Few topics generate more anxiety among Amazon vendors than Annual Vendor Negotiations, commonly known as AVNs.
For many organizations, AVN season feels like an annual battle. Amazon arrives with a list of asks. Vendors prepare their defenses. Both sides exchange data, debate percentages, and negotiate terms. By the time the process concludes, many vendors view the outcome through a simple lens: who won and who lost?
Over the years, I’ve become convinced that this framing causes many organizations to misunderstand what AVNs are actually designed to accomplish.
Most vendors approach AVNs as negotiations.
Amazon approaches AVNs as economic reviews.
That distinction explains much of the tension surrounding the process. Vendors often focus on the specific asks being made. Amazon is usually focused on a broader question: do the economics of this relationship still work?
Understanding that perspective is one of the most valuable things a vendor can do because it changes how AVNs are interpreted, how negotiations are approached, and where organizations should focus their efforts throughout the year. In many cases, the factors that ultimately drive an AVN outcome were set in motion months or even years before the negotiation itself begins.
At first glance, AVNs can feel arbitrary.
A vendor may receive requests for increased MDF or CoOp accruals, adjustments to Freight Allowance rates, increased Damage Allowance cost support, changes to payment terms, or a variety of other commercial concessions. It is natural to view those requests as isolated negotiation points.
In reality, they are often connected by a common theme.
Amazon is attempting to improve the economics of the relationship.
Understanding why requires understanding how many vendor relationships are established in the first place.
Unlike many traditional retailers, Amazon generally does not conduct a detailed profitability review before allowing vendors to list products in Vendor Central. Vendors can create items, establish cost prices, and expand assortment with relatively little oversight regarding whether those products will ultimately be profitable for Amazon.
Over time, however, Amazon evaluates the economic performance of the business. Products that generate insufficient contribution profit become visible. Freight costs that exceed recovery rates become visible. Damage expenses that exceed accruals become visible. Programs that are no longer economically sustainable become visible.
AVNs are one of the primary mechanisms Amazon uses to address those situations.
The purpose is not simply to extract additional funding.
The purpose is to improve the economics of the relationship.
Whether vendors agree with Amazon’s conclusions is a separate discussion. The important point is understanding what Amazon is trying to accomplish.
Many vendors assume Amazon has multiple levers available to improve profitability.
In reality, some of the most obvious levers are intentionally constrained.
Amazon views itself primarily as a price follower rather than a price leader. While there are exceptions, the company generally wants to remain price competitive wherever possible. Maintaining customer trust requires customers to believe Amazon offers competitive prices. Allowing competitors to consistently undercut Amazon would undermine that objective.
As a result, increasing retail prices is often viewed as a less attractive solution than improving vendor economics.
This reality shapes many AVN discussions.
If Amazon believes a product, program, or vendor relationship is underperforming economically, it often looks upstream toward cost structures, funding agreements, and operational efficiencies rather than downstream toward higher retail prices.
Understanding this dynamic helps explain why certain requests appear repeatedly across AVNs. Amazon is often attempting to solve an economic problem while preserving the customer experience at the same time.
One of the most common mistakes vendors make is focusing exclusively on Amazon’s asks without understanding the economics driving those asks.
This often leads to negotiations centered around percentages rather than business problems.
A vendor may argue against a higher Freight Allowance rate without understanding Amazon’s actual freight costs. Another may reject a Damage Allowance adjustment without reviewing the underlying return and damage data. A third may refuse a funding request on principle because it feels unreasonable.
Those reactions are understandable.
But they are rarely productive.
The strongest vendors I’ve worked with approach AVNs differently. They begin by understanding the underlying issue Amazon is attempting to solve. They request supporting data. They analyze the economics themselves. They validate assumptions. They bring their own data into the discussion.
In other words, they negotiate from evidence rather than opinion.
That shift tends to improve outcomes for both sides because the conversation becomes focused on economics rather than positions.
Freight Allowance provides a useful illustration.
Many vendors view Freight Allowance as an arbitrary fee Amazon collects as part of doing business. In reality, the allowance exists because Amazon incurs real transportation costs moving inventory through its network.
If the agreed-upon Freight Allowance is recovering five percent of sales while Amazon’s actual transportation costs are eight percent, Amazon is likely to seek an adjustment during the next AVN cycle.
A vendor may disagree with Amazon’s calculations. It may challenge the supporting data. It may identify operational improvements capable of reducing freight costs. Those are all productive discussions.
What is less productive is assuming the request exists simply because Amazon wants more money.
The economic issue still exists regardless of whether the vendor agrees with the proposed solution.
Some of the most successful AVNs I’ve observed occurred when both parties stopped debating percentages and started discussing the underlying economics together.
One of the most revealing indicators of an organization’s Amazon maturity is whether AVN requests arrive as surprises.
In most cases, they should not.
The conditions that create AVN asks generally develop throughout the year. Freight costs increase gradually. Damage rates trend upward over time. Product profitability deteriorates. CRaP ASINs emerge. Operational inefficiencies accumulate.
The annual negotiation is simply where those issues become formalized.
Organizations that treat AVNs as isolated annual events often find themselves reacting to problems that have existed for months or years. The strongest vendors take a different approach. They monitor economic performance continuously. They understand where profitability pressures are developing. They identify issues before Amazon formally raises them.
As a result, AVNs become less about surprises and more about reviewing issues that both parties already understand.
One of the reasons I encourage vendors to think differently about AVNs is that many of the factors driving Amazon’s requests originate far upstream from the negotiation itself.
Take freight as an example. Vendors often experience a Freight Allowance increase as though Amazon simply decided to ask for more money. In reality, freight economics are frequently influenced by decisions the vendor made years earlier. Product dimensions, case-pack quantities, pack architecture, channel pricing strategy, and assortment decisions all influence whether a product can be sold profitably through Amazon’s network.
The same pattern appears elsewhere. Damage Allowance discussions are often influenced by packaging design. CRaP discussions are frequently influenced by market pricing, product architecture, pack size, and margin structure. Many of the economic challenges that surface during AVNs are ultimately downstream consequences of decisions made throughout the product lifecycle.
This is one reason the strongest vendors rarely treat AVNs as isolated annual events. They recognize that many future AVN outcomes can be influenced long before the negotiation begins. Product design decisions, packaging improvements, assortment strategy, pricing discipline, and operational improvements all shape the economics Amazon will eventually evaluate.
Viewed this way, the best AVN strategy is often not a negotiation strategy at all.
It is a continuous improvement strategy.
One of the more interesting misconceptions surrounding AVNs is the idea that leverage is created during the negotiation itself.
Many vendors approach AVNs as though the outcome will be determined by negotiating skill, persuasion, or the ability to push back effectively. In reality, most of the leverage in an AVN discussion has already been established long before the meeting begins.
Amazon enters the conversation with a view of the business that has been forming throughout the year. It understands sales performance, profitability, customer demand, inventory health, operational performance, and the strategic importance of the brand within its category. Those factors influence how Amazon evaluates the relationship and what alternatives may exist if an economic issue remains unresolved.
This is one reason category leadership matters. Brands that customers actively seek out create different dynamics than products that can be easily substituted. If customers expect to find a particular brand on Amazon, Amazon has a strong incentive to maintain that relationship. Conversely, when alternative sources of supply exist or competing products can satisfy the same customer need, Amazon’s position naturally becomes stronger.
Viewed through this lens, leverage is rarely a negotiation tactic. It is usually the byproduct of strategic value. The strongest negotiating positions are built through customer demand, operational performance, profitability, and the importance of the assortment itself. By the time the AVN begins, those factors often matter far more than anything that happens in the meeting.
One reason AVNs can become emotional is that vendors often view them as a series of requests that can either be accepted or rejected.
Technically, that is true.
Practically, the situation is usually more complex.
When Amazon raises an economic concern, the concern does not disappear simply because the proposed solution was declined. If a product is unprofitable, if freight costs exceed recovery rates, or if the economics of the relationship are deteriorating, Amazon still has to decide how it will respond.
Over the years, I’ve seen vendors assume that rejecting an ask meant the issue had been resolved. More often, it simply meant Amazon needed to pursue a different path. In some situations, that might involve reducing inventory investment. In others, it might result in certain products becoming CRaP. I’ve seen Amazon shift sourcing toward alternative suppliers, reduce support, transition relationships into less-supported programs, or in some cases discontinue vendor relationships altogether.
The important point is not that Amazon is retaliating.
The important point is that Amazon is still trying to solve the same economic problem.
Understanding that distinction changes the nature of the conversation. The question is not whether a vendor can say no. Vendors reject Amazon requests every year. The more important question is what happens after the answer is no and whether both parties understand the implications of that decision.
After participating in AVNs from both sides of the table, I’ve become increasingly convinced that many organizations measure success incorrectly.
They focus on the concessions they avoided, the percentages they negotiated down, or the funding requests they rejected. Those outcomes may feel like victories in the moment, but they do not necessarily indicate that the business is healthier or that the underlying economics have improved.
The strongest vendors tend to approach AVNs differently. Rather than viewing the process as an annual battle, they view it as an opportunity to better understand how Amazon evaluates the business. They arrive with data. They understand the economic drivers behind the requests. They challenge assumptions when appropriate, but they also recognize when a legitimate business problem exists and work collaboratively to solve it.
By the time AVNs kick off, many of the underlying conditions have already been created. In that sense, the most successful AVNs are rarely won during the negotiation itself. They are earned through the work that happens before the negotiation ever begins, often through decisions involving pricing, packaging, assortment strategy, operational performance, and economic discipline that were made long before the AVN was ever scheduled.
