3/12/25 - 5 min read
What is AVN?
AVN (Annual Vendor Negotiations) is where Amazon look to improve the Net PPM of pretty much all their vendors. Net PPM is Amazon’s ‘front margin’ (Net PPM % =((Average Selling Price - Cost Price + Vendor Terms - Sales Discount) / AverageSelling Price) * 100) – in simple terms, its Amazon’s margin before accounting for things like warehouse costs, shipping, returns etc. AVN officially kicks-off in October with vendor outreach usually commencing in November. Amazon state an ‘ask’ which is usually framed as a Net PPM bps improvement e.g. 'you need to give me 300 bps extra next year'. It's a period of back and forth between vendors and VMs, with most negotiations closing in early Q1. Vendors usually sign over additional funding via increased terms, additional terms, or CPDs (cost price reductions) – but there are other ways to close AVNs (more on that below). But when negotiations drag on, some brands are still negotiating well into Q2. Suddenly, you’re into AON season (Always on Negotiations) and some brands end up in a constant cycle of negotiating profitability with Amazon all year!
Why do Amazon do it?
Very simply, Amazon get FCF (free cash flow) from all of their vendors. If your Net PPM is 40% and Amazon get an additional 200bps in AVN, taking you to 42%, that extra 2% has a monetary value that, in theory, goes straight to the bottom line (Amazon’s bottom line metric is CM ex Ads which is only visible to Amazon employees). It’s only in the last few years where Amazon Retail has become profitable and AVN is seen as the primary means of achieving that. It’s an organisation-wide initiative, where everyone, from VPs to VMs, focus on one thing, to make more money! Having spent six years at Amazon, I can confirm that its several months of constant trackers, updates, and ‘wins’ hitting your inbox from a myriad of over paid MBA programme managers.
Amazon's approach to AVN
All ships must rise – Amazon approach AVN with a mentality of ‘all ships must rise’. For category teams, their profitability black hole, top-line declining submarine-of-a-vendor will have a big profitability ask, just the same as their high growth, margin accretive superstar cruise liner. If a category (e.g. Home Improvement) has an average Net PPM of 30%, and you have two vendors, one with a Net PPM of 20% and one with 40%, assuming all else is the same, both will be hit with a Net PPM ask in AVN.
Vendors prioritised on FCF, not long-term opportunity – All vendors have an AVN ask, but the big ones take priority. The sole focus is calculating projected additional free cashflow for the following year. In the example above, if you grow the 40% Net PPM vendor’s top line relative to the 20% Net PPM vendor, then you have a positive mix impact. You would get a Net PPM win (and more cash) simply by growing that vendor, without the need for wasting time on lengthy negotiations. But Amazon are myopic and stubborn in their AVN approach, if there’s money to be had in the short term, they will negotiate hard, regardless of long-term prospects.
Achieving scale – AVN dominates VMs’ workload for months, but Amazon has thousands of vendors and VMs can’t personally negotiate with all of them. Amazon use an approach called ’hands off the wheel’ – if you’re a smaller vendor, you may have already been subjected to this. Vendors get automated emails with a generic ask, and in some cases, the new agreement is already made waiting for you to sign over an arbitrary %. At the click of a button, you give Amazon additional funding and AVN goes away…for another year.
Strategic advice for AVN
Benchmarking – I described above an example where Amazon negotiates hard with two vendors with contrasting Net PPM situations. If you’re the 40% vendor, the best thing for you AND Amazon is to continue growing and stay margin accretive to the category. So, why don’t the 40% vendors fightback? The answer is information asymmetry (i.e. Amazon and your VM are privy to more data than you). Amazon know where you sit relative to the category average, you don’t. You need to speak to other vendors, speak to consultants, and do some research. You will never know exactly where you stand, but benchmarking your account gives you more conviction in your negotiations. Ultimately, you can put yourself in a position where you can call Amazon’s bluff.
Rebalancing terms – AVN doesn’t need to be a bottomless pit, draining your margin each year. You can use it to your advantage. If most of your terms are in Marketing and Damage allowance, you’re doing something wrong. Terms like AVS, Amazon Business, and supply chain programmes like PICS have tangible ROIs and operational efficiencies associated with them where as marketing and damage do not. You need to understand Amazon’s terms, and which add value you to your business, then make counter proposals that puts the money into growth initiatives for your brand.
Understand the root cause of AVN asks – This is the big one. Again, information asymmetry will unfortunately play a part. You need to understand profitability on an item and account level. For example, you might have a good Net PPM% and feel aggrieved at the AVN ask. But you might have CP negative ASINs causing item level losses and AVN might just be compensating for those. Understanding what is driving the AVN ask helps determine the right AVN strategy.
Be creative – AVN and expected ‘wins’ are a projection on the following year. Amazon is forecasting how much extra cash they make if your terms are a bit higher next year based on a very rough revenue projection. It’s a theoretical win. But actual top line performance and actual Net PPM performance, at the end of the following year, are what matters. With Amazon managing thousands of vendors, unless you’re Unilever or Apple, Amazon aren’t going to go through your account with a microscope, looking at every detail. You need to be proactive and do this yourself, highlighting pain points and growth opportunities. Can you formulate a way to exceed growth expectations and have a positive mix impact on your category? Will a new range of higher ASP ASINs offset the negative impact of cheaper ASINs in your catalogue? Will you be able to pass on cost savings to Amazon next year through external factors? Amazon won’t consider these, but you can. If you can communicate to Amazon that you will grow and be more profitable next year, they will listen!
Conclusion
2026 will see big change to how vendors work and communicate with Amazon due to job cuts, headcount being offshored, and development of AI and automation tools. This isn’t surprising nor is it cause for alarm (don’t let anyone tell you otherwise), as the same principles remain true, just with greater importance. Vendors need to take initiative of their account and not expect or rely on VM or AVS intervention.
With 6 years of Amazon experience, setting up, running, and consulting on AVN for Amazon Retail, I know how it all works. If you need help this AVN season, reach out and I would be happy to see how we can support you.