Whether you’ve been selling your products on Amazon for years or you’re just starting out, you’ve probably wondered if 1P or 3P is the best selling model for your brand. In a 1P or first-party relationship, Amazon buys your product wholesale and handles most of the selling details. In a 3P or third-party relationship, you’re an independent seller on Amazon’s marketplace, which gives you both more control over your brand and more responsibility for logistics.
There’s no “best way” to sell on Amazon—whether 1P or 3P is the best option for you depends on your products, your long-term goals, your company’s capabilities, and whether you partner with a 3P exclusive seller. Let’s talk about the pros and cons of each model so you can make the best decision for your brand.
What we’ll cover:
There are quite a few perks to selling your products directly to Amazon. For one, Amazon is a well-trusted brand, and consumers may be more likely to trust a product if the product page states it’s sold by Amazon, like in the screenshot below.
In a 1P relationship, your products are automatically eligible for Amazon Prime and two-day shipping, giving you instant credibility and appeal. (You can also make your products Prime eligible in a 3P relationship, but it takes more effort on your part, and it must be done through Seller Fulfilled Prime or FBA Onsite.)
In addition to the appeal to customers, 1P is a simpler option when it comes to logistics. When you sell your products wholesale to Amazon, Amazon handles taxes, ASIN optimization, taxes, and customer service. Without a solid partner or ecommerce team, these details can be overwhelming to handle on your own.
Amazon gives some exclusive benefits to its 1P vendors, including some placement priority, advanced analytics tools, and product display ads displayed on product detail pages. However, these small benefits may not actually make that big of a difference, and historically, exclusively 1P initiatives eventually start moving to 3P as well.
Using a 1P model may also be the most price efficient option for some brands. If your products have an average selling price of around $10, 1P prices are hard to beat. Selling a $10 product through FBA as a 3P seller could cost you 30-40% in fees. It’s also a plus to have bulk purchase orders from Amazon, especially since Amazon takes on all of your inventory risk after purchasing it.
Despite the perks and simplicity of a 1P relationship, this model makes it difficult for you to maintain control of your products, prices, and brand. In a 1P model, Amazon has the right to sell your product at any price they see fit, even if that’s below your established Minimum Advertising Price (MAP).
Your profit margins may also suffer if you sell directly to Amazon since you’re selling your products at wholesale instead of retail prices. You’ll also get paid less frequently, at either 30, 60, or 90 day intervals after invoices are submitted, compared to twice monthly in a 3P relationship.
Another downside to selling 1P is that you have little control over how much of your inventory is available on Amazon at any given time. Amazon may suddenly stop ordering your inventory or drop you as a 1P seller altogether. For new product releases and other high-risk situations, this is especially inconvenient, as Amazon waits to order your product until the listing has enough traffic, and even then only orders one or two cases of product at first.
3P sellers were responsible for 54% of paid Amazon units in Q3 2020. Selling on Amazon as a third-party seller is an increasingly popular option for brands, and it’s not hard to see why. Even though becoming a 3P seller may seem like more work upfront, it ultimately gives you more flexibility and control, stronger brand presence, and better data access.
The 3P model gives you more control in virtually every aspect of the selling process, including pricing, inventory, and product listings. You may still have to lower your price to win the Buy Box if you’re competing with other 3P sellers, but you decide if and how much to lower your product prices, not Amazon. This level of control and consistency is much better for your brand’s reputation, and it helps you avoid price erosion and other issues that arise when Amazon lowers 1P product prices below MAP.
This increased control also applies to your product’s inventory. As a seller, you choose how much inventory to list. You have the freedom to stock up for new product releases and promotions, which isn’t possible in a 1P relationship. Since you’re in control of your inventory, you can also share inventory across marketplaces when necessary.
A 3P relationship also allows you to better optimize your Amazon content to tell your brand’s story, as seen in the screenshots below, instead of leaving the task to Amazon. 3P sellers also have access to detailed data and insights that aren’t available to 1P vendors.
Of course, there are also downsides to a 3P relationship. Taking control of your inventory means taking responsibility for all the associated inventory risks, since Amazon will only pay you for the units sold. It also means you have to stay on top of stock inventory levels, since Amazon doesn’t do inventory forecasting for 3P vendors. This makes you directly responsible for creating purchase orders and handling inventory logistics.
3P sellers are also responsible for their own customer service—you may have your account suspended if you don’t respond to customers in 24 hours, including weekends and holidays—and for filing taxes. This can get complicated, since Amazon FBA centers ship inventory to Fulfillment Centers in several different states, and you’d be liable in the Tax Nexus to file taxes with each state you have inventory in.
Even though selling as a third-party will likely increase your margins, 3P sellers have to pay additional fees to Amazon—a $39.99 monthly fee for the professional plan and $0.99 per unit for the individual plan. You’re also subject to account suspension if you don’t meet Amazon’s shipping, labeling, and preparation guidelines.
You can only become a 1P seller through a direct invitation from Amazon. To become a 3P seller, the first step is setting up a Seller Central account. You’ll then provide relevant information and verifications before getting your account approved and finally listing and shipping your products. This eBook by Amazon provides more detailed information on signing up.
While deciding between a 1P or 3P relationship is a solid start,selling model strategy is a bit more complicated than that. In fact, there are 7 common selling models brands may consider. Two of these models are the basic 1P and 3P models we’ve already discussed. Other models include a 3P Unmanaged model, which means there’s no active management of your brand; a 2P model, which is the Fulfilled by Amazon (FBA) model; a hybrid model, which leverages both 1P and 3P strategies; a 3P network model, in which you create a network of authorized sellers; and a 3P partner model, in which you partner with one exclusive ecommerce seller.
If you want to enjoy the freedom and control of a 3P relationship without having to worry about complex logistics, you may benefit from a 3P partner model. Pattern uses a 3P exclusive seller model because it gives brands the freedom and control unavailable through a 1P relationship while also taking on the logistics and risks that make 3P selling intimidating.
When you choose Pattern as your authorized wholesale partner, we buy your inventory and resell it on Amazon as an authorized seller. Once we buy your product, we’re responsible for all inventory risk, and we help you optimize your content and advertising while maximizing your brand protection and brand global distribution. Our sophisticated inventory forecasting systems help us predict your inventory needs, and our experienced teams handle everything from taxes to customer service.
Unlike when you sell to Amazon in a 1P relationship, we’re eager to involve your brand every step of the way, including when it comes to branding and new product launches. We respect your brand by following all brand pricing guidelines and committing to never drop below MAP policies.
Interested in increasing your margins by transitioning to a 3P relationship and partnering with Pattern? Get in touch today.
Find relevant content to accelerate your ecommerce business. Stay on top of industry trends and best practices.
Join us for Ecommerce Innovators, a podcast that brings together the brightest minds in the industry to explore innovative strategies and trends in global ecommerce. We'll analyze what top brands are doing to accelerate their online success and you’ll hear from top executives who are changing the game for their organizations. Our host is John LeBaron, Chief Revenue Officer at Pattern—the premier partner for global ecommerce acceleration.
In this conversation withWylie Robinson, CEO and Co-Founder of Rumpl, he talks about growth and innovation. Hear about Rumpl’s evolution since its Kickstarter campaign, valuable advice on starting a new company, key digital strategies, diversifying the product, and Rumpl’s challenges and collaborations.
Introduce an emotional connection to your customer. Wylie shared one way Rumpl stays ahead of its competition is by using emotions. How many blankets do you have in your household? Some people say around 10-15 blankets. Can you name the brands of your blankets? Most people can only name a handful of brands, if any. For Rumpl, emotional connection is the company’s secret sauce. They create emotional connection through partnerships, great storytelling, and investing in the brand.
Innovation brings challenges. A few years ago, Rumpl rolled out a brand new product line made of recycled materials. Upon release, there were huge issues with old products, pricing, etc. For almost six months, Rumpl didn’t even move their new products to the market. When innovating, don’t be discouraged if challenges arise. You aren’t alone!
Pay attention to reviews. When Rumpl launched, they thought that the original puffy blanket would be purchased mainly outside. Through reviews, Wylie learned most people actually snuggle up with their blankets at home on the couch. This was a great learning for Rumpl, and helped them understand their customers. Reviews are a great tool to gather data and receive feedback about your products.
Listen to the full episode for free on Apple Podcasts, Spotify, or wherever you get your podcasts.
How do you rank on Amazon? Find out now.
For far too long, brands have lacked a data-driven methodology to gauge the health of their ecommerce presence relative to their competitors. As the top ecommerce accelerator, Pattern knew its proprietary technology and data could solve this for brands, so we leveraged our AI, rich Amazon seller information, and millions of cross-category data-driven insights to provide all brands with the information they need to succeed on Amazon and beyond.
The result—the Amazon Revenue Scorecard. The scorecard provides a powerful way for leaders to simply and transparently assess how their ecommerce strategies are performing relative to their competition and where they can optimize to maximize their brand’s ecommerce revenue potential.
The Amazon Revenue Scorecard was developed by Pattern’s data scientists to holistically measure the ecommerce performance of a brand’s top products across three key drivers—traffic, conversion, and price—and 18 dimensions that impact a brand’s ecommerce revenue growth. The result is a score from 1-10 that helps brands in an ever-increasing array of industries measure their performance relative to their competitors. Strategically, an Amazon Revenue Scorecard is a rating index that provides real-time data to highlight missed revenue growth opportunities.
An Amazon Revenue Scorecard analyzes your top 25 ASINs to identify strengths, weaknesses, and gaps in revenue growth potential on ecommerce marketplaces. With a rank score of 1-10 in each revenue performance metric, it helps you understand the full picture—identify problem areas quickly and lean in on strengths. The higher the score, the more revenue you’ll generate on an ecommerce marketplace.
The key levers in the score are traffic, conversion, and price, which are the key variables in the ecommerce equation for all brands. As the top ecommerce accelerator, Pattern knows that the ecommerce equation (traffic x conversion x availability x price = revenue) is essential for brands to succeed on ecommerce. Therefore, it is imperative that brands continue to monitor the health of each input in order to have long term success.
Here we breakdown the three key drivers of a brand’s scorecard:
Traffic is the first strategic lever to drive revenue on marketplaces. Without generating more ecommerce traffic to your listings, you don’t have a hope of increasing marketplace revenue. A traffic score breaks down and rates your ecommerce traffic in the following key areas:
Paid Traffic — the effectiveness of a brand’s advertising efforts, including keyword strategy, ad programs, and ad tactics
Organic Traffic — how well a brand is capturing organic traffic within its category
Marketplace Coverage — how many global marketplaces (Amazon, eBay, Walmart, etc.) a brand’s products are being sold in
Conversion is the second strategic lever to drive revenue on marketplaces. Once potential buyers interact with your product, they have to be compelled to convert on the listing. The conversion score breaks down and rates your marketplace conversion into five key areas:
Listing Titles, Bullets, and Description — the degree to which a brand is utilizing best practices for titles, bullet points, and descriptions
Listing Images and Videos — how well a brand is using high-quality and optimized multimedia to convey product features and benefits
Content — how well a brand is conveying its voice and branding across the marketplace
Ratings & Reviews — how well a brand’s products are being accepted by marketplace shoppers according to ratings and reviews
Competitiveness — the degree to which a brand effectively utilizes promotional elements on its product pages
Pricing is the third strategic lever to drive revenue on marketplaces. Without consistent pricing across marketplaces and sellers, your profits will steadily erode and you’ll have a hard time winning the Buy Box on Amazon and other marketplaces. The price score breaks down and rates your ecommerce price into four key areas:
Channel Conflict — the likelihood that an online marketplace will undercut a brand’s brick and mortar retail partners on other platforms and channels
Number of Sellers— the number of unique entities selling a brand’s products on a given marketplace
Product Compliance — a measure of the stability of the price of a brand’s products on a given marketplace
Cross-Channel Consistency — an assessment of the price consistency of a brand’s products across ecommerce marketplaces and D2C websites
Don’t leave your share of the global ecommerce market to chance—analyze ASIN and competitor performance now.
The Amazon Revenue Scorecard has been an integral and exclusive part of Pattern’s offering to its partners and is now available for all brands to assess their success on ecommerce marketplaces like Amazon. The standard is a measurement of the key drivers that impact revenue growth and it matters to brands since you need to see where your missed opportunities are and where your competition is outranking you.
Pattern can break down your brand’s revenue score on Amazon so you can command the maximum share of the exploding $6 trillion ecommerce market.
Executives interested in receiving your brand’s Scorecard can do so here.
Surprised by your score? Contact Pattern today and we will dive into the data.
If you’re looking to improve your performance on Amazon, honing in on your ad strategy is one of the best ways to start getting your products in front of more eyes and increasing sales. Because they’re disguised as traditional products within search, Sponsored Product ads should be the cornerstone of your Amazon ad strategy. They’re able to capture consumers’ eyes in more organic ways to drive traffic, and, ultimately, revenue growth, for your brand on Amazon.
Traffic is a key component of Pattern’s ecommerce equation: revenue: traffic x conversion x price x availability. When you can optimize your strategy to get more of the right traffic to your listings, you’ll be able to spend on initiatives like ad strategies in a smarter way to drive better product performance on Amazon.
Here’s why Sponsored Ads, in particular, are a great move for any brand selling on Amazon:
Many brands hesitate to invest in Amazon ads like Sponsored Products, preferring to increase product rank organically instead of worrying about paying a long-term cost. We know, from our vast experience accelerating brands on the platform, that Amazon wants to promote and boost high performers. So, to get more traffic, drive revenue, and spend your ad dollars in a smart way, you’ll need to “show” Amazon’s algorithm that your product is worth promoting in the first place.
Pattern’s ad strategy takes a particularly deliberate approach to tracking and feeding this virtuous cycle. Your listings’ success in conquesting each keyword leads to more growth, lower costs, and better listing rank over time—as your Sponsored Products get higher traffic and perform better over time, you’ll start rising in rank over your competitors and be able to reduce your overall spend on ad placements. As your brand continues to win conquests over your competitors, you’ll get even more traffic, and the cycle continues.
When executed correctly, Sponsored Ads on Amazon are one of the smartest and most cost-effective ways to drive traffic to your product listings. For a snapshot of the value, here’s how Amazon ads compare to Google:
Amazon ads return an average of 10% conversion, as opposed to Google ads, which convert at 3.75%
54% of product searches happen on Amazon now, rather than Google.
The cost-per-click (CPC) is significantly lower for Amazon ads—$0.96, as opposed to $2.69 for Google’s display ads.
What this tells us is that spending money advertising on Amazon, rather than on Google or other channels, has a twofold benefit: products are more likely to get in front of consumers who are in the mindset to buy, and you’re able to save on your overall ad costs by getting more bang for your buck with every click.
Sponsored products are taking up more and more real estate on Amazon’s search results. You can see as many as four sponsored listings before the top organic results for any given search, giving brands without an ad strategy a significant disadvantage in winning consumer attention.
Our teams have learned that 80% of sales go to listings with the highest placement on search, and it’s a key aspect of our Sponsored Products strategy for brands. Advertising the right amount on top of search placements is a balancing act to make sure you're leaning in the right amount to maximize results. If your organic listings aren’t already primed and fully optimized for top keywords your consumers are searching with, Sponsored Product ads should be at the top of your list for strategies to win their eyes and traffic to your listings.
Because they show up at both the top of search and rest of search, they can get the attention of your best audience—consumers searching for products like yours with the intent to purchase now.
Sponsored Product ads can also appear on the listings of products related to yours—in other words, your competition. As a consumer scrolls through a listing and isn’t finding what they’re looking for, you can be poised in a perfect position to capture their interest and bring them to your listing instead.
This traffic is particularly valuable—besides being ready to buy and actively looking for a product like yours, these consumers have the potential to switch brand loyalty from your competitor to you.
Building an effective Amazon ad strategy can be a daunting task for many brands, but it doesn’t have to be. By partnering with an ecommerce accelerator like Pattern, you can get the full benefit of true Amazon expertise without having to learn and do it alone. We have all the global resources brands need to succeed, including expert teams and proprietary technology. We help you drive the right traffic to your listings, at the right time, to improve your revenue and performance on Amazon.
Find out how Pattern can help you grow your traffic and revenue on Amazon. Schedule a call here.