One of the most common requests we have received from our customers over the last two years is the need to hedge the risks associated with Amazon Vendor Central and to adopt a more hybrid approach between Vendor Central and Seller Central / FBA OR completely move to Seller Central / FBA from Vendor Central.
The common questions from most brands running on Vendor Central are:
- How to increase the costs on Amazon Vendor Central?
- How can we have Amazon adhere to MAP?
- How can we have Amazon order all items on Vendor Central and not just the top selling items?
- How to stop Vendor Central Shortage Claims and Chargebacks?
And unfortunately, the answer for most of the above questions except for question # 4 is “NO, It is not possible on Vendor Central”. For 3, yes there is Born to Run on Vendor Central, but now even those requests are approved by Amazon.
Thankfully, there is Seller Central which gives you a resolution to those problems. In Seller Central, you control the retail price — you can alter it whenever you want as long as you don’t dramatically alter it more than 10% of the average retail price over the last 100 orders, and as long as the retail price you are running on Amazon is on par with the other online retailers including your own website.
Now, What are the factors and steps involved in the switch from Vendor Central to Seller Central / FBA.
- Check for profitability between Vendor Central and Seller Central / FBA
For Vendor Central, you will need to take into account the cost at which you are selling to Amazon minus the CoOp fee and use that as the Net fee.
To calculate the Seller Central / FBA net fee — you can use this link You will need to add to this the cost of shipping the items from your Warehouse to the Amazon FC
In most cases, as long as the retail price is more than $15 and the items are not too bulky — Seller Central / FBA tends to be more profitable than Vendor Central
- Find out the inventory Amazon has for all your items at their Fulfillment Centers, that they have sourced from you via Vendor Central
- Based on the weekly sell through rate, determine how many weeks of Vendor Central inventory Amazon has with them
- Account for a month for the items that you send via Seller Central / FBA to get to the Amazon FC’s
- Based on the values you derive from Step 3 for your SKUs, stop accepting the purchase orders for those items and plan to send them via the Seller Central / FBA process.
- This way you will gradually deplete the Vendor Central inventory and the Vendor Central offer comes down and the Seller Central / FBA offer goes live
- Can you have offers from both Vendor Central and Seller Central / FBA? — Yes, you can. But, as long as the Vendor Central offer exists Amazon will continue to win the buy box from the Vendor Central offer and you will never be able to sell from your Seller Central / FBA offer, except for those instances where Amazon may run out of inventory on their Vendor Central inventory. So, you will have to deplete the Vendor Central offer and make the Seller Central / FBA offer active.
What are the challenges with Seller Central / FBA?
- Initially, you may have some concerns with the amount of Warehouse space that is allocated to you via Seller Central / FBA. You will have to be smart about sending only the fast moving items first so that you are able to increase the space allotted to you and then gradually move in the other inventory for the other items to the Amazon FC’s.
- Striking the right balance between the sell through rates and the Inventory Performance Index (IPI) score. If your IPI score dips below a threshold, you will have issues sending more inventory to the Amazon FC’s
- Your accounting team may have some issues with the accounting practice needed for a consignment model. Unlike Vendor Central, where you get paid for all the items that have been shipped to the Amazon FC’s, Seller Central / FBA works on a consignment model where you get paid every 15 days for the items that have been sold. Your accounting team will have to treat the items that have been sent to the Amazon FC’s as another extended Warehouse of yours and account for the sales of the items only when they are actually sold.
All these challenges can be worked out easily, once you get used to the Seller Central / FBA model. The benefits far outweigh any issues — and I, for one, certainly believe that Seller Central / FBA is the best retail program Amazon has and as Jeff Bezos had mentioned in his 2018 shareholder letter — “Third-party sellers are kicking our first party butt. Badly.”
Blog Post by Arjun Narayan, with inputs from Giri Prasad