Amazon 1P vs. 3P: Pros & Cons Sellers Need to Know

Pattern Data Science

January 20, 2021

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:

  • Pros and cons of 1P vs. 3P
  • How do I become a 1P or 3P seller?
  • Selling model strategy and 3P partners

Pros and cons of 1P vs. 3P

Pros of 1P

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.)

Selling Amazon 1P vs. 3P: What are the pros and cons? | Pattern Blog

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.

Cons of 1P

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.

Pros of 3P

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.

Amazon 3P Features not available for 1P sellers | Pattern Blog

Amazon 1P vs. 3P: content advantages 3P has over 1P | Pattern Blog

Cons of 3P

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.

How do I become a 1P or 3P seller?

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.

Selling model strategy and 3P partners

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.

Ecommerce selling models: 1P, 2P, 3P, Hybrid, 3P Partner, 3P Network, 3P Unmanaged | Pattern Blog

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.

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Sept 20, 2022

Global Ecommerce Weekly News: 20th September 2022

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Sept 13, 2022

Global Ecommerce Weekly News: 13th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon scales back on US warehouse facilities Amazon is shutting down two facilities with 300 employees, discarding plans for 42 facilities, and delaying plans to open a further 21 buildings across the US. The ecommerce giant is scaling back on hiring as well as the expansion of its vast delivery network, as it was left with an excess of space following its rapid expansion during the pandemic. [Read more on Business Insider](https://www.businessinsider.com/amazon-closes-2-facilities-scraps-plans-42-new-buildings-report-2022-9?r=US&IR=T) --- Other Marketplace News --- JD.com is ‘betting’ on ecommerce grocery market Amidst a slowing economy and a decline in ecommerce, Chinese ecommerce giant JD.com has increased its urgency to seek new growth engines. The company is looking to boost its online grocery business through offline partnerships and expansion into lower-tier cities, where it may be able to unleash more consumption power. [Read more on The Star](https://www.thestar.com.my/tech/tech-news/2022/09/08/chinese-ecommerce-giant-jdcom-bets-big-on-online-grocery-lower-tier-markets-amid-slowing-economy) Shopee shuts operations in Argentina, Chile, Colombia, and Mexico Sea’s ecommerce arm, Shopee, has shut local operations in some LATAM countries but will continue to maintain cross-border operations in a few markets. Latin America is Sea’s most important region following South-east Asia, accounting for close to 19% of its revenue in 2021. The move away from these countries is largely due to increased levels of macro uncertainty and rising interest and inflation rates, and rather putting a focus on its core operations. [Read more on Straits Times](https://www.straitstimes.com/business/companies-markets/seas-shopee-shuts-operations-in-argentina-chile-colombia-mexico-sources) --- Other Ecommerce News --- Instagram scales back in-stream shopping elements Instagram is re-examining its approach as it hasn’t been able to make ‘fetch’ happen. ‘Fetch’ in this context being the online shopping trends which have become all-consuming in China, and what Western social platforms have been hoping to add into their apps to make them more addictive and revenue-generating. Consumers have not been swayed by the latest shopping tools on TikTok and Instagram, leading to Instagram scaling back its in-stream shopping program. [Read more on SocialMediaToday](https://www.socialmediatoday.com/news/instagram-scales-back-in-stream-shopping-elements-as-it-re-examines-its-app/631276/) FedEx Express supporting the growth of cross border ecommerce FedEx express has expanded its international commerce shipping service to four more markets across the Asia Pacific, Middle East and Africa (AMEA) region in an effort to support the strong development of ecommerce in this region. Three of the fastest growing markets, the Philippines, Indonesia and Vietnam are leading Southeast Asia’s ecommerce sales, which is set to reach $100 billion by 2023. [Read more on Post & Parcel](https://postandparcel.info/149889/news/e-commerce/fedex-express-supports-the-growth-of-cross-border-e-commerce-within-the-amea-region/) India ramps up hiring as companies prepare for shoppers Ecommerce companies are getting ready for the festive season by rapidly expanding their temporary workforce. As ecommerce in India grows, the country is predicted to have 372 million online shoppers by the end of 2022. The festive season this year, running from October to December, is expected to see a two-fold increase in logistics and delivery alone. During this period, companies are predicted to add 20% more to their existing workforce base, with a 8-10% higher pay scale compared to last year. [Read more on Business Insider India](https://www.businessinsider.in/business/ecommerce/news/the-great-indian-festival-of-hiring-e-commerce-companies-gear-up-for-indias-shoppers/articleshow/94000346.cms)
Sept 6, 2022

Global Ecommerce Weekly News: 6th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon announces new inventory and distribution service, AWD Amazon has launched Amazon Warehousing and Distribution (AWD), providing inventory and distribution services to its sellers as a means of addressing current supply chain issues. AWD is now available for sellers using Fulfilment by Amazon (FBA), i.e. outsourcing their fulfilment to the platform. Amazon has plans to expand the service outside the platform in 2023. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/02/amazon-introduces-new-service-to-help-solve-supply-chain-challenges/) Amazon Web Services (AWS) launches in the UAE AWS, Amazon’s cloud-computing platform offering, has launched its second region in the Middle East and now provides its services in the UAE. The move will now allow anyone in the UAE who utilises cloud technologies to harness AWS’s advanced platforms and APIs. An estimated $11 billion USD is expected to be added to the UAE’s GDP thanks to the implementation, with an average of 6,000 external vendor jobs to be created annually. AWS is now available in 87 zones across 27 regions, with sights set on expanding further across Australia, Canada, India, Israel, New Zealand, Spain, and Switzerland. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/30/amazon-web-services-launches-region-in-uae/) --- Other Marketplace News --- Lazada to launch in Europe Alibaba-owned ecommerce platform Lazada is set to launch in Europe, marking a refreshed internationalisation push from the company. The move follows toughening economic conditions and performance in Southeast Asia, advancing the need to tap overseas markets. In Europe, Lazada will face tough competition from giants like Amazon and Zalando. Lazada’s exact entry strategy is to be confirmed and will be reliant on macroeconomic and market conditions, according to Lazada CEO James Dong. [Read more on DigitalCommerce360](https://www.digitalcommerce360.com/2022/09/01/alibabas-lazada-to-take-on-amazon-zalando-in-europe-push/) Chinese ecommerce giant Pinduoduo to launch cross-border platform in the United States Pinduoduo, a Chinese ecommerce giant rivalling Alibaba and JD, has announced it will be launching a new cross-border ecommerce platform. The marketplace is set to launch in the United States next month, as part of the company’s larger push into new markets. Pinduoduo found success in China thanks to its rock-bottom price offerings and harnessing of social commerce marketing, emulating strategies similar to fast-fashion giant Shein. [Read more on Yahoo Finance](https://uk.finance.yahoo.com/news/pinduoduo-launch-international-e-commerce-034129263.html) Alibaba launches its biggest B2B sales event, ‘Super September’ China ecommerce giant, Alibaba, has now launched its month-long B2B sales event ‘Super September’. The event provides 40 million buyers and 200,000 suppliers with the ability to connect on the platform, showcasing a ‘virtually unlimited’ number of products. The event hopes to foster new cross-border business relationships to tackle supply chain challenges currently faced by businesses. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/01/alibaba-launches-super-september-b2b-sales-event/) --- Other Ecommerce News --- Klarna’s losses quadruple in first half of 2022 BNPL provider, Klarna, has reported losses of $581 million USD for the first half of 2022. This figure is almost four times larger than a year earlier, where $129 million USD in losses were reported. The company attributes the losses to employee costs, technology investments, and rising credit losses. Klarna’s figure reporting comes amidst worsening economic conditions, fresh legal and regulatory scrutiny, and pressure from Big Tech competitors. [Read more on The Financial Times](https://www.ft.com/content/483451db-9221-4ca4-83a6-b4ddc6bfcfbb) [Read more on the Guardian](https://www.theguardian.com/business/2022/aug/31/klarna-losses-more-than-triple-as-consumer-spending-slows) One fifth of Snap employees to be laid off amidst poor financial performance Social media platform Snap (‘Snapchat’) has announced it will be laying off 20% of its employees and closing out a number of projects following a year of poor financial results.The move will see 1,200 employees globally lose their jobs, saving the company an estimated $500 million USD in costs. Snap is currently valued at $20 billion, an 84% decrease from its valuation of $130 billion last year. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/01/snap-to-lay-off-20-of-its-workforce-and-wind-down-a-number-of-projects/)