What is Net PPM? - Net PPM is a way of measuring profitability on Vendor Central accounts. - By Alan Luusama Lee

By Alan Luusama Lee

In the world of Vendor Central (VC) operation, there is a term called Net PPM (stand for Pure Profit Margin), which is the net margin that Amazon can expect to make on a product based on vendor-provided funding. It determines the health of the Vendor Central accounts if they are in good standard to meet the Amazon expectation.

If it falls too low, which means Amazon makes low or no profit from the Vendor Central accounts, then the accounts will have a chance of being stopped and suspended.

Currently, according to the recent data from my conversation with Amazon vendor managers, the healthy standard of Net PPM stays up to 40%. If it goes below 25% on the Vendor Central operation, Amazon basically makes no profit from these accounts. Amazon will not want to lose money to vendors for a long run.



As vendor managers, they always figure out whether the accounts under their supervision are staying healthy or not. Also, they will negotiate with vendors on behalf for the terms of Co-op, Freight Allowance, & Damage Allowance, which, on the other hand, affects the Net PPM positively.

How Net PPM is calculated? How can Vendor Central accounts be considered healthy?

Net PPM is the way of measuring profitability for Vendor Central accounts. Net PPM is short for net product profit margin, which is Amazon's measurement of how much profit Amazon can make on a product based on vendor agreement terms.

(Average Selling Price - Vendor Cost Price + Negotiated Contract Terms (Coop/Accrual Fees) / Average Selling Price.

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%).

For more further questions and better understandings of Net PPM on the health of your Vendor Central operation, please feel free to contact Masei & Ryland eCommerce via sales@rylandhk.com