If you list a product on Amazon, you’re establishing a business relationship, and as with any healthy, productive relationship, it’s important to be mindful of the terms of engagement - the rules you agree upon to ensure that the venture is beneficial to both parties.

Now, if you’re a third-party seller on Amazon, there’s not much room for debate when it comes to terms and conditions. It’s fairly safe to assume that they’re set in stone, and they’re laid out on the Amazon site for anyone that wants to check them out.

There is potentially some room for negotiation, however, if you're set to work with Amazon as a vendor - particularly if you’re a larger brand, or if you have a vendor manager assigned to you.

That being said, because it’s such a powerful business, Amazon has a tendency to play hardball - what Amazon says, goes, so vendors really need to understand exactly what they’re getting into. Otherwise, they run the risk of agreeing to terms that will shrink their margins and make their business with Amazon unsustainable.

The first two terms that businesses need to be aware of when working with Amazon are automated marketing allowance and damage allowance…

Essentially, Amazon requires you to pay an automated marketing allowance so that it has the resources to get on with everything it does in the background to manage its site and invest in various marketing initiatives that help to sell your products. While we do know that this money goes into improving product catalogs, search engine optimisation, and all kinds of automated and personalized marketing, there isn’t a huge amount of visibility on how this sum is divvied out, and what kind of returns it brings to your business. But, it’s not something you can opt out of - there’s no avoiding it, and what you pay is typically around 10% of your sales, but that can vary depending on the influence your brand has, and the product category you sell in.

Next, there’s ‘damage’ or ‘operation allowance’. Amazon charges businesses for this because it prefers to handle product returns and disposal, rather than sending the damaged goods all the way back to suppliers to deal with. Damage allowance usually amounts to around 2 or 3% of your sales. But, once again, this varies by product category, and it’s higher on items that are less likely to come back in a sellable condition or difficult to place back into stock, like electronics, which will often need testing. In instances like this, businesses should run the numbers and think about whether they want to ask Amazon to waive the damage allowance, and instead fund the cost of returning the item back to their warehouse themselves.

Working With Amazon

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