The Amazon marketplace is one of the largest in the world, with an estimated 37.6% of the U.S. eCommerce market in 2023. While much of those transactions occur through Amazon’s own sales, a significant portion of the platform’s revenue goes through third-party (3P) sellers. In fact, in Q1 of 2024, 3P sellers made up 61% of total Amazon sales.

This guide will walk you through what is Amazon 3P, what it means to be a 3P seller on Amazon; how it compares to 1P, 2P, and hybrid selling; and how it impacts your business. You’ll learn why this niche enjoys greater popularity and then decide if it’s right for your brand.

What is Amazon 3P selling?

The third-party marketplace on Amazon is where you operate as an independent business, meaning you take charge of your own sales, inventory, fulfillment, customer service, returns — everything. As a Amazon 3P seller, you use Amazon’s platform to market your store. It’s analogous to setting up in a mall as a seller, where you rent a booth and put your products up for sale.

Most shoppers visit Amazon for Amazon specifically, but if your products happen to be what they’re looking for, they’re just as happy to buy from you and not directly from Amazon, provided you meet the marketplace’s standards for shipping, product quality, and customer service (or at least provide a product that’s otherwise not on the platform).

Amazon 3P selling entails:

• Uploading products to the Amazon platform
• Creating merchandising, including product images, product descriptions, etc.
• Optimizing for search and searchability across the Amazon platform
• Paying for marketing yourself either on Amazon, social media, or other advertising platforms
• Running your own brand, which you can build and invest in both on and off Amazon (e.g., having shops and a presence on other marketplaces)
• Fulfilling orders yourself with your own inventory management, warehousing, and order management in place
• Managing customer service, including reverse logistics for returns

Amazon hands you a storefront, an audience, a payment processing system, and rules, but you take care of everything else. You can, of course, opt for hybrid models with Fulfilled by Amazon (FBA), wherein Amazon takes on much of fulfillment, but you’ll always have to manage inventory, brand, marketing, and product merchandising yourself.

Examples of Amazon 3P sellers

Amazon has an estimated 2.5 million 3P sellers active on their marketplace. These include private labels (meaning they list and sell their own private brands), resellers, and direct manufacturers. Some well known names include:

• Anker:
  Anker is one of the largest private label brands on Amazon, first launching in 2011 as a cable and phone charger manufacturer. Today, the brand offers everything from headphones and speakers to vacuum cleaners via their web shop and Amazon store. They also distribute products globally, with a revenue of close to $2 billion in 2023.
• Pattern:
  Pattern was the highest selling 3P seller on Amazon in the first quarter of 2024. Earning over 5,000 reviews per month, they’re also one of the fastest growing. They operate as a reseller as well, with over 2,000 products in their store. These range from branded jewelry to socks to home and garden (much like an online department store).
• Palouse Brands:
  Palouse Brands is a direct-from-farm distributor selling products like dried lentils, milled flour, and grains. Their products are all locally grown in the American Midwest, use plastic-free packaging, and meet standards set by the Food Alliance, the Non-GMO Project, and other such organizations. Palouse built their brand around accessible and locally farmed food delivered sustainably — and most of their products are sold directly from the growers.

All of these brands sell 3P as their own brands, with their own logistics, warehousing, fulfillment, customer service, marketing, merchandising, etc.

The benefits of Amazon 3P

Many companies are attracted to the idea of operating on Amazon as a 3P seller. The greatest appeal is retaining full control of your brand and maximizing total profits, but there are other enticing perks as well.

Control of your brand

If you sell Amazon 3P, you essentially set up your own storefront. To the extent of what Amazon’s guidelines allow, you control everything. For example, you can list as many products as you want and whatever products you want (provided they’re not prohibited), and you can even set the prices you want (so long as you keep to Amazon’s lowest price guarantee).

You also manage brand presentation, merchandising, what information you tell your customers, etc. If you alter a product, you can update the descriptions and images on the same day to ensure shoppers have a seamless experience. That means you can control product availability as well to manage pricing, handle inventory management to minimize costs, etc.

Opportunities to scale

If you’re growing your own brand on Amazon, you’re building a name that consumers trust. That’s true whether you operate as a private label or a reseller. Selling 3P on Amazon means you can establish legitimacy as well as capital, which allows you to scale off of Amazon to other marketplaces and your own brand store too.

For example, after a humble beginning as “just an Amazon brand,” Anker now has an impressive presence in their own physical shops as well as in department and hardware stores across the U.S.

Minimize middlemen while maximizing profits

The fewer times products change hands, the more profit the seller sees. So, selling directly can result in higher margins than 1P selling, although you do need to consider expenses like how much you spend to set up and maintain infrastructure.

Still, in 3P, you set the price and can implement strategies that minimize total fees. If you opt for 1P meanwhile, you’ll have to accept whatever Amazon offers for your products, wholesale.

The challenges of Amazon 3P

Amazon 3P isn’t an easy venture. It’s a lot of work, and many sellers simply don’t have the infrastructure or capacity to break into it. 3P brings many considerations, especially concerning inventory management, warehousing, and customer service.

Setting up a store

A store requires merchandising, branding, and product copy. It means capturing professional-grade photos, investing in high-quality text, building product listings, choosing distribution methods, figuring out customer service, and much more. That’s why it can take months to prepare your products for sale. Then, you also have to handle customer relationship management, returns, and customer service after you launch.

Inventory management

Even if you simplify launch by using FBA rather than FBM (Fulfilled by Merchant), you still have to oversee inventory management. That almost always involves setting up a SKU (stock keeping unit) system, categorizing every product you sell, and embracing an inventory management program that monitors stock across your warehouses and 3PL providers (including FBA), tracks lead times for replenishment, and integrates into order management and order tracking. Inventory management can be extremely complex, especially as you start to spread stock across geographic locations and fulfillment providers and have to invest significant time, money, and effort.

Fulfillment

If you operate via FBM, you’re responsible for fulfilling orders, which includes processing an order from the platform, transferring it to a warehouse, picking the ordered item out of the warehouse, packing it for shipment, and then sending it to the buyer. That involves a complex system of order management, barcodes and scanning systems, and relationships with shipment providers like USPS to ensure you can move your products out the door.

Most FBM sellers rely on 3PL providers because they’re often cheaper than setting up and managing your own systems. For example, a 3PL can leverage economies of scale, which reduces the total cost per item. This is one way 3P sellers can control costs and increase profit above other selling options.

Fees and costs

Selling on Amazon incurs a number of fees and costs, including warehousing fees (if you use FBA), advertising, marketing, merchandising, packaging, shipment, return, credit card chargebacks, and more. If you aren’t careful, those expenses can run up quickly and eat into profits. This is why managing finances is a large part of being a 3P seller. You’ll have to stay on top of how much it costs to sell a given product so you can better manage pricing, work to lower expenses, and continue to turn a profit.

The alternatives to 3P

Most Amazon sellers have a few other options to selling 3P:

• 1P: In this invite-only setup, you sell directly to Amazon via Vendor Central. In addition, you’ll sell your goods wholesale, which means Amazon will issue you a purchase order for the products they want, you’ll receive a wholesale price for it, and then sell your products in bulk.
• 2P: The so-called “2P” option is when sellers rely almost entirely on FBA. So, Amazon takes over fulfillment and customer service, leaving you to handle merchandising, inventory, and marketing. Essentially, it’s a middle ground between 1P and 3P.
• Hybrid models: Many sellers opt for both 1P and 3P models. In this combination, you have low-effort, large-scale income via Amazon Vendor Central, which you then supplement by offering your products directly on Amazon when the marketplace runs out of stock.

Is 3P right for your business?

3P selling is cost and infrastructure intensive. You’ll need a significant setup of software, people, and systems to manage inventory, replenishment, fulfillment, and customer service, which can be too much for many sellers. However, you can leverage 3PLs, FBA, and other services to offload much of that work, which makes Amazon 3P much more accessible. This selling route could be a viable option for you if:

• You have resources and time to merchandise products.
• You’re willing to research and invest in inventory management software and have a stock keeping and inventory management system.
• You have warehousing or can outsource it to a 3PL.
• You have customer service in place or the means to scale it up as the need arises.
• You maintain relationships with shipping providers or leverage a 3PL that does.

FBA is a great middle ground for sellers who are unsure if they’re ready to take on the full logistical demands of selling 3P; you’ll experience a soft start, with fulfillment and customer service out of your hands. However, you’ll still have to meet the demands of FBA prep, which means packaging, labeling, and boxing your products to adhere to the program’s standards and minimize inbound shipment costs.

Tips to navigate 3P selling on Amazon

Not every brand works well with 3P. It entails a lot of effort, so you’ll need as much help as you can get:

• Leverage a 3PL or FBA (or both) to limit early investments in infrastructure.
• Focus your budget on good inventory management systems, as this will save you money and yield insights into sales.
• Remember, you’re operating as a brand, which requires branding products, uniform styling, and ensuring uniform quality across items in your store.
• Don’t start slowly. Amazon sets logistical and FBA replenishment standards based on your early performance on the marketplace, so if you’re launching through FBA, push advertising and increase sales as early as possible.
• Collect data and optimize product pricing, packaging, and other costs as you go. You won’t have all the information up front, but you can adjust as you move forward.
• Make sure you have dedicated people to handle customer service, fulfillment, etc. Merchandising and product listing creation are one-time projects you can then touch up on occasion, but many aspects of your eCommerce store will regularly need special attention, so set up these systems to lay the foundation for a successful 3P undertaking.

Wrapping up — 3P selling could be your next great venture

Amazon 3P gives you your own store and brand on the marketplace. You still have to meet the platform’s requirements for merchandising, listing quality, and product restrictions. At the same time though, you sell directly to customers, which allows you to build your name, maximize profit, and control product presentation, availability, and customer experience.

This added control plus the ability to earn more and branch off Amazon makes 3P selling extremely attractive to many sellers. However, it does require investing in infrastructure, leveraging partnerships to provide services like fulfillment, and developing cost management to maintain a profitable business. So, consider your current model and develop a plan to jump into this lucrative selling opportunity.