Amazon Net PPM: Why Vendors Must Track This Metric
As an Amazon vendor, profitability is something you should think about every day – and not just for yourself, but also for Amazon. By helping boost Amazon’s profits, you help boost your own. And one of the best ways to track how profitable you are to Amazon in their eyes is with the metric Net PPM.
This guide breaks down what this metric is, why it’s important, how to calculate it, and how it can help you in negotiations with Amazon.
What Is Amazon Net PPM?
Net PPM is short for net product profit margin, which is Amazon's measurement of how much profit they can make on a product based on vendor-provided funding. For example, if you are a vendor who sells a product for $20 to Amazon, and Amazon turns around and sells that product on their site for $40, that would be a PPM of $20 (or 50%).
To get Net PPM, you would add in the other factors that affect this profitability -- such as co-op agreements, accrual agreements, and product costs. In the same example above, if you also provide Amazon $2 in funding per product under your agreements, the Net PPM rises to $22 (or 55%).
Keep in mind that Net PPM doesn't include Amazon's operational costs like shipping, fulfillment costs, and so on.
Where Can I Find Net PPM in Amazon Vendor Central?
You can find Net PPM data within Amazon Vendor Central by logging into the dashboard, clicking on "Reports," then "Retail Analytics," and then Net PPM.
Amazon Net PPM Calculation: X Steps
The basic formula is X - Y + Z = Net PPM, where:
X = Amazon's average selling price for the product
Y = Vendor's average selling price to Amazon
Z = Vendor terms
The actual formula is a bit more complicated. Finding X and Y should be easy enough, but to get a value for Z, you will need to dig into your coop agreements and determine how much you are paying Amazon per product for various cost-sharing agreements.
Why Net PPM Is Important for Your Business
Net PPM is a vital metric for Amazon vendors because it improves your vendor scorecard and is the main negotiating point when you meet with Amazon quarterly to negotiate over your agreements and discuss terms. The higher the Net PPM for your products, the more money Amazon is making off you, and therefore the better position you will be in to negotiate better terms going forward.
However, if your Net PPM is weak compared to your competitors, Amazon may ask you to take action to fix it. Or, they may set benchmarks to boost product profitability in a category by, say, 5% -- and may ask you to boost your own products' profitability to help them achieve that.
Learn How to Better Prepare for Amazon Negotiations
As noted, understanding what your Net PPM is and how it relates to your competition is critical for securing better terms with Amazon, which in turn will lower your costs and boost your company’s profits. But there are other metrics you should consider as well.
To help you prepare for your next negotiations, we have created the following guide: 5 Tips for Negotiating Amazon Coop Agreements
READ MORE:
Improve Profitability
Using Product-Level Operations Data from Vendor Central
As an Amazon vendor, you drive profitability with three levers: 1) selling as much of your product to Amazon as possible, 2) minimizing chargebacks, and 3) optimizing your product portfolio.
This guide will provide frameworks to improve your Amazon business's profitability and help you leverage Vendor Central's Operations tables for deeper insight.
