For many brands and manufacturers, selling on Amazon is a no-brainer. However, there are different ways to sell. Choosing to handle everything 1P in single, seamless transactions with Amazon.com can be tempting. But, for many, delivering products directly to the consumer with 3P sales offers greater freedom, can be more profitable, and lays the groundwork for diversifying into other marketplaces.
Amazon 1P vs. 3P is therefore a question of logistics, infrastructure, and processes. Deciding between selling on Vendor Central (1P) or Seller Central (3P) depends on how involved you want to be, how you set up your logistics, and what infrastructure you establish.
What is 1P?
1P is often considered the easiest and fastest way to sell on marketplaces like Amazon or Walmart.com. It’s also the most traditional.
Rather than creating listings on Amazon, you sell directly to the company. Amazon negotiates a wholesale price for your goods, picks them up, and lists them for you. It then sets the pricing, controls the listings, and decides whether or not to make another purchase and when.
Benefits of selling 1P
1P has several surface benefits for manufacturers:
- It’s hands off, meaning you don’t have to deal with logistics or distribution.
- You don’t have to handle direct-to-consumer marketing, sales, or customer service.
- You don’t have to worry about packaging, warehousing, etc., other than in your own existing system.
- Amazon handles marketing, promotion, and slotting.
- You can sell in bulk, since marketplaces will purchase large orders.
Drawbacks of selling 1P
Unfortunately, selling 1P also means:
- Amazon buys at wholesale pricing, often at lower negotiated rates. You can expect a 20%–30% reduction over retail pricing at a minimum.
- Conditions are restrictive, and pricing on Amazon might limit your ability to sell on other marketplaces. For example, if Amazon is selling products cheaper than Walmart.com, you might not be able to sell on Walmart.com.
- You have no control over pricing, the listing, or photos on Amazon. For example, Amazon will negotiate a minimum advertised price (MAP) with you. But, they can still sell products for less than this if another reseller, authorized or not, uses a lower price, because Amazon’s price-matching clause trumps the MAP clause. Once pricing is determined under MAP, it’s difficult to raise it.
- You have no control over logistics, so fast-moving products might frequently sell out without being reordered in a timely manner. This costs you considerable revenue because it means fewer products are sold.
- Amazon typically charges a 4%–10% fee to cover marketing costs, a 2% fee for freight allowance, and other costs. These can fluctuate, and Amazon will renegotiate over time, often at your expense.
1P works well for manufacturers that want nothing to do with direct-to-consumer sales. However, 3P is increasingly attractive to many, especially with outsourced fulfillment partners and Amazon’s own FBA service.
What is 3P?
3P involves taking your goods to Seller Central and listing them directly for consumers to buy. While you can earn more, you also have to expand infrastructure to handle logistics. 3P marketplaces are extremely large, and today’s manufacturers often sell directly.
Brands like Anker, which sold almost exclusively on Amazon.com until 2017, are prime examples of this model’s success. And marketplaces like AliExpress are entirely built around manufacturers making direct-to-consumer sales.
Benefits of selling 3P
3P sales have much to offer manufacturers:
- Direct retail sales for a maximum profit per product, with no middleman.
- Freedom to expand to other channels, such as Walmart.com, without risk of being delisted due to pricing discrepancies.
- Full control over product presentation and branding, including which products are highlighted and marketed.
- More control over inventory and what stays in stock. You won’t miss sales because products are sold out.
Drawbacks of selling 3P
Conversely, 3P requires a significantly more hands-on approach, which is why many brands have avoided direct sales. Some of the challenges of 3P include:
- You’ll have to meet order demands, including packing, shipping, and fulfilling orders in a timely manner. This means adhering to marketplace requirements, providing a satisfactory customer experience, and gathering positive customer reviews on the platform.
- Prepping and shipping items can bring further costs. For example, seasonal sales are difficult to prepare for; meeting two-day shipping requirements across the globe requires extensive logistics. Additionally, Amazon FBA has strict packaging and inspection requirements you’ll have to follow.
- You’ll still have to pay Amazon fees. Amazon seller fees average 8%–20%, but are normally fixed per category. Charges will be predictable.
Essentially, moving to Seller Central from Vendor Central brings new costs and challenges. It’s important to consider both and assess how you intend to mitigate logistical issues, such as with Amazon FBA or another fulfillment-as-a-service solution.
Of course, FBA and third-party logistics (3PL) have their own associated fees, which you can calculate as part of your margins. For most, they’re cheaper and easier than building your own warehousing networks, delivery infrastructure, and packing plants – but that also depends on your volume of sales and existing network.
1P vs. 3P considerations
Amazon 1P vs. 3P largely depends on your organization and how involved you’re willing to be. 3P sellers have to deal with considerably more in terms of logistics, customer service, and direct marketing. This can add complexity and require greater business investment, even if it results in larger profits in the long term.
Time vs. money
Selling 3P ups the time expenditure per sale, but also increases profit per sale. Conversely, 1P greatly reduces hassle, but can significantly cut into margins.
Even if you sell through a 3PL like Amazon FBA (which you probably should be), you’ll still have to invest significant resources into building infrastructure to prep and ready packages for FBA.
Tip: Sellers can use the nationwide MyFBAPrep network to handle all prep work, including bundling, kitting, labeling, and more.
Freedom to diversify
1P sellers are mostly bound to a single marketplace, because you risk being delisted elsewhere if you’re selling for a lower price on Amazon (or another site).
Selling 3P means you control pricing and avoid being delisted (for example, if Amazon notices you’re selling the same product on Walmart at a cheaper price).
Diversifying across marketplaces offers greater business security, because if issues arise on one account or marketplace, you’re still secure in other sales channels.
Control over brand
If you sell directly to Amazon, you normally can provide product descriptions, marketing material, etc., up front. From there, it’s in Amazon’s hands. They’ll still charge you for merchandising, and you’ll have no control over product presentation, listing updates, or other alterations, even as your products change.
On the other hand, selling 3P means you have to handle all of this, which requires investing in merchandising, creating listings, and keeping everything up to date.
How to move from 1P to 3P on Amazon
For many brands and manufacturers, 3P sales provide more profit, especially with the use of third-party logistics and prep solutions. Therefore, 3P Seller Central is the clear choice, if you can manage the infrastructure.
Set up listings
Plan listings and launch them. This should involve investing in high-quality merchandising (photos, descriptions, Amazon Vine reviews, etc.). The higher quality your listings, the more likely they are to make sales.
Invest in marketing
Performing Amazon keyword research, SEO, and creating a marketing budget for PPC will help to drive sales. This also helps you work around potential sales dips, in case Amazon stops featuring your products once they no longer sell them directly.
Fulfilled by Amazon (FBA) simplifies logistics, giving you access to worldwide distribution without the expense or complexity of building a distribution network. FBA is convenient, affordable, and delivers purchases on platforms like Walmart.com through multi-channel fulfilment. So, when you move to other marketplaces, you won’t necessarily have to choose another fulfilment partner right away (although you may want to).
Partner with a prep center
Partnering with an FBA prep center + FBA means packaging, labeling, inspection, pick and pack, etc., are all taken off your hands. You have the convenience of 1P sales without losing the profit margin to Amazon. It’s still important to assess total costs, but everything will be handled for you while protecting your margins.
Set up eCommerce management
While you can accomplish much of this through Amazon’s Seller Central, it’s important to have software and resources in place to:
- Track total inventory in your warehouse, in FBA, and in any other marketplaces.
- Implement fulfillment tactics like Just-in-Time, where you track sales and keep products in stock across marketplaces.
- Avoid overstock situations, especially at FBA, where poorly moving stock can eat into profit margins.
- Map peak sales periods and have inventory ready to meet demand.
Establish customer service
While customer service can be as simple as having someone on hand to answer inquiries, you’ll have to ramp it up as sales increase. Maintaining a direct relationship with customers means handling returns, dealing with questions, and resolving complaints in a timely and professional manner. Doing so will produce additional benefits, in that you’ll garner more positive reviews, and eventually make more sales.
3P sales introduce new complexity in terms of overhead, infrastructure, and logistics. While some of this, like listing setup, marketing, and long-term listing management, will likely remain your responsibility, most other aspects including prep, fulfilment, and even customer service can be outsourced, and more affordably than simply selling directly to Amazon.
If you’re ready to make the switch to selling 3P, get started with Fulfilled by Amazon by enrolling with MyFBAPrep. We handle every aspect of inspecting, preparing, and packaging your products for Amazon so distribution remains as simple as 1P wholesale.