Understanding the Differences Between List, Sales, and Cost Prices on Amazon

Amazon provides vendors with various “price” metrics that are crucial for understanding profitability. These include the List Price, Cost Price, Adjusted Cost Price, Sales Price, and the closely related Net Pure Profit Margin (NetPPM). Each of these prices serves a specific purpose and plays a role in determining profitability for both Amazon and manufacturers. Let’s break down what these prices mean and how they interact.

1. List Price

The List Price is often the starting point for pricing discussions. In Amazon's Vendor Central, the List Price represents the price at which a vendor (manufacturer) offers a product to Amazon. This is the initial asking price before any discounts or conditions are applied. For example, the List Price for a bicycle might be 632€.

However, this List Price can differ from the Cost Price Amazon ultimately pays. The discrepancy arises due to various discounts and conditions applied, which brings us to the next critical price point.

2. Cost Price

The Cost Price, also referred to as the Cost of Goods Sold (COGS), is the actual amount Amazon pays to the vendor for a product. It is the basis for important metrics such as Shipped COGS and Net Received, both of which are reported based on the Cost Price. This price can fluctuate throughout the year based on negotiations, sales volume, and other factors. For example, while the backend system showed a List Price of €632, the actual Cost Price Amazon paid might be 467€.

The Cost Price is adjusted by subtracting any discounts or conditions Amazon negotiates, such as vendor terms and conditions, co-op fees, accruals, or rebates. However, sales discounts are not included.

It’s important to note that the Cost Price is often mistaken as the revenue manufacturers make from selling products to Amazon. In reality, additional costs and fees, not included in COGS, are deducted by Amazon. These costs can be calculated using NetPPM and Sales Price, so let's first clarify those two metrics.

3. Sales Price

The Sales Price is the amount the end customer pays when they purchase a product on Amazon. This price is influenced by Amazon’s pricing strategy, which aims to be competitive while maximizing profit margins. The Sales Price is always reported as a net price (after taxes) and is crucial for understanding Amazon’s revenue from a product. In our bicycle example, the Sales Price might be 839,49€ (gross 999€).

For instance:

• Sales Price: 839,49€
• List Price: 632€ → Cost Price: 467€
• Sales Price - Cost Price <> Net Pure Profit Margin

4. Net Pure Profit Margin (NetPPM)

Net PPM (Net Pure Profit Margin) is the profit margin Amazon makes from selling a product after accounting for all costs and deductions. Vendors with higher Net PPMs are generally in a stronger position during negotiations with Amazon, as this indicates their products are more profitable for the platform. Conversely, a low Net PPM might lead to Amazon pressuring the vendor to improve profitability, or they could risk the product being "CRaP-out" (Can’t Realize any Profit), meaning Amazon may stop purchasing or promoting those products.

Here’s how the numbers might break down in the bicycle example:

• Sales Price: 839,49€
• NetPPM: 52%
• 839,49€ * 52% = 436,53€ Net Pure Profit
• 839,49€ - 372,49€ = 402,96€ Adjusted Cost of Goods
• Adjusted Cost of Goods: 402,96€

The Adjusted Cost Price reflects further deductions beyond the initial Cost Price, including sales discounts applied at checkout, such as coupons, Subscribe & Save, Lightning Deals, or other promotions. To get the actual revenue, you can calculate NetPPM by multiplying Shipped Revenue by Shipped Units, which allows you to determine the adjusted COGS price. Understanding the Adjusted Cost Price helps vendors optimize their margins more effectively.

The Adjusted Cost of Goods is not reported by Amazon in Vendor Central. Catapult helps you to calculate and monitor these important metrics.

Conclusion

Navigating the various prices involved in selling on Amazon can be complex, but understanding the differences between List Price, Cost Price, Sales Price, and how they relate to NetPPM is essential for optimizing profitability. For manufacturers, these metrics help in setting competitive prices, negotiating better terms, and ensuring that their products perform well on Amazon.

In summary, each price plays a specific role in the transaction process:

• List Price: The initial asking price from the vendor.
• Cost Price: The actual price Amazon pays after T&C.
• Sales Price: The price paid by the end customer.
• NetPPM: Amazon’s profit margin on each sale.

By closely monitoring these prices and the conditions that affect them, vendors can better manage their relationship with Amazon and improve overall profitability on the platform.