How to use the Amazon supplier profitability matrix (AVP)

The Amazon Supplier Profitability Matrix (AVP) is an essential strategic tool to analyze and optimize the benefit margins of your products on the platform. In this guide, I show you step by step on how to define and use AVP to improve your margins and ensure a more profitable relationship with Amazon.

What is the Amazon suppliers profitability matrix?

The Amazon supplier profitability matrix (AVP) is an analytical tool that helps suppliers to evaluate and optimize the profitability of their products sold on Amazon .

This matrix allows identifying products that generate high profit margins and those that require adjustments to be profitable. When classifying products in different quadrants according to their profitability and demand, suppliers can make decisions to improve their margins.

Step 1: Collect costs and sales data

The first step to use AVP is to collect all the relevant data on the costs and sales of your products. These data are:

• Cost prices : price you buy or produce each product.
• Sales prices: Price to which you sell each product on Amazon.
• Associated costs : shipping, storage expenses, Amazon commissions, among others.

Having a clear and detailed vision of these costs and prices is essential to be able to perform a precise analysis of the profitability of each product.

Step 2: Analyze the profitability of each product

Once you have all the necessary data, it is time to analyze the profitability of each product. To do this, you must calculate the profit margin of each. This is done by subtracting total sale costs . Use these calculations to classify your products in the AVP matrix.

For example, if a product is sold for € 50 and total costs (production, shipping, storage, etc.) total € 30, the profit margin is € 20. This margin is a key indicator of product profitability.

Step 3: Classify the products in the AVP matrix

The AVP matrix is ​​divided into four quadrants, each representing a different level of profitability. These quadrants are:

• Quadrant 1 : High profitability and high demand.
• Quadrant 2 : High profitability and low demand
• Quadrant 3 : Low profitability and high demand
• Quadrant 4: Low profitability and low demand

Classifying your products in these quadrants will allow you to identify which are the most profitable and which ones need improvement strategies.

Step 4: Develop strategies to improve profitability

Depending on the quadrant in which your products are, you can develop different strategies to improve your profitability, let's see some:

Quadrant 1: High profitability and high demand. Keep the offer and consider increasing prices if the market allows it . These products are already profitable and have a high demand, so small improvements in the price can further increase your margins.

Quadrant 2: High profitability and low demand. Invest in marketing and promotions to increase demand . These products are already profitable, but they need greater visibility and marketing effort to increase their sales.

Quadrant 3: Low profitability and high demand. Check your costs and look for ways to reduce them to improve margins . These products are sold well, but their margins are low. Consider renegotia with suppliers, optimize production processes or reduce shipping costs.

Quadrant 4 : Low profitability and low demand. Evaluate whether it is worth selling these products or if it is better to discontinue them . These products are not profitable and have little demand, so it may be more beneficial to focus on other products.

Step 5: Implement and monitor changes

After developing your strategies, we must implement the necessary changes and monitor the results . Use analysis and metric tools to follow closely how your actions affect the profitability of your products.

Step 6: Optimizes inventory and logistics

A fundamental part of Amazon profitability is the efficient management of inventory and logistics. These are some strategies to optimize these aspects:

• Inventory management just in time (JIT): Keep only the inventory necessary to meet the short -term demand. This reduces storage costs and minimizes the risk of product obsolescence.
• Warehouse optimization: Use Amazon (FBA) stores strategically to reduce shipping costs and improve delivery times. Analyze storage rates and consider using external warehouses if it is more profitable.
• Process automation: implements automated inventory and logistics management systems to reduce errors and improve operational efficiency.

Step 7: Take advantage of Amazon tools

Amazon makes several tools that you can use available to improve the profitability of your products. The most useful are:

• Amazon Advertising: Use advertising campaigns to increase the visibility of your high profitability products and low demand.
• Amazon Brand Analytics: It allows you to analyze consumer behavior and adjust your price and marketing strategies accordingly.
• Amazon Vendor Central: Keep your prices and costs updated in Central Vendor and use report functions to monitor the performance of your products.

Step 8: Review and adjust regularly

The profitability of your products is not static; It can change over time due to multiple factors, including fluctuations in raw material prices, market demand changes or new competition strategies. Therefore, you have to regularly review and adjust your AVP matrix. Here are some tips to do it:

• Quarterly Analysis: Make quarterly analysis of the profitability of your products to identify changes and adjust your strategies accordingly.
• Customer feedback: Listen to your customers and use your comments to improve your products and services. Customer satisfaction can directly influence demand and, therefore, profitability.
• Competition monitoring: Keep aware of your competitors' price and promotions strategies. Adjust your prices and offers to stay competitive without sacrificing your margins.

Step 9: Advanced negotiation strategies

Profitability not only depends on internal prices and costs, but also on the conditions negotiated with Amazon. These advanced negotiation strategies can help you:

• Data preparation : Presents solid and well documented data that support your requests for changes in cost prices. This includes market analysis, production costs and comparisons with other retailers.
• Package offers : consider offering products in packages or combos that can justify a higher price and improve margins.
• Incentives and commitments : It offers incentives to Amazon Accounts Managers, such as complying with certain sales volumes or marketing commitments in exchange for cost prices.

Benefits of using AVP

The implementation of the Amazon supplier profitability matrix offers several benefits:

• It provides a solid base to make strategic decisions about prices, marketing and inventory management.
• It helps to focus resources on products that offer the greatest return on investment.
• By presenting solid data and well thought out, you can negotiate more effectively with Amazon Accounts Managers.
• It facilitates rapid adaptation to market changes and costs, maintaining long -term profitability.

Conclusion

The Amazon Supplier Profitability Matrix (AVP) is an essential tool for any supplier that wants to maximize its margins and succeed in the highly competitive marketplace market. By following the steps of this guide, you can analyze and improve the profitability of your products systematically and effectively.