Free tool
Amazon Deal Funding Calculator
This simple tool allows 1P vendors to calculate the margin impact of their participation in deal events with Amazon. Simply fill in the fields marked with an * and the results update instantly.
1- Baseline
2- Deal price
Discount off current ASP (%) *3- Deal funding
Disclaimer: Results are estimations based on the values you enter. Amazon Net PPM may be subject to additional variables not reflected in this calculator. Consulterce accepts no liability for the accuracy of the displayed results or any financial losses incurred as a result of their use.
What is deal funding?
Deal funding is the money that vendors grant Amazon to participate in deal events. It allows Amazon to temporarily lower the price of a product without lowering its margin.
The funding can be passed on to Amazon in several ways: Either as a per-unit compensation (sell-out agreement), or as a lump sum payment.
You can expect Vendor Managers or AVS to ask for deal funding to schedule Best Deals, Lightning Deals, Top Deals and B2B Discount campaigns.
How deals impact Amazon’s Net PPM
Amazon’s Net PPM is impacted by deal discounts in several ways.
First, the absolute margin per unit falls by the full value of the discount, because cost price and trade terms remain unchanged. Then, Amazon’s Net PPM% is impacted, because a smaller profit is now being measured against a lower selling price.
To illustrate this with an example:
Let’s say your product is sold at $24.99 with a $14.50 cost price and 12% trade terms. Amazon’s net cost price is $12.76, returning a Net PPP of $12.23 per unit and a 48.9% Net PPM. Run a 20% deal and the price becomes $19.99. With no funding, Amazon keeps $7.23 per unit at a 36.2% margin.
That decline is what your Vendor Manager is looking to offset when asking for deal funding.
The definition of margin parity
When your Vendor Manager offers you to participate in deals, they’ll often say that they require deal funding that results in margin parity. Here’s what they mean:
Margin dollar parity means Amazon’s Net PPP ($) remains the same. If Amazon discounts your product by $5.00, your Vendor Manager expects you to fund the entire $5.00 discount of every unit.
Margin percentage parity means Amazon’s Net PPM (%) remains the same. You’re granting Amazon funding that allows them to reach the same Net PPM% as outside the deal.
What’s causing margin-dilutive deals
Most vendors tend to overfund their participation in deal events, because they:
- Fund the full discount by default. The easiest way to avoid this is to always negotiate every deal and almost every ASIN. Vendor Managers and AVS have more flexibility than they may want you to believe.
- Accepting a lump sum without volume commitments. A
$25,000payment sounds like a great deal. Against10,000units it is$2.50per unit. However, Vendor Managers will often shorten the runtime of a deal to improve their funding per unit.
How to negotiate deal funding with Amazon
When finding yourself negotiating deals, make sure to never accept the first proposal your Vendor Manager or AVS are sharing with you. Your goal should be to negotiate a Net PPM percentage parity, not a Net PPM dollar parity.
If your Net PPM has grown YoY or you are a top selling vendor in Amazon’s category, make sure to ask Amazon to co-fund deal discounts. Vendor Managers have internal revenue targets for most deal events and they every so often are willing to co-fund your deal participation.
Need help with your Amazon deal funding strategy?
If you would like to understand your options when negotiating deal funding, get in touch. I provide industry-leading advisory services for Amazon vendors looking to protect their bottom line.