Which Sales Model Fits Your Amazon Business? Vendor, Seller, or Hybrid Model?

We repeatedly hear from vendors who are considering terminating their long-term collaboration with Amazon as a vendor and switching to the seller program. However, most manufacturers are not clear about when such a change makes sense and what advantages and disadvantages arise from it. In previous articles, we have already written about advantages for vendors and terminating vendor contracts. How a switch to the seller model works, what needs to be considered, and what role the hybrid model plays in this, we want to answer in this article.

Amazon is currently making a kind of directional change in collaboration with manufacturers and suppliers: Amazon's price demands are becoming harder, while contacts and exclusive advantages (e.g., A+ Premium) are simultaneously becoming fewer. To better understand how this change came about, let's first look back and describe how today's situation and dealing with suppliers at Amazon came about.

Looking Back: Win-Win Situation for Vendors and Amazon

Amazon celebrates its 28th birthday this year. Looking at Amazon's corporate development in the press, it becomes clear how big Amazon has become. Hardly any manufacturer can pass by the leader in German e-commerce without having their products listed there. Since Amazon focuses on the end customer, collaboration with Amazon is always a challenge for manufacturers and retailers.

Before Amazon opened its German marketplace with the Amazon Marketplace for sellers in 2000, it was only possible for wholesalers and manufacturers to sell on Amazon.de if they were directly approached by Amazon. Even today, manufacturers cannot simply register themselves as vendors in the Amazon system, but need an invitation from Amazon.

With the goal proclaimed at the time by Jeff Bezos to quickly maximize the selection of products available on Amazon, Amazon tried in the past to win over as many retailers and manufacturers as possible. For this purpose, Amazon purchased goods from many well-known brands on a large scale to offer them on Amazon. From a manufacturer's perspective, Amazon was thus one retailer among many who purchased goods at fixed conditions and ensured increasing sales.

Room for Maneuver in Price Negotiations

To be able to grow with the assortment to become the largest brand department store of all time, manufacturers were still granted generous room for maneuver in price negotiations. In contract negotiations with vendor managers, conditions and targets were renegotiated. Manufacturers could face adjustments calmly due to the pricing flexibility. Collaboration with Amazon was simple from a vendor's perspective and took place on equal terms.

The goods ordered by Amazon were delivered by the vendor and Amazon paid the agreed purchase price.

The start as a vendor went smoothly: Amazon took care of product listing and product presentation after successful contract negotiations. The vendor didn't have to do much more than regularly deliver their goods to Amazon. Amazon also took care of advertising itself, placed ads, as the platform was supposed to quickly generate reach.

With Amazon's further growth, sales increased equally for both manufacturers and Amazon. Amazon's assortment grew and more and more manufacturers sold their goods to Amazon. From the vendor's perspective, Amazon still played a rather subordinate role, as a large part of the goods continued to be distributed through traditional sales channels.

Strategy Change: Amazon Tightens the Screws

By 2022, Amazon is in direct competition with other sales platforms such as Otto, Zalando, or Kaufland, but also with niche shops like Notebooksbilliger, Lidl, or thousands of Shopify shops that increasingly try to take away Amazon's share in e-commerce.

Additionally, Amazon as a price leader is under enormous pressure to defend this position. Not least, the previously largely deficit retail business of the retail giant is now demanding its return.

The result was a strategy change regarding assortment and profitability: Not every article and every manufacturer must be represented in the catalog from Amazon's perspective. Amazon now demands ever more price concessions from its suppliers each year to finance its own growth, maintain price leadership, and write black numbers in the retail sector. Brand manufacturers can observe this strategy change in various areas.

Vendor Contract Framework

The vendor contract framework is becoming increasingly complex. So Amazon demands new contract conditions for new services or those that were not previously required with each annual meeting. Large manufacturers can hardly avoid these conditions and at the same time have the problem of enforcing rising costs in production and logistics at Amazon in the form of price increases.

New manufacturers who are supposed to come on board are literally courted by Amazon. Numerous phone calls, emails, sometimes even personal meetings at the manufacturer create the impression that they can negotiate with Amazon on equal terms.

Those who start with Amazon as a new manufacturer today are often not clear at the beginning of the collaboration about what specific requirements apply and what tasks will come to the supplier. Contract frameworks and conditions provide no information about these tasks and are rarely critically questioned due to frequently lacking expertise. Individual wishes are usually not addressed at all in contract negotiations. The negotiation partner, a vendor manager, has clear target specifications and has little room for maneuver in interpreting the conditions. The conversations are tough and can only be negotiated in favor of the supplier with a lot of experience.

This repeatedly leads to vendors being dissatisfied with the achieved margin and wanting to renegotiate with Amazon. But once the contract is signed, negotiations usually only run in one direction: in favor of Amazon. Support from an experienced consultant is useful here before contract conclusion. The signed contract is ultimately the basis for a long-term, growth-oriented collaboration with Amazon.

Various former vendor managers offer such consultations. They know their way around well, having sat on the other side of the table for a long time.

Logistics

With the construction of new logistics centers, Amazon sets standards and defines new requirements for logistics. Due to this rapid growth, complexity also increases in all areas. Amazon must meet the exploding costs in logistics. The Vendor Manual (central rulebook for article delivery) is extensive and complex. Amazon increasingly relies on compensation payments from suppliers when delivery requirements are disregarded to keep logistics under control. No matter how much manufacturers try - all requirements can rarely be fulfilled 100%. Contesting the resulting penalty payments is time-consuming and rarely successful. If vendors have not already priced in the penalty payments in previous contract negotiations and contractually restricted the payments, they must accept them grudgingly.

Vendor Contacts

With the increasing requirements and the constantly growing Amazon system, support pressure on suppliers also increases. While vendor managers were still reachable for manufacturers in the past, this is rarely the case today, as they have to look after hundreds of suppliers in parallel. Contacts who supported during onboarding disappear seemingly without a trace after a few months. If a supplier doesn't bring relevant sales in their sales category, there's no more contact person. Additionally, Amazon has been reducing vendor managers more and more recently, and contact intervals with suppliers are limited to a minimum. These missing contacts make it difficult for suppliers to find competent solutions in the Amazon jungle in a timely manner when problems arise.

Rather, strategic contacts are created who are supposed to help place, for example, large advertising budgets and deals. Those who want strategic support can fall back on the Strategic Vendor Service, or SVS for short, or the Amazon Vendor Service (AVS). These are Amazon employees who look after up to a dozen vendor accounts. These support services cost the vendor additional conditions. The price for these specialists is high and should be negotiated at the beginning of the collaboration.

Automation

To reduce their own costs and manage the enormous support effort, Amazon increasingly relies on automation. With the help of the latest technical developments, algorithms, and artificial intelligence, more and more processes are managed by machines instead of people. At the same time, Amazon is relocating employees and entire services to low-wage countries and relying on centralization. Personal contacts are becoming increasingly rare and support requests are increasingly processed from abroad.

Sales Prices

While Amazon purchases goods from suppliers at a list price, price sovereignty lies entirely with Amazon. Price discovery for vendor products also takes place automatically. Prices are compared exactly on other platforms. Amazon has set itself the goal of being a price leader. Amazon even goes so far as to sell products at a negative contribution margin for itself, just to keep customers on its own platform. This can promote price erosion and further tighten conditions.

Assortment

Amazon no longer orders the full assortment: Amazon looks more critically at the profit margins of the offered products and no longer tries to list every product in the catalog. If manufacturers can no longer meet Amazon's price expectations, "penalties" threaten: Individual products may no longer be approved for advertising, lose the Buy Box for non-Prime members, and finally are no longer reordered by Amazon (CRAP Out).

Operational Tasks

More and more operational tasks in daily doing come to vendors. Amazon increasingly transfers more self-responsibility to suppliers. What is already everyday life for sellers in the self-management interface Seller Central is often only possible for vendors via detours through support. So the processes and tools in Seller Central are already fully designed to list and deliver new products as easily and quickly as possible, create variants, or change product data. But vendors face often unexpected hurdles with these tasks. So when creating and updating products in Vendor Central or delivering goods to Amazon, something often goes wrong, which leads to listing data being displayed incorrectly on Amazon or Amazon returning goods or demanding penalty payments. Or Amazon transfers end customer support to the vendor, even though Amazon is the seller of the goods and should provide support.

Lack of Transparency

Those who sell as vendors receive only very limited insights into sales figures from Amazon. Although orders are given by time periods, vendors do not receive concrete information about customer data (available to sellers). By now, vendors have access not only to the previously provided, very limited analysis tool ARA Basic, but also to the more detailed variant called "Brand Analytics" (formerly ARA Premium). Nevertheless, many things remain Amazon's secret, e.g., which product was bought when or with which search term, as one is used to from Google for one's own shop. Amazon also hardly discloses data about the advertising cost subsidies (ACS) provided. What services Amazon provides with the money in detail often remains unclear.

For some vendors, few or several of the mentioned points may apply. Some manufacturers then stand "with their backs to the wall" and are no longer able to keep up with Amazon's price demands. The collaboration is then no longer perceived as being on equal terms by vendors. With lower Amazon sales, the supplier becomes increasingly unattractive for Amazon. From the vendor manager's perspective, they are no longer a significant sales driver. Due to the enormous number of customers to be looked after, the vendor manager can only give minimal attention to the supplier. The vendor thus loses their contact person and is no longer able to communicate directly with Amazon. Then requests often remain unanswered for weeks, problems unsolved, which increasingly creates frustration for the supplier. In the end, Amazon finally also loses attractiveness for the vendor.

Does the Alternative Lie in the Seller Program?

The complexity of strict rules and the logistical requirements of the vendor system are causing more and more manufacturers to capitulate. Additionally, there often arises a feeling that control over one's own Amazon business is increasingly slipping away. This subjective loss of control makes manufacturers look attentively at the seller program, which promises more control with about the same effort. Due to clear processes, price sovereignty, Seller Academy, seller forums, or extensive specialist literature as help offerings, seller existence appears tempting and "learnable."

With the creation of the marketplace for retailers, Amazon transferred the entire product responsibility in a largely automated self-management system to the seller. Manual intervention by Amazon is not provided for in this system. Amazon only offers help for self-help here. This is also the reason why Seller Central is created quite differently in structure and functionality than Vendor Central.

Sellers have extensive possibilities compared to vendors to edit content elements independently at any time (provided writing rights are available for the respective article). The approval processes usually run without review by Amazon employees. This leads to sellers enjoying significantly more freedoms compared to vendors in designing product texts. More on this later in this article.

What Advantages Does the Seller Program Offer?

From a vendor's perspective, the seller program offers various advantages, which will be discussed in the following.

Price Control

As a seller, you determine the selling price of your products yourself. No one influences or changes the selling price of your product unless you wish it. You alone determine strike-through prices, discounts, and automatic price adjustments. As a seller, Amazon will (usually) not put pressure on you that the margin is too low or the price is not competitive. Your offers will remain active regardless of the selling price, with one small restriction: the Buy Box.

If several retailers or Amazon itself offer the same product, the offer with the lowest price and best sales history usually wins the Buy Box (simplified representation). To be able to sell successfully as a seller, your prices must be competitive, otherwise you lose the Buy Box.

Price conflicts with Amazon in the vendor area cannot be solved by offering as a seller alone. Amazon regularly orients prices to external price points outside of Amazon. If a product on Amazon doesn't reach the actually prevailing selling price in the market, Amazon sees itself forced to act, because Amazon wants to always offer competitive prices. This can manifest itself on the one hand in Amazon financing a discount on the selling price at the expense of its own margin in the customer's interest.

Amazon reserves even more drastic measures when withdrawing the Buy Box, even though the offer would actually qualify for it. Customers can then only purchase the article via the detour (click into the Buy Box). Many customers don't know this hidden option and think the product is sold out. Such Buy Box losses lead to enormous sales drops as can be seen here in a screenshot from our analysis tool AMALYTIX:

Recently, it can be observed that Amazon uses its possibilities to react to non-competitive prices from sellers. As mentioned before, sellers can define selling prices themselves. But who receives the Buy Box award lies solely in Amazon's sphere of influence. Amazon is willing here to rather not award anyone the Buy Box before a product is offered significantly more expensive than market standard. If your goods are offered significantly cheaper in a comparison market investigated by Amazon (e.g., those of online retailers who are listed in price comparisons like Idealo, Geizhals, etc.) than on Amazon itself, this can lead to your product no longer winning the Buy Box. Customers then have to take a small detour to buy a product. This leads to a conversion break that causes sales to collapse.

Those who have a clear pricing strategy and whose selling prices don't slip even across intermediaries are not at risk of exposing products to an ever-declining price spiral or losing the Buy Box.

Further dangers we have summarized in the section Disadvantages in the Seller Program.

Do I Have to Supply Amazon Directly as a Manufacturer?

Manufacturers who supply wholesale and retail are repeatedly confronted with the question of the extent to which Amazon can force them to offer products in the vendor model as well. There is no final answer to this topic. However, Amazon has published a so-called manufacturer policy:

Source: Manufacturer Policy for Product Availability in Seller Central (retrieved on 08/31/2022)

This states:

Manufacturer Policy for Product Availability

Manufacturers are welcome to offer their products on Amazon's marketplace sites. If you as a manufacturer of a product also sell it through other retailers or distribution partners, you must give Amazon the opportunity to source the product for resale under competitive conditions.

Further details are explained:

Does this policy also affect manufacturers who sell exclusively directly to their customers?
No. Only manufacturers who sell their products to other retailers or distribution partners are affected.

Does this policy affect the manufacturer's ability to distribute their products through other retailers?
No. Manufacturers can sell their products freely, also through other retailers and distribution partners both on the Amazon website and elsewhere.

Does this policy affect third parties who are distribution partners?
No. Only manufacturers who sell their products to other retailers or distribution partners are affected. Retailers and distribution partners are welcome to offer their products on Amazon.

What is this policy supposed to achieve?
Buyers should thus have access to the largest possible product selection from various providers at competitive prices.

We know of large brand manufacturers who were prevented by Amazon when trying to sell only in the seller model. However, this was not an offer in the hybrid model (selling to Amazon and through their own seller account).

Whether there is a legal claim to sell exclusively in the seller model is another matter. Amazon always has the potential to block seller accounts if there are inconsistencies here. The legal route is usually expensive and lengthy.

International Sales Thanks to the European Shipping Network

Amazon is continuously expanding the number of its marketplaces (currently 10) that can be managed through a central interface (Seller Central). You can offer your products on all these marketplaces from Germany. So you get access to millions of potential customers with your seller account and are only a few steps away from internationalization.

Full Access to Product Listings

What vendors only manage with the help of support is just a few clicks away for sellers. Listing new offers or editing product listings can be easily done in self-service in Seller Central. No complex tickets need to be opened with the vendor service to change a product title, for example. Content changes to product data usually go online within minutes and can be retrieved in the frontend after a short time. Since no support employee intervenes with sellers, the error rate is significantly lower as a result. The listing is visible to the customer as you entered it (provided you have the necessary writing rights). With vendors, errors often creep in here or content is not visible, even though support has actually set all content.

Use of Fulfillment by Amazon (FBA) and Prime

As a vendor, goods are sold and shipped by Amazon. This means every vendor product is entitled to free shipping with Prime. But as a seller, you can also store your goods directly at Amazon with FBA (Fulfillment by Amazon) and benefit from Prime shipping. There are no disadvantages from the customer's perspective in terms of the offer or Prime availability. The sale now no longer takes place through Amazon, but only the shipping. But this should hardly affect buyers negatively, because to determine who sells the goods, a buyer must look exactly into the Buy Box ("Sold and shipped by Amazon" vs. "Sold by ABC GmbH and shipped by Amazon").

Here, the Prime shipping promise including uncomplicated return options plays an important role.

You can control in detail in which country you want to store goods with FBA. Depending on the storage model (only in Germany vs. Central Europe program with storage in Germany, Poland, and Czech Republic vs. PAN-EU, storage in all Amazon storage countries), you decide on the distribution of your products across Europe. This has, among other things, different shipping costs and shipping speeds as a result. You can learn more about the various shipping models in our background article on shipping with Amazon.

The delivery to Amazon shipping warehouses runs quite similarly to the vendor model. Only here you decide yourself about quantities and time periods of goods dispatch.

Sellers can also offer products under Prime conditions in self-shipping with the Prime by Seller function. Amazon continuously expands its in-house shipping programs and also offers attractive shipping programs for very large or particularly small articles (Small and Light).

No Penalty Payments for Sellers

Vendors repeatedly face the challenge of preventing penalty payments due to guideline violations when delivering goods. The strict requirements for correct and timely delivery of goods are not easy to fulfill. Complex and well-coordinated processes in delivery logistics are needed to fully comply with all guidelines.

As a seller, however, these requirements are far lower. Although you must also fulfill certain guidelines when delivering to an FBA warehouse, you face no penalty payments if an ASIN was over-delivered or under-delivered during delivery. You yourself determine, for example, when your goods are delivered. Amazon doesn't initially set you a fixed time window that you must fulfill for FBA delivery.

Sellers Determine Batch Sizes for Delivery Themselves

While Amazon prescribes to vendors from which product how many units to deliver by when, sellers determine the batch sizes of their deliveries themselves. If it's easier for your logistics process to always deliver variety-pure pallets, for example, you can do this. The only limiting factor here are the FBA storage costs and the storage space granted to you. Amazon expects good planning and utilization of the granted storage space here. The better you plan, the more storage space will be made available to you. This can be easily determined in advance thanks to corresponding calculation tools.

Full Cost Control for Sellers

What repeatedly poses enormous challenges for accounting departments of vendors are the difficult-to-trace payments and invoices that Amazon issues. Due to the multi-layered contract frameworks, it's often not clear which amounts are deducted as discounts or paid out as goods sales at what time. Additionally, there are different Amazon subsidiaries based in various countries, whose invoices are sometimes issued with and sometimes without VAT. To understand the various tables and invoices, specific knowledge of the vendor program is required.

Amazon makes it significantly easier for sellers here. All costs are traceable based on the uniform and publicly viewable price lists for all market participants. Thanks to extensive reports and exports, your controlling department can trace which costs and revenues flowed when. The calculation is still complex but can be broken down with tools like Amainvoice (speak to us if you want to use this tool, we can send you a discount code). This tool has specialized in making Amazon's billing as traceable as possible and correctly breaking it down according to tax law requirements. It also creates customer invoices and uploads them to Amazon. Specialists like Taxdoo have also established themselves for Europe-wide market coverage, providing tax law support.

Disadvantages for Sellers in Marketing?

In the past, Amazon tools such as A+ Content, Sponsored Brands (formerly Headline Search Ads), product videos, coupons, brand stores were reserved exclusively for vendors, sometimes even only against horrendous payment.

Amazon continuously expands the range of tools for sellers. Sellers have access to the advertising formats Sponsored Products, Sponsored Brand, and Sponsored Display. All advertising formats are continuously expanded. So sellers can also place video ads or target group-specific advertising.

Recently, sellers have gained access to the extended A+ Premium Content and can thus stage their products even better.

Sellers can also launch successful marketing campaigns in Seller Central outside of Amazon Advertising (formerly Amazon Marketing Services, AMS). The use of DSP (formerly AAP) and AMG (now united under Amazon Advertising) should also not be a problem for large sellers with corresponding advertising budgets.

Sellers are not worse off than vendors in terms of marketing. So some central differences between vendor and seller are increasingly disappearing. Even a large seller like SNOCKS can book advertising on the Amazon.de homepage or as part of the football broadcast on Prime Video (background article at OMR)

Access to Amazon Programs

Not all sales programs offered by Amazon are available to sellers so far. So access to offers for food and supermarket items like Amazon Fresh is still reserved for vendors. But it's certainly only a matter of time before Amazon opens further programs for sellers.

With the Amazon Business marketplace, sellers have just as much access to the ever-growing B2B target group and can deposit quantity discounts to increase their shopping carts.

Tools like the Product Tester Club - VINE or the brand analysis tool Brand Analytics are also available to sellers.

While it used to be the case that features were exclusively developed first for vendors, Amazon has recognized that Seller Central also needs specific tools like the feature for contacting reviewers, which are currently exclusively reserved for sellers. Further specific brand tools are currently in development at Amazon.

Good Controlling Thanks to Numerous Seller Tools

As a seller, you receive reports about the products you sold. These include numerous metrics such as sessions, desktop and mobile views, conversion rate, and much more. Since sellers sell on their own account, they also have customer data of their buyers. However, Amazon keeps rather quiet about many things. So they don't receive information about demographics and from which source customers bought a product.

Since fall 2022, sellers have had access to exclusive brand features like the Search Query Performance Report (in German: "Performance of Search Query"), which can be found under Brand Analytics.

With this report, sellers can interpret data from Amazon about search, click, and purchase behavior. This allows, for example, better understanding of customer search behavior. Our partner AMALYTIX presents a detailed guide of the new function.

With another tool, the so-called Product Opportunity Explorer, sellers also get the opportunity to interpret certain categories on Amazon regarding their potential. Here you'll find a detailed guide.

Thanks to various interfaces, sellers have diverse data available around sales, advertising, and content. However, many of these reports can only be evaluated with some technical skill. Various analysis tools have therefore specialized in the Amazon area in the market. Sales history, content, reviews, seller ratings, customer questions, delivery planning, or refund history can be captured, monitored, and analyzed, for example, with the tool Amalytix.

However, vendors still have further data available in Brand Analytics that sellers don't get access to.

Disadvantages in the Seller Program

From a manufacturer's perspective, there are also disadvantages in the seller program, which we want to discuss in the following.

Inventory/Warehouse Management

For sellers, there are two main ways to bring goods to the end customer on Amazon:

Either you supply the end customer yourself (Fulfillment by Merchant, FBM): In case of an order, your shipping department or your commissioned logistics provider packs the goods and ships them directly to the customer.

Or you send your goods to Amazon in the Fulfillment by Amazon (FBA) model first: In this case, Amazon then takes over shipping to the end customer. Then you have no further logistical challenges after delivering your articles, quite similar to vendors.

Both shipping models have advantages and disadvantages. Depending on how large and heavy your products are and whether you already have your own shipping department, FBM or FBA is more worthwhile in your case. It's important to know that you are dependent on Amazon's strict shipping requirements in self-shipping. You must ship the goods on time and deliver them to the customer. Otherwise, performance problems threaten, which we'll come to in detail later.

There are also requirements in the FBA area like the Inventory Performance Index (IPI) or the replenishment limit, which can limit the storage space made available to you. Regular and forward-looking delivery planning is necessary here.

Sales to End Customers

As a seller, you sell to the end customer. This means you also have legal responsibility towards the buyer. You thus become the customer's contractual partner, which also makes you the contact person for customer returns. At the same time, you must answer customers if they have questions. You can also purchase this service from Amazon instead. Then Amazon takes over customer communication as in the FBA program. Here you will hardly receive annoying questions about shipping status or returns of articles. Amazon also takes over the entire return processing of all returns. A significant advantage of Amazon's customer service.

Competition with Existing Business Partners

As a seller, you have a seller account visible to everyone including imprint. You sell visibly under your manufacturer company name and thus enter into direct competition with any business partners. But end customers will also see here that goods can be bought directly from the manufacturer instead of from wholesale and retail. Pay attention to what this means for your business relationships with your perhaps important partners for local retail. You will take away a large part of the available margin from your business partners here, which they might sanction elsewhere.

Invoicing and Accounting

As a retailer, you sell directly to the end customer, which also results in corresponding invoicing. Even if not every customer wants a corresponding invoice, you are obliged to issue one for every purchase. Amazon Business customers need an invoice within 24 hours after shipping, which must be stored in the Amazon system. Prepare yourself to have to generate thousands of invoices fully automated. A small example: Imagine a Dutch person buys a product on the British marketplace that is delivered from a Polish Amazon warehouse. Here three different currencies and cross-border goods movements are involved, a tax law complex topic.

Amazon collects all income and expenses on a settlement account and pays you a portion of your credit every 14 days. So taxes, sales commissions, shipping costs, storage costs, account fees, advertising costs, and returns are deducted from the income. Additionally, Amazon forms provisions for possible returns of completed purchases. These settlements can hardly be delimited monthly and don't match the 14-day payments you receive. These processes can hardly be tracked manually in accounting.

Additionally, VAT law topics play an important role, depending on which storage model you're using. As soon as you sell goods from abroad, you may have to pay taxes there as well. Additionally, delivery threshold limits come into play if you make large sales abroad. Involve accountants and tax advisors early in your strategy to avoid mistakes.

Integration into ERP Systems

Fortunately, you're not the first retailer to face these challenges. There are already established tools and systems that help you both with connecting merchandise management to Amazon and with complex invoicing and tax calculations. Those who want to go an individual path should check early to what extent the in-house IT and merchandise management can be connected to Amazon to automate invoicing. These projects are usually significantly more complex and lengthy than originally planned.

Seller Performance

Amazon measures your performance as a seller based on various metrics. These are measured and summarized individually for each marketplace under Seller Performance. This includes, among other things, the rate of order defects, invoice defect rate, late delivery rate, cancellation rate, policy violations, customer complaints, customer feedback, and other factors. Amazon expects a certain target value for each metric. If this is exceeded, consequences up to account suspension threaten. Therefore, it's necessary to regularly monitor operational tasks regarding performance and continuously optimize your processes. Amazon has set itself the goal of being a customer-oriented company. The customer is in focus and should always be satisfied. Selling to end customers means a different commitment for future sellers than selling to Amazon (vendors). Traditional manufacturers often have to learn this new way of thinking and establish it in their own company.

Broker as Alternative Seller Model

In addition to the seller, vendor, and hybrid model, there's another way to get involved on Amazon. If manufacturers cannot appear as sellers on Amazon themselves or don't want to appear as such to the end customer, they can act indirectly as sellers on Amazon through a so-called broker.

Such a broker works on behalf of the manufacturer and has a seller account in which they offer articles from various manufacturers. Unlike a conventional reseller who sells the manufacturer's goods on Amazon in the seller model, the broker acts beyond that as a partner for the manufacturer. A broker can be contractually bound to prices and product portfolio of the manufacturer, for example. The broker is quasi the extended arm of the manufacturer and can be clearly instructed by them regarding content and advertising, for example. Sales prices could also be more clearly defined through a corresponding remuneration model without having to specify them directly. Out of conviction of the advantages, our agency REVOIC also offers a broker model.

Remuneration Models for Amazon Brokers

There are two main ways how the broker benefits from the sale of goods: Either they buy the goods from the manufacturer at a particularly attractive price and sell them on to the end customer with a price markup. The broker gets a surplus, the extent of which is not known to the client.

Alternative models provide an "Open Book principle": The broker makes all arising income and expenses transparent for the client and receives a share of the achieved sales. The arising costs on Amazon's side are the same for all sellers and thus easy to trace. The client receives a monthly credit for the goods sold through the broker minus the agreed commission and all costs that have arisen.

Both models have advantages. Manufacturers should decide themselves which path better fits their strategy.

Reasons for Using a Broker

The reasons for using a broker are diverse. They usually lie in the company or sales structure that doesn't allow direct sales (Direct to Consumer, D2C). Manufacturers or brand owners shy away from selling directly to end customers if, for example, sales must be assigned to a sales territory or there's concern about bypassing intermediaries who themselves act on Amazon.

Advantages for Manufacturers in the Broker Model

From the customer's perspective, the goods are offered by the broker on their own account. The manufacturer thus doesn't appear as a seller in the imprint or on the end customer invoice, as in the vendor program.

Depending on products and their packaging or storage possibilities, logistical reasons can also play a role, for example, if a manufacturer only wants to sell large units of a product (e.g., a 20-pack) and is not able to repackage this into small units.

In the broker model, goods can usually be stored with the broker or also sent directly from the manufacturer to Amazon. Most brokers have flexible concepts and adapt to the manufacturer's wishes. So goods can be offered in self-shipping or with shipping by Amazon.

Manufacturers usually have no direct access to the broker's seller account and are dependent on their active cooperation in terms of content adjustments and advertising. However, Amazon brokers who sell as sellers are mostly also specialists in Amazon matters and able to market products well on Amazon.

Since a broker predominantly offers several brands, brokers as such are also recognizable via the seller account's imprint. Brokers thus only offer conditional protection from other retailers who perhaps shouldn't know that the manufacturer sells goods directly to end customers. Large brokers are also known beyond Amazon circles.

You want to sell on Amazon in the seller program and are looking for a broker? Speak to us. We have our own seller account and are happy to offer you our broker services. You can also find more information on our broker landing page.

The Hybrid Model: The Best of Both Worlds?

When the problems in the vendor model become constant companions and the situation negatively affects sales and/or results, the focus is usually placed on the seller model. Those who cannot/want to take the step from vendor to seller completely at once usually decide on a hybrid variant. Here you sell goods to the end customer in your own seller account or through a broker account. At the same time, you continue to supply Amazon in the vendor account.

Which Products Are Suitable for Sale?

The hybrid model has a central advantage: Entry into the seller program takes place step by step. You launch, for example, new products only in the seller area and offer the products that Amazon delists in Vendor Central yourself in the future (CRaP-Out). Products on which either you or Amazon receive too little margin switch to the seller area. So you collect first experiences with Seller Central without risking losing sales of part of your assortment and having to completely give up vendor existence. Amazon will tolerate that you want to offer your full assortment on Amazon, as it's Amazon's biggest endeavor to offer customers as many products as possible for purchase, whether through the vendor or seller program.

You can quickly offer products already existing in the Amazon catalog as a seller and connect your offer via Seller Central with the already existing product listing that you used as a vendor. If you use FBA, make sure to prepare your products for shipping by Amazon and label them accordingly. To be able to list new products, you need EAN codes that you can purchase from GS1.

Overview of Both Channels

Vendor and seller at the same time means double effort? It doesn't have to. Of course, many new tasks arise in the seller area - as described. However, you can quickly answer these, for example, with the help of our book "Amazon Marketplace: The Handbook for Manufacturers and Retailers." Or you fall back on professional support from an Amazon agency for the first time. Speak to us, we know our way around ;). Additionally, you can monitor many processes and recognize problems early with the help of tools like Amalytix. It's advisable to use the Amazon Fulfillment Network (FBA) for your products at the beginning. This keeps you free from customer support requests, as Amazon takes over customer support in the FBA program largely for you.

Organizational Structure

It's important that before starting your seller existence, you define responsible persons for the topics merchandise management, logistics, invoicing, taxes, and seller performance who work for the account manager. An Amazon account can only function properly if it's also looked after by a main responsible person and a deputy. Divide the topics in the company and define clear responsibilities and authority to issue directives so that the information flow is also constant.

The operational effort is initially manageable after setting up your seller account if you start with selling a partial assortment in the Fulfillment by Amazon (FBA) model. However, you must regularly perform your operational tasks. Although Amazon takes over all customer communication in the FBA program, you must still be available for any product-related customer questions or respond promptly to Amazon's questions about your products. Amazon doesn't care whether your company is currently on vacation or Christmas holidays.

Building a Specialist Department

E-commerce managers are still rare on the job market. Without a specialist department, regular care of Amazon is difficult. Building an Amazon specialist department ties up various resources, as besides personnel, a lot of specialist knowledge must be built up through external help.

If you want to start selling as a seller on Amazon today, you should ask yourself how collaboration with Amazon can be designed and to what extent a team can be found that also looks after the marketplace with sufficient resources.

Opening a Seller Account: The Most Important Hurdles

Opening a seller account is not rocket science, but there are some things to consider:

When opening your seller account, you must specify every beneficial owner (partner) of your company who holds over 25% company shares. If your company is part of another company, the beneficial owners of that company must be specified. Each partner must register with Amazon with name, address, and ID number. At the same time, beneficial owners may only have one seller account. A justified application must be submitted for exceptions. Depending on how complex your company's ownership structure is, it makes sense to inform the participants early.

To open a seller account, you need a credit card on which the account fees of 39.90 euros per month can be debited. At the same time, the credit card serves as compensation for a negative balance of your seller account.

To receive regular payments, you need a bank account.

Before starting sales, you must make legal information such as imprint, cancellation policy, privacy policy, and terms and conditions in Seller Central. On the internet, you'll find various providers like the Händlerbund, Trusted Shops, and others who offer legal texts for your shop and keep you regularly updated about legal changes.

Amazon Brand Registry

You should register your brand(s) with the Amazon Brand Registry. A prerequisite for smooth registration is that the brand is registered with an official trademark register (e.g., the German Patent and Trademark Office). Registering your brands in the Amazon Brand Registry has several advantages: Brand owners benefit in the seller model from access to various features such as: A+ Basic and A+ Premium Content, the Amazon Brand Store or the analysis area Brand Analytics, Sponsored Brands ads, and more. With brand registration at Amazon, Amazon gives you permission to sell products for this brand on Amazon. A brand registration also helps with reporting trademark or copyright violations. Through the Brand Registry (a kind of special brand seller central), you can report violations, but also open special cases regarding product-specific problems. How to register your brand with the Brand Registry and grant third parties access to your brand on Amazon, you'll find in our Amazon Brand Registry Whitepaper.

Terminate Vendor Account

When you have made the switch to seller and will no longer supply Amazon with your goods in the future, the question arises whether you should terminate the contract with Amazon.

If you no longer supply Amazon with goods, i.e., ignore Amazon's orders, Amazon will probably no longer order any articles from you after repeatedly rejecting orders. Unless there are corresponding special agreements about delivery quantities and time periods in your vendor contract.

A vendor contract is always concluded for a certain period and is continuously extended by you usually receiving the new contract conditions per email and accepting them online (alternatively you have annual meetings with a vendor manager).

If you have agreed WKZ conditions (advertising cost subsidy) in the contract, you won't be able to avoid fulfilling these until the end of the contract term. It's different if Amazon hasn't provided promised services yet. Here a precise legal consideration by a professional is worthwhile and then possibly also a contract termination.

Your vendor account will continue to exist, however, as Amazon usually doesn't close it. This account can also be helpful if you, for example, cannot change your product listings in Seller Central despite Amazon Brand Registry.

So it's not absolutely necessary to actively end the vendor relationship with Amazon.

Conclusion

No matter which solution you decide on in the end - vendor, seller, or hybrid - you must consider all advantages and disadvantages against the background of your special situation. Every manufacturer stands at a different point in collaboration with Amazon. Not always are there problems in several places at once, so that collaboration as a vendor proves problematic. You must weigh which path is the more promising one. Take your time with your considerations and don't rush anything. Our recommendation: Exchange ideas with other manufacturers in similar situations at Amazon events or Amazon seminars and find out what experiences others have already made.

Do you need support building your hybrid strategy? Feel free to contact us or visit one of our Amazon seminars, where we discuss this area in more detail, among other things.