Set them on contribution margin, not revenue, in both models. As a seller you control price, so the target is profit per unit after Amazon's fees and ad cost. As a vendor your margin is fixed at the purchase order, so the only lever left is landed cost and the ad budget you fund on top.
The short version
- Contribution margin per unit is the anchor. Every other target is derived from it.
- Seller economics are elastic. Price, promotion, and spend all move, so targets can be tuned continuously.
- Vendor economics are set upstream. Once the cost price is agreed, your ROI is mostly a sourcing outcome.
- Landed cost is the biggest untouched lever in both. Most brands negotiate advertising and ignore the factory.
- Write a floor, not just a goal. The number below which you stop spending matters more than the number you hope for.
Start with the unit, then work outward
You know the revenue figure you want. It is the wrong place to start, because two brands with identical revenue can have opposite outcomes.
Build the unit first. Landed cost, Amazon's fees, returns provision, and then the advertising cost you can carry while still clearing your required margin. That last number is the target, and everything else in a campaign plan is downstream of it.
| Line | Seller | Vendor |
|---|---|---|
| Who sets the sale price | You | Amazon |
| Who holds inventory risk | You | Amazon, after the purchase order |
| Where margin is decided | Continuously, by price and cost | Once, at the negotiated cost price |
| Main ROI lever | Acquisition cost and price | Landed cost and terms |
| Advertising funded by | Your ad account | Your own budget, on top of the wholesale margin |
| Speed of correction | Days | Contract cycle |
Setting the seller target
- Calculate contribution margin per unit at your current price, after landed cost, Amazon fees, and a returns provision based on your actual return rate.
- Decide the share of that margin you will spend on acquisition at this stage of the product's life. Higher early, lower later.
- Convert it into an advertising target and hold campaigns to it, with launch and maturity treated as different numbers.
- Set the floor. The margin level at which spend pauses and the product goes back for a fix rather than more budget.
- Review on a fixed cadence. Weekly in writing, live every two weeks, so drift is caught inside days.
Setting the vendor target
The structure is different because the margin conversation happened before the campaign existed. Your realized ROI is largely decided by the cost price, the terms, and any allowances agreed in the annual negotiation. Advertising you fund on top sits against a margin you cannot widen by raising the retail price yourself.
That has one practical consequence: in a vendor relationship, the highest leverage work is usually upstream. A one point improvement in landed cost flows to every unit forever, while a one point improvement in advertising efficiency only affects the units advertising touched.
Where the real ROI usually hides
Both models are constrained by the same input, and it is the one most brands never revisit. Landed cost is negotiated once, at the beginning, usually by someone with no leverage and no comparison quotes, and then treated as a fact of nature for years.
We run an in-house sourcing studio in Guangzhou, and the frameworks it uses were built across 500 plus brands. The pattern is consistent: cost, tooling, packaging, and quality control are re-openable far more often than sellers assume, particularly once volume has grown since the original agreement. A supplier conversation reopened after eighteen months of proven order history is a different conversation from the first one.
For a vendor brand, that is close to the whole game. For a seller, it compounds with everything else, because a wider unit margin raises the acquisition cost you can profitably carry, which raises the traffic you can buy, which raises rank.
What most agencies will not tell you
Return on ad spend is the most quoted number in this industry and the least connected to your bank balance. It ignores landed cost, ignores returns, ignores the organic sales advertising assisted, and is reported at whatever attribution window flatters the month. Ask for contribution margin by product instead, and accept that fewer providers can produce it.
The second thing: advertising is where agencies can act fastest, so advertising is where the targets get set. Sourcing, packaging, and quality control move slower and are harder to invoice, which is exactly why they are under-worked. If your ROI target requires a two point margin improvement, the factory is often a shorter path than the campaign.
Related answers
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- Amazon agency pricing and economics: the complete guide
How sourcing, creative, and advertising work together on one fee is explained at Flapen.
