Most brands struggle to identify the true costs of having a first party (or 1P) seller relationship with Amazon. In brief, a 1P relationship means your brand sells your product to Amazon, who then turns around and sells your inventory on their platform. The costs of a 1P relationship can be difficult to identify, with a limited view for 1P sellers into their data on Amazon.
Learn from Doug Jensen, VP of Sales, at global ecommerce accelerator Pattern, as he explains the true costs of selling 1P on Amazon). Here’s a cheat sheet of what should be considered to calculate the true costs of being an Amazon 1P seller. The true costs of being an Amazon 1P seller, as discussed below, are based on both Amazon P&L and off Amazon P&L costs.
There are three main costs included in Amazon P&L:
First is the wholesale rate (or PPM), or the cost a brand sells an item to Amazon. In a 1P seller relationship, Amazon will buy your inventory at wholesale rate. For example, if the retail price of the unit is $100, then Amazon could pay you $80 for that unit, which would be the wholesale rate.
Second, is the net PPM, or all the operational items that it takes to operate on Amazon’s platform. So, if Amazon paid you a PPM of $80 for your product unit, then they will take these operational item costs out of that $80. Here are the included operations:
If the product unit has a PPM of $80, the total of the operational items for the product unit would be $17.40, which would make the Net PPM $62.60.
Thirdly, operating margin, or the Net PPM plus “other” operations costs. Some examples are:
The total of these operations costs would be $15.20, making the total after the operating margin to be $47.40.
There are two main types of off Amazon costs: off Amazon P&L costs, and miscellaneous costs.
The off Amazon P&L costs include the following:
The miscellaneous costs associated with being in a 1P seller relationship with Amazon include:
The off Amazon P&L costs along with the miscellaneous costs, also lower the overall wholesale rate you get for the product you sold to Amazon.
Although the actual total costs and net profit for both Amazon 1P and 3P is about the same in the end, the 3P partner relationship is much less complicated and has fewer additional costs than 1P, such as the time and energy it takes for Yearly Amazon Vendor Negotiations (AVN) and Always on Negotiations (AoN). Pattern is the largest 3P seller on Amazon. With a 3P seller partner, like Pattern, there’s a lot less to manage and worry about, so you can easily calculate your brand’s true costs and set your company up for long-term ecommerce success.
There could be alternative models and selling strategies on Amazon to make your brand more profitable and keep your price. What each brand needs to do is first calculate your true costs as an Amazon 1P seller and discover what it costs you. We hear from most brands that partnering directly with Amazon has brands feeling overwhelmed. Without the right internal resources, the ecommerce team quickly feels incapable of tackling everything they are asked to and have to do.
As the world’s premier ecommerce accelerator, Pattern has all the resources to empower your brand with data and help you drive marketplace revenue through our ecommerce equation. We help brands avoid paying multiple agencies to deal with each area of your business such as advertising, data resources, content management, and more. Protect your brand and understand your 1P actual relationship costs with Pattern. Contact us.