Why and How to Transition from Vendor Central to Seller Central
How a brand engages with Amazon is the single biggest decision they’ll make. Seller or Vendor. Or even both.
The choice is often presented as a one-way door. You make the decision and you stick to it. But it doesn’t have to be that way.
If you are trading through Vendor Central then you may be facing ever-decreasing margins with no ability to increase prices. You may have simply lost faith in the Vendor Central program and how it impacts your business. You could also be a distributor or licensee and Amazon has decided to no longer buy from you. Whatever the reason, it’s critical to know what your options are.
If you’ve come to the end of your relationship with Vendor Central then the natural step is to transition to Seller Central.
In this post, we’ll take you through the benefits of selling via Seller Central but also the serious considerations that you will need to evaluate as the way the brand manages operations, finances and trading changes.
Let’s start by looking at the main benefits of selling as a 3rd party on Amazon.
The Opportunities of Moving to Seller
Selling to Amazon through Vendor means that you negotiate the sell-in price with Amazon and they set the sales price of the product to the customer. You may provide them with your RRPs or MSRPs but Amazon has the ultimate power to decide the sales price.
If you are a business with an omni-channel approach, you will be aware that Amazon is a price follower; if external retailers reduce the prices of your products, Amazon will follow. They may also reduce prices based on competitor prices within Amazon or if they decide they’re overstocked.
On Seller however, you can set the prices your products sell for. This not only means you can maximise the profit of each product sold, but it will allow you to maintain an aligned pricing strategy across channels and retailers, including during promotional events.
Potential for higher margins
Shortening the value chain between you and the customer by taking Amazon (as the buyer) out of the equation, could allow you to maximise profits on each sale.
On Vendor you are selling your products to Amazon at a wholesale price. The net revenue you receive per unit is based on your sell-in price to Amazon, minus the Amazon rebates agreed in your vendor terms.
On Seller the net revenue you receive is based on the sales price, minus your costs and Amazon’s fees. Whilst you should do the due-diligence to check product margins, Seller Central margins are generally beneficial for low and medium-value goods.
Amazon Vendors will be familiar with the annual pressure from Amazon to squeeze margins with cost price reductions and rebate increases. Whilst on Seller you should also expect increases in referral and FBA fees, you have the ability to control how you respond to these, for example increasing your prices or optimising inbound shipment processes to reduce costs.
The choice of fulfilment methods
If you are going to be selling through Seller, you have the choice of fulfilment methods to your customers. You can be flexible with whether you store products in your own warehouse, or you store them with Amazon.
- Merchant Fulfilment Network (MFN)/ Fulfilled By Merchant (FBM) – this is when sellers ship and manage their own products from their facilities after an order is placed on Amazon.
- Fulfilled By Amazon (FBA) – this is the most common fulfilment method for Sellers. The product is not owned by Amazon like it is on Vendor, but instead you send your products to Amazon’s fulfilment centres and Amazon is responsible for the delivery of the product to the customer. Selling through FBA means products qualify for the prime badge, next day delivery and this makes them more competitive to win the Buybox.
Ability to dictate how to expand to other countries
Seller Central gives you greater freedom and choice to expand your business internationally, particularly when selling across Europe.
Your Vendor agreement with Amazon is at a country level, and does not carry across to all markets. If you want to expand internationally, you will need to negotiate these terms with Amazon.
Sellers on FBA are able to reach all European customers through Amazon’s European Fulfilment Network (EFN) or Pan-European FBA network, whenever they wish to expand.
- EFN is where inventory is stored in an Amazon Fulfilment centre in the home country, where it will be used to fulfil orders in other markets. This is a low risk way of expanding internationally.
- Pan-EU expansion is where inventory is moved from the seller’s home country to all different countries where Amazon has a marketplace across Europe. This means Amazon can do next day delivery for your products and you only pay local fulfilment fees.
The Considerations of Moving to Seller
Can you make a margin?
If you are already selling on Vendor, you will be familiar with your margins being based on the difference between your sell-in price to Amazon, and your COGs and the rebates agreed in your vendor terms.
Whilst on Seller there are no rebates or chargebacks to contend with, you should be aware of the other fees that will factor into your margins.
To calculate Seller Central margins, you will need to take your COGs into account as well as the following two Amazon fees:
- Amazon’s referral fee is a percentage of the sales price (inc. VAT) applied to each unit sold that Amazon takes as commission. The percentage ranges from 8-40% and is based on the product category and the price of the product.
- The FBA fee will only apply to sellers that choose to use Amazon to fulfil orders to the customer. In this situation, Amazon acts as the courier for the product. A delivery fee will be applied to each unit sold to account for the cost of sending the product to the customer. The cost is based on the size and weight of the product.
If you are choosing FBA, you should also factor in the delivery cost of sending your products to Amazon fulfilment centres.
It is worth checking how these impact your profitability to ensure there is enough margin to advertise and grow your products on Seller Central going forward,
How much stock does Amazon still own?
If you will be setting up an identical offer on a product that you used to sell via vendor, and Amazon still owns stock of this SKU, you need to be prepared to compete against Amazon for the Buybox.
Whilst you are still managing your ASINs on vendor, take a snapshot of your inventory levels and forecast how long it will take to sell through the stock. This should be considered at a product level and dictate the approach you take with your remaining stock for each SKU.
You should consider how long it will take to sell through the stock that Amazon owns – if the products will sell through quickly, it may be a good idea to let Amazon sell through the stock before setting up an offer for the Buybox on Seller. This will mean you don’t have to compete with Amazon on price for the Buybox, and will be able to maximise your prices and profit once Amazon has sold through their stock.
For SKUs where you are overstocked on Vendor, consider running multi-buy promotions, or best deals to sell through the stock you have. This gives you the best chance of being able to have an offer on Seller where the prices are not driven down by Amazon trying to sell through the stock.
Throughout the process of setting up and building up sales through your Seller account, don’t forget that you will still have access to your Vendor account. You can check up on the sell-through of products and be dynamic in your strategy to shift stock.
Furthermore, as Amazon has had the winning contribution on these ASINs for a long period of time, you may need to build up your own seller rating on these ASINs before you are able to supersede their contribution. During this time, if you do want to make updates to the technical information or content on the listings, it is likely that this will have to be done through your Vendor account.
Extra responsibilities that come with Seller
The biggest added responsibility for you as the brand will be managing your account health. There are 3 main areas which impact your account health: customer service experience, policy compliance and delivery performance. Whereas Vendors are punished for errors by receiving account level chargebacks, if an issue arises on Seller, you will need to be prepared to complete an action plan of how you will avoid this issue from recurring, otherwise it could lead to an account suspension.
Whilst using FBA can mitigate against some of the more common issues that impact account health (e.g. late dispatch to the customer, lack of tracking ID on deliveries), in general, sellers will need to be more involved than vendors in the daily operation of the seller account to be aware of issues before they escalate.
As a Seller, you will also be responsible for inventory planning. You will no longer receive purchase orders through Amazon Vendor, and you cannot use sell-in forecasting for your Amazon business.
Whilst Seller Central does give you more control over your inventory to choose where to store stock (in your own warehouse or in an Amazon fulfilment centre) and the quantity of stock you send in, this extra control also means extra involvement. You will be responsible for ensuring you always have stock availability for your Amazon customer.
Maintaining your in stock rate across all products is vital as it not only impacts your inventory performance score as an FBA Seller, but also frequent out of stocks on a product will lose you the buy box and sales, and could harm your future ability to win back the buy box.
Cash flow considerations
It is important that your finance team understands the differences in frequency and payout amounts if you switch to Seller. You don’t want any surprises or an angry finance team on your back!
On Vendor, payments are less frequent but are in larger sums as they are based on the bulk purchase orders received. Amazon’s standard terms are to pay NET 60, with some Vendors agreeing to a further rebate to get NET 30 payments. As you have accepted these purchase orders, you will know what payment amounts are to be expected.
Sellers, on the other hand, will receive payments from Amazon more frequently. Disbursements occur every 2 weeks, but they are likely to be smaller payment amounts than on Vendor. This is because disbursement amounts are based on what has been sold to the customer rather than in bulk to Amazon – it does not indicate fewer sales!
How to Open a Seller Account
If you have considered all of the above and Seller seems like the appropriate path to take, it is time to open a seller account
- Go to Sell on Amazon UK or Sell on Amazon US and sign up for a professional account (you can use the same login details as your vendor account).
- Fill out your personal, business and payment information.
- Add your products to your Seller Central account catalogue. If you want to sell the same products on Seller that you were selling on Vendor, they will already exist in Amazon’s catalogue. This makes the process of adding the products to your inventory relatively simple. Search their barcode number/ASIN in Amazon’s catalogue and you can set up a new offer on the listing.
- Decide whether you will be fulfilling orders directly to customers or if you are using Amazon’s FBA service. Set up the relevant internal processes so that customer orders can be fulfilled promptly.
- You’re ready to get started
Moving away from a long-standing Vendor Central account is not a decision to be taken lightly. It can have serious consequences for how you operate and the financial relationship with Amazon. Those are critical choices for any business.
But in many cases, often for reasons outside of a brands’ control, there’s a need to learn how to migrate across to Seller Central.
Those that understand the processes and also the possible benefits of moving to Seller Central will be able to reduce risks and ensure there’s a smooth transition.
The steps we’ve taken you through will give you a framework for the practical steps you will need to take. In addition, raising awareness of the changes and how that impacts all aspects of how the brand engages with Amazon will also ensure there are no surprises for people that are not as close to the Amazon account as you may be.
If you need further information or guidance, do not hesitate to contact us.