BLOG: Retail
4 Min Read | September, 2024
When selling on Amazon, vendors encounter various pricing metrics that play a crucial role in determining profitability. These include the List Price, Cost Price, Adjusted Cost Price, Sales Price, and the closely related Net Pure Profit Margin (NetPPM).
Each price metric serves a unique purpose in the transaction process. Let’s dive into what these prices mean and how they impact profitability for vendors and Amazon.
1. List Price
The List Price is the initial price a vendor (manufacturer) offers Amazon for a product. This is the starting point for pricing negotiations, often visible in Amazon's Vendor Central. However, this price is rarely what Amazon ends up paying due to discounts and negotiated terms.
2. Cost Price
The Cost Price (or Cost of Goods Sold - COGS) is what Amazon actually pays the vendor after applying negotiated discounts and conditions. This price often fluctuates throughout the year, influenced by negotiations, volume, and other factors.
3. Sales Price
The Sales Price is the price the customer pays on Amazon when purchasing a product. It reflects Amazon’s pricing strategies, which aim to be competitive while maximizing profit. This price is always reported net of taxes.
4. Net Pure Profit Margin (NetPPM)
The Net Pure Profit Margin (NetPPM) is Amazon’s profit margin after accounting for all costs and deductions. A higher NetPPM indicates that the product is more profitable for Amazon. In contrast, low NetPPM can lead to Amazon reducing promotion or sales of the product if it becomes unprofitable, a scenario known as "CRaP-out" (Can’t Realize any Profit).
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5. Adjusted Cost Price
The Adjusted Cost Price takes into account additional deductions beyond the initial Cost Price, such as discounts applied during checkout or promotional offers (e.g., coupons, Subscribe & Save). While this figure isn’t reported directly in Vendor Central, it’s essential for vendors to understand, as it helps optimize margins and overall profitability.
Conclusion
Understanding the differences between List Price, Cost Price, Sales Price, and NetPPM is essential for vendors aiming to optimize profitability on Amazon. By keeping a close eye on these metrics, vendors can negotiate better terms, set competitive prices, and ultimately improve their margins.
In summary:
- List Price = Initial price offered by the vendor
- Cost Price = Actual price Amazon pays after deductions
- Sales Price = Price paid by the end customer
- NetPPM = Amazon’s profit margin on each sale
By managing these pricing factors, vendors can strengthen their relationship with Amazon and enhance their profitability.
About the author
Benjamin Weyrich
He is the Founder and Managing Director of CATAPULT. With around ten years of experience in ecommerce and business intelligence, he focuses on strategic consulting for global brands aiming to strengthen their market position both on and beyond Amazon. Through his deep expertise, he helps companies make data-driven decisions and scale their growth across digital channels.
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