Contra COGS

In Amazon’s vendor model (1P), Contra COGS represents various marketing, promotional, and operational allowances that vendors agree to pay Amazon. These are applied against the cost price (list price) Amazon pays the vendor, effectively reducing Amazon’s net procurement cost and improving its margin.

Common types of Contra COGS include:

• Merchandising or Marketing Allowances - payments for featured placements, coupons, or promotions
• Damage Allowances - to cover expected product returns or damages
• Volume Rebates - discounts based on purchasing thresholds
• Freight Allowances - if Amazon pays for inbound shipping
• Co-op or Automated Marketing spend

How it works:
If the vendor sells a product to Amazon for $10 and agrees to $2 in Contra COGS contributions, Amazon’s effective cost becomes $8.

Why it matters:

• Affects Contribution Margin (CM) and profitability
• Must be accurately calculated and reported by vendors
• Often reviewed during Annual Vendor Negotiations (AVN)

💡 Example:
A vendor agrees to a 10% marketing allowance and 2% damage allowance on a product with a $20 list price. The total Contra COGS is $2.40, reducing Amazon’s effective cost to $17.60.

In short:
Contra COGS is the vendor’s spend that offsets Amazon’s product costs, negotiated as part of vendor terms and impacting Amazon’s gross margin.