Everything you need to know about the Vendor Principle
Schelto Witsen Elias, October 2021
Are you proud of your self-knitted hat? Want to make money with homemade posters? Online marketplace Amazon is your friend. Anyone can become a Seller. For big brands with a lot of potential, there is the Vendor principle. You can only become a Vendor by an invitation of Amazon. Schelto, managing director of DivisionM, explains how the Vendor principle works.
What is a Vendor?
Let’s say you sell towels and you do it well. Business is booming and you’ve got your towel brand big in the marketplace. Amazon sends you an invitation to the Vendor Principle. What does that entail? An example: the online marketplace buys a bulk of 5,000 towels from you. You make sure that the bulk ends up in a warehouse and Amazon sells it on to the consumer. So you sell your towels directly to Amazon.
Requirements for Vendors
It is important for Amazon that you sell a significant amount of products. You also have a brand with potential and are willing to sell your product(s) in multiple countries. As a Vendor, you have a B2B relationship with Amazon. They order from you as a business buyer and you deliver the products to Amazon. So you have no direct contact with the consumer.
Think carefully about the price
Sounds simple, but you do have to think about a few things. The price that Amazon charges for your towels, for example. Before you deliver to Amazon, you agree on a fixed price. Once you agree, you never raise your price again. Those are the rules. Amazon then sets its own consumer price.
Manpower and distribution
You also need to be well prepared for orders. For example, make sure you have enough manpower and fast distribution. Then you can take immediate action when Amazon asks if you can send 500 towels to Poland. Or 650 to Munich. Or both. Also keep in mind that Amazon determines delivery requirements and schedules. Often this differs from the way you manage your business. Think, for example, of strict time frames within which you must deliver the bulk towels to a warehouse. Amazon is really different from the average customer. If you do something incorrectly or too late, it means “computer says no”.
Administration in order
As a Vendor, you may not lie awake easily over an order of 500 or 650 towels. Yet the administration is often underestimated. Amazon has a lot of rules. There are requirements everywhere: how you pack the towels, the way you deliver and what time you do that. If you do not follow these rules, you will be fined. You also have to take into account “fees”: you pay about 5 percent for the fact that you “ride” on Amazon’s success. Sometimes these extra costs are not entirely in sync with reality. It could be that the ‘fees’ for a certain bulk are already being deducted, while you only have to deliver later. Long story short: for x number of hours per week you need someone to keep track of everything. Without good administration, no successful Vendor.
Being a vendor is complex, there’s no getting around it. But it also brings many benefits:
You don’t have to ship the towels to the consumer yourself.
The responsibility for settling with the customer lies with Amazon.
You sell in bulks, no “ones” and “twos” to Purmerend or Prague.
Amazon prefers Vendors because the products are always close to the consumer (in a warehouse), so your products do better in search results on Amazon.
If you profile your brand well, it is not only good for direct sales to Amazon, but also for sales to other vendors and dealers. Being a Vendor with Amazon looks good on the company’s resume
Are you a Vendor, have you received an invitation or is it in the offing, but are getting the jitters from the above ‘hassle’? DivisionM is happy to help. 1P Trading (sister company of DivisionM) is also a Vendor with Amazon. So we have a lot of experience. We give advice, but can also take over the administration and logistics. That way you can be sure it will go well. Want to know more? Contact me” or leave a comment!