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 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/)
Aug 30, 2022

Global Ecommerce Weekly News: 30th August 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon set to shut down Amazon Care Amazon is closing its telehealth service, Amazon Care, which launched in 2019 as a trial program for its headquartered employees. Later the service was rolled out nationwide for employees and other companies. The ecommerce giant has now made the decision to move away from the healthcare space, believing it was not the right long-term solution for its enterprise customers. [Read more on CNBC](https://www.cnbc.com/2022/08/24/amazon-is-shutting-down-amazon-care-telehealth-service.html) Peloton closes new deal to sell on Amazon Following a recent deal, Amazon customers will soon be able to buy Peloton fitness equipment on the marketplace, marking Peleton’s first move outside a direct-to-consumer model. According to Peloton’s CCO, there are already around half a million searches on Amazon for Peloton products every month, despite having no presence on the marketplace. Some key products include the original Peloton Bike, retailing for $1,445 and Peloton Guide for $295. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/24/peloton-strikes-deal-to-sell-fitness-equipment-on-amazon/) --- Other Marketplace News --- 60% of Malaysians are buying from local sellers on Shopee A recent survey of nearly 3,500 respondents found that nearly half of the shoppers prefer to purchase from local sellers due to shorter delivery times. Other shoppers decide to shop locally due to the quality of the products made in Malaysia and an interest in keeping the economy running. As a result, smaller local merchants have been able to grow their businesses, and shoppers benefit from shorter delivery times, products of high quality and supporting local businesses. [Read more on The Malaysian Reserve](https://themalaysianreserve.com/2022/08/25/around-60-malaysians-are-buying-from-local-sellers-on-shopee/) Flipkart’s social commerce platform Shopsy crosses 100 million users Flipkart launched a social commerce arm, Shopsy, in July of last year, which has now surpassed 100 million users, ahead of its target timeline being the end of 2022. This acquisition of new users has made Shopsy one of the largest platforms of its kind in the country, and is expected to onboard a further 100 million by the end of 2023. The platform is centred around boosting local entrepreneurship and powering ecommerce for consumers across tier 2+ regions where users face challenges around trust and navigation when shopping online. [Read more on Business Standard](https://www.business-standard.com/article/companies/flipkart-s-social-commerce-platform-shopsy-hits-100-million-users-1220828006851.html) Meta joins Amazon and Walmart in bid for Indian ecommerce market Amazon mentioned earlier in the year that it would be building a logistics division in-house through its purchase of a 51% stake in Ecom Express, an end-to-end logistics firm, to make ecommerce deliveries more efficient in the country. Walmart operates Flipkart in India and is set to continue its investment in the marketplace. In an effort to compete in the Indian ecommerce market, Meta has partnered with Indian ecommerce company, JioMart, to offer customers a grocery shopping platform within its WhatsApp chat feature. [Read more on Pymnts](https://www.pymnts.com/news/retail/2022/meta-joins-amazon-walmart-indian-ecommerce-market/) --- Other Ecommerce News --- Ecommerce in Spain worth €57.7 billion in 2021 Spanish ecommerce saw 11.7% growth compared to last year, largely attributed to cross-border sales. In the final quarter of 2021, ecommerce sales in Spain were at €16.9 billion euros, at least 60% of which came from cross-border sales. Transactions from foreign locations to Spain generated a turnover of €1.56 billion in Q4, a growth of 27.7% compared to Q4 a year before. [Read more on Ecommerce News](https://ecommercenews.eu/ecommerce-in-spain-was-worth-e57-7-billion-in-2021/)
Aug 23, 2022

Global Ecommerce Weekly News: 23rd August 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon to add mental health support to primary-care service Amazon is set to move into mental health therapy with its primary-care division, following its recent acquisition deal of One Medical. The plan is to partner with virtual behavioural therapy service, Ginger, to offer its Amazon Care users with on-demand access to mental health services, licensed therapists and psychiatrists. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/11/amazon-plans-to-add-mental-health-support-to-primary-care-service/) GMB union calls for £15 an hour minimum pay at UK Amazon warehouses Amazon recently offered its warehouse workers a 3% pay rise, which in comparison to the June inflation rate of 9.4% left employees disappointed. Following this, hundreds of Amazon warehouse workers stopped work last week, protesting against the minimal pay increase, seeking a minimum of £15 an hour. Recent protests consisting of employee walkouts and sit-ins aim to get a better offer out of Amazon. [Read more on The Guardian](https://www.theguardian.com/technology/2022/aug/09/gmb-calls-for-15-an-hour-minimum-pay-at-amazon-warehouses-in-uk) Amazon third-party sellers have received their first-ever holiday fee hike Amazon’s third-party marketplaces account for close to half of the company’s online sales. The company introduced a 5% fuel and inflation charge to its third-party sellers earlier this year, and has now implemented another inflation increase charge. Commencing 14 October, any seller who uses Amazon’s fulfilment service is subject to the price hike, which is set to be an additional 35 cents per item for products sold in the US and Canada. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/17/amazon-third-party-sellers-have-received-their-first-ever-holiday-fee-hike/) Amazon puts a pause on UK grocery shop roll-out as the cost of living increases Amazon has slowed down on its UK roll-out of till-free Amazon Fresh grocery stores following disappointing sales and the rise in cost of living. Allegedly, the company is no longer looking for potential sites to expand and if more stores are opened, they will likely no longer use a till-free system, as consumers become more cautious about spending. [Read more on The Telegraph](https://www.telegraph.co.uk/business/2022/08/21/amazon-pauses-uk-grocery-shop-roll-out-following-disappointing/) --- Other Marketplace News --- Shopee overtakes Alibaba across international markets Shopee has surpassed Alibaba and taken the top spot for sales outside of China. Singapore-based marketplace saw a year-on-year increase of 51.4% at the end of Q2 of this year, while Alibaba saw a 3% drop during the same time period. This can be seen as a promising development for start-ups and their ability to compete with some of the largest ecommerce giants in the market. [Read more on Exchange Wire](https://www.exchangewire.com/blog/2022/08/18/shopee-surpasses-alibaba-in-international-sales-amazon-searches-for-entertainment-exec/) H&M reopens its official store to Alibaba’s Tmall ecommerce platform It has been nearly 18 months since Alibaba removed H&M from its Tmall platform, following H&M’s criticism of human rights abuses in Xinjiang. It is estimated that over a million people, predominantly minorities in the area, have been unlawfully detained in camps across the city. Brands including Nike, Adidas, Burberry and Converse were swept up in the controversy, however H&M was one of the first to be targeted for speaking out about the issue. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/16/hm-returns-to-alibabas-tmall-platform-16-months-after-xinjiang-controversy/) Klarna launches new feature allowing UK consumers to view full online order history Buy-now-pay-later company, Klarna, has launched a new feature on its shopping app, which allows UK consumers to view their full online order history, regardless of whether they purchased the product using Klarna. The feature also shows delivery tracking and aids consumers in managing their online purchases more conveniently. [Read more on The Industry](https://www.theindustry.fashion/klarna-launches-new-feature-allowing-uk-consumers-to-view-full-online-order-history/) --- Other Ecommerce News --- Online marketplaces responsible for £280 billion business turnover in the UK Nearly 900,000 UK businesses are currently selling on online marketplaces, generating an estimated £282 billion worth of sales each year. This figure represents 6% of the UK’s annual business turnover, highlighting the notable contribution that marketplaces make to the UK economy, along with the potential for further growth in this area. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/09/online-marketplaces-responsible-for-280-billion-business-turnover-in-uk/)