For many brands and manufacturers, selling on Amazon is a no-brainer. However, even on a single platform like Amazon, you still have to make choices. Do you sell Amazon 1P or 3P? And what do those decisions mean for your business and its margins?

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.

However, you’ll need an invite to do so. Once Amazon sends you an invite to Vendor Central, you can join. Then, the company will send you a purchase order and you fulfill it. Here, Amazon is your direct customer.

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. They then set the pricing, control the listings, and decide whether or not to make another purchase and when.

The only control you’ll have is via Vendor Central, where you can check on purchase orders, find and add product information, see merchandising, see reports, and see payment information.

The 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.
• You’ll have Amazon’s team to merchandise and advertise your products, which can greatly increase sales
• Amazon handles marketing, promotion, and slotting.
• You can sell in bulk since marketplaces will purchase large orders.
• Income is predictable, because Amazon normally tries to establish a cadence of repeat orders.
• Costs are predictable because you’ll pay a flat fee with no additional fees for fulfillment and referrals.
• Every product is listed as “Ships from and sold by Amazon.com” which can improve customer trust and improve direct sales.

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.
• No matter how popular your products are, you won’t be building trust for your brand, only your products.
• 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. Amazon withholds the right to charge additional fees for advertising, merchandising, and chargebacks, so you might also see less than your negotiated profit margin.
• You become completely reliant on Amazon for sales and having a presence on Amazon.
• Amazon can take 30, 60, or 90 days to pay.

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 selling is selling directly to the customer via the marketplace. Here, you take on the role of retailer, merchandiser, and advertiser.

3P involves taking your goods to Seller Central and listing them directly for consumers to buy. That means taking over creating product pages, talking to consumers, providing customer service, and more. You’ll also directly set pricing, monitor inventory levels, and you’ll take on full responsibility for fulfillment and customer service. You get all of the profit margin but also all of the responsibility.

While you can earn more, you also have to create 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.

Here, you’ll also have to choose between different fulfillment strategies. For example, you can choose Fulfillment by Amazon (FBA) meaning you hand fulfillment over to Amazon anyway and pay for storage and delivery, Fulfillment by Merchant (FBM), meaning you take on fulfillment entirely, and Seller Fulfilled Prime, meaning you commit to Amazon’s strict fulfillment requirements to earn the “Prime” label and all its advantages.

The big issue at stake here is that you maintain control of retail prices, inventory levels, and profit margins. That means you set pricing, consistently, across every platform you have a brand on. You also work towards building a brand as a distributor, instead of “just” a product.

The 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. As long as you stay on top of inventory, you can keep sales up.
• Direct control over advertising, sales, and price-matching
• Control over retail prices, with no MAP with Amazon that could reduce listed sale value.
• Access to brand protection and product launch capabilities
• Full control over product images, product detail pages, and other merchandising, so, you can update listings on the fly instead of waiting for approval from Amazon. E.g., if your product has changed.
• You sell products at retail rather than wholesale prices.

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 need a significant amount of infrastructure no matter what fulfillment method you choose.
• 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.
• You’re responsible for any merchandising and advertising and that means paying the fees for sponsored products and other ads. You’ll take on full advertising costs yourself and those costs are not always predictable.
• 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. If you sell with FBA, you’ll also have to consider warehousing and storage fees, placement fees, etc. Amazon also won’t cover any advertising fees. You may also be responsible for referral fees.
• You have to run and manage your own customer service, which means you need extra infrastructure in place, unless you solely rely on FBA.
• You’ll have to invest more into brand reputation management, as feedback will go directly to your seller account.

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.

How does Amazon 1P vs 3P compare?

Choosing between 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 increases 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. If you’re not careful or manage those investments poorly, Seller Central won’t save you anything over Vendor Central. Outsourcing infrastructure to 3PL centers or services that have the resources to scale fulfillment to reduce costs can be more cost-effective than keeping everything in-house.

Tip: Sellers can use the nationwide MyFBAPrep network to handle all prep work, including bundling, kitting, labeling, and more.

Freedom to diversify

1P sellers may find themselves 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, meanwhile, 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. Furthermore, diversifying across different marketplaces across the globe offers even more opportunity for growth and security for your eCommerce brand.

If you sell to Amazon, they can control what you do with the product. If you sell to Amazon and other wholesalers, you may find the price of your product dramatically drops, because Amazon’s price-match policy means they can go under your MAP.

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.

You’ll also be able to control your policies around social and ecological issues, your return policies, your packaging policies, etc. That’s even true if you’re shipping with FBA, as you can use Ships in Product Packaging (SIPP) to ensure you can directly fulfill products in your boxes rather than Amazon’s.

Amazon 1P vs 3P which is right for your brand?

The largest consideration for brands considering Amazon 1P vs 3P sales is control. For many, Vendor Central offers an easy way to move goods to market with as little hands-on activity as possible. At the same time, that could limit control of your brand, reduce potential profit margins, and deny you the same opportunities to build an eCommerce brand and potentially diversify into other marketplaces.

Therefore, it’s valid to consider 3P as an option, provided you can set up the infrastructure you need. However, if you lack existing capital to create a merchandising campaign, you may want to rely on Vendor Central or an Amazon Brand Launch campaign to get started. You can always move from Vendor Central to Seller Central. However, if you can start with Seller Central right away, you have much more opportunity to build a brand around your products from the start:

• Find a 3PL to handle fulfillment and FBA prep for you. A service like MyFBAPrep can handle the intricacies of packaging and labeling to meet Amazon standards, so you don’t run the risk of early fines and account issues.
• Leverage FBA to ensure fulfillment and lead times are on-point, especially as you’re just getting started and learning. FBA takes customer service, returns, and warehousing off your hands, meaning you have to figure out inventory flow, FBA prep, and merchandising. That’s still less hands on than doing everything yourself and will mean better customer reviews even while you’re still working out the kinks in manufacturing and logistics.
• Adopt inventory management software with a good SKU system and analytics so you can avoid costly stock interruptions. In addition, maintaining stock in the early days of your FBA account will ensure you maximize your total FBA restock limits once they kick in.

One of the largest challenges of moving to 3P is taking on operational work. Today, you can often simply outsource that. You’ll still need an in-house overview of inventory throughput, sales volumes, and forecasting. However, much of that can be handled with good software, which you can validate manually. You’ll also need extras like customer service and support, although you can also sidestep most of that by opting to ship with FBA rather than doing your own fulfillment.

Many manufacturers avoid 3P sales because it requires having infrastructure in place. However, you don’t need to warehouse and distribute products yourself. A 3PL like MyFBAPrep offers over 100 warehouses and over 85 million square feet of warehouse space globally, plus economies of scale to reduce cost of fulfillment even for smaller brands.

So, for example, you could sell 3P by shipping from manufacturing to MyFBAPrep. Here, MyFBAPrep can break your pallets down, correctly package and label everything for FBA, and then send shipments to FBA. When a customer places an order, Amazon handles the pick and pack and delivery, as well as any customer service and reverse logistics. All you have to worry about is keeping inventory in FBA.

What about hybrid 1P & 3P models?

There are plenty of selling models you can consider on Amazon, including a combination of 1P and 3P. Here, the vast majority of your inventory will sell directly to Amazon. Then, when Amazon goes out of stock, you have excess inventory, etc., you can directly sell your products to consumers, leveraging a 3PL for actual fulfillment and delivery.

This model still has many of the disadvantages of 1P selling but does mean you can largely leave sales in Amazon’s hands while working to avoid stock-outs and lost profit.

How to move from 1P to 3P on Amazon

For many brands and manufacturers, 3P sales provide more profit, especially with the use of 3PL solutions. Therefore, 3P Seller Central is the clear choice, if you can manage the infrastructure.

Craft 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.

Use FBA

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 fulfillment. So, when you move to other marketplaces, you won’t necessarily have to choose another fulfillment partner right away (although you may want to).

Selling via FBA is sometimes called 2P selling, because it removes much of the work of 3P selling. However, you’ll still have a lot to keep in mind and a lot of infrastructure to handle before you can sell via FBA.

Partner with a prep center

Partnering with an FBA prep center and 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.

You’ll need software in place to automate and manage this data. However, once you have it, it should be relatively easy to stay on top of reorder points, track how advertising campaigns impact sales, and predict sales so you can adjust inventory levels accordingly. Putting research into inventory management software should be one of your top priorities as you move to 3P.

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. Initially, you can probably handle that directly through Seller Central. However, it’s important to keep in mind that as you move to new platforms and other marketplaces, you will likely want to

Wrapping up — Grow according to your business needs

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, fulfillment, and even customer service can be outsourced, and more affordably than simply selling directly to Amazon.

Which is right for your business? Chances are high that, with the right infrastructure and third-party partnerships, 3P is the best choice for your brand.

If you’re ready to make the switch to selling 3P, get started with FBA 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.

Published: Jun 22, 2021
Updated: May 16, 2024