least some success stories from sellers who found the program valuable—as maybe then my decision would have been different. But it is what it is, and I don’t regret my choice at all.
At the very beginning, what got me excited was the thought that Amazon would handle the PPC advertising for me, which would be a game-changer. But it turned out that as Amazon Vendor sellers, we would still have to do our PPC campaigns and pay for all the clicks—just like we do now but at lower net profit margins!!!
Amazon will spend a very small amount on PPC for your product (5% of £4 is 20p, which is not enough to cover the cost of even one click in the category I’m working in), and the best part is that YOU PAY that 20p! They take it off you rather than invest their own money into advertising the product. So that’s that…
Ok, I really hope that by sharing my experience, I can help other sellers make the right decision for them, especially when there is so little information available online about the Vendor program. But more importantly, I hope that with this post, I can get some eyeballs from active Amazon Vendor program sellers and they can share their stories/experiences with others!
If you are currently participating in the Vendor program, I would really appreciate if you could share your experience by leaving a comment below the post. Thanks in advance!