PPM

PPM is one of Amazon’s core retail financial KPIs, used by Vendor Managers (VMs), Retail Finance Analysts (RFAs), and category teams to assess product- or vendor-level profitability. It isolates the gross profit margin Amazon makes purely on the resale of goods, excluding downstream costs.

Formula:Key Terms:

• Average Selling Price (ASP): The average price Amazon sells a product for to customers.
• Average Cost per Unit: The average wholesale price Amazon pays to the vendor for that product.

Example Calculation:
If Amazon sells a product for an ASP of $50 and the cost price per unit is $35, then:This means Amazon earns 30% pure margin on that item before accounting for fulfilment and other costs.

Benefits for Amazon:

• Profitability visibility: Allows Amazon to identify which ASINs or vendors deliver healthy gross margins.
• Pricing control: Supports strategic decisions on pricing, promotions, and deal funding.
• Vendor negotiations: VMs use PPM data during Joint Business Plans (JBPs) to renegotiate terms, rebates, or cost reductions.
• Assortment planning: Helps determine which products to prioritise or delist based on margin performance.

Benefits for Vendors:

• Insight into Amazon’s perspective: Understanding PPM helps vendors see how Amazon evaluates profitability.
• Negotiation leverage: Vendors can offer cost improvements or trade terms to maintain assortment visibility.
• Category benchmarking: Enables vendors to understand where their products stand versus competition.

Challenges:

• Excludes operational costs: PPM does not account for shipping, storage, returns, or marketing expenses.
• Volatility: Frequent pricing or cost changes can cause large swings in PPM.
• Vendor pressure: Persistent low PPM may trigger margin improvement requests or de-prioritisation.

Why It Matters:
PPM is central to Amazon’s retail decision-making framework - products or vendors with low PPM are often targeted for cost renegotiations, trade term adjustments, or assortment reviews. Maintaining a healthy PPM is crucial for long-term vendor sustainability on Amazon.

Example:
A home appliance brand’s blender has a PPM of 18%, while the category average is 25%. Amazon’s Vendor Manager requests a cost reduction or increased marketing contribution to bring profitability in line with benchmarks.

In short:
PPM (Pure Profit Margin) measures how much profit Amazon makes on a product before additional costs - calculated asand used as a key profitability metric in vendor performance and pricing decisions.