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.
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If you’re in the global ecommerce space, you are most likely aware of Amazon, and probably selling your products on the marketplace. With over $470 billion in sales in 2021 alone, Amazon stands as the third largest company in the world based on revenue. The ecommerce giant is a household name in the U.S. and working hard to grow its market share across five continents worldwide.
Having your products available on Amazon and being competitive there, though, are definitely two different things. If you want to really succeed on Amazon, you’ll need specialized insight into how Amazon works and how to make it work for you. So, for many brands, it’s a great idea to work with an Amazon Search Engine Optimization (SEO) agency.
At Pattern, Amazon SEO optimization service is one of our key competencies. We understand that technology, data-driven insights and expertise are the most important tools brands can leverage to win top listing spots on digital marketplaces. With expert teams and years of experience, we help brands conquer the Profitability Death Spiral as they compete with other products and sellers online. We offer Amazon SEO agency services as a core solution to brands that need more resources to get ahead.
An Amazon SEO agency serves brands by improving their products’ rank and listing performance on Amazon. They make strategic decisions about ad spending and placement that lead to higher traffic, conversions, and revenue for ecommerce brands.
A great Amazon SEO Agency partner will:
Unfortunately, many Amazon SEO agencies profit in unfair ways from your brands’ perceived success based on the ROAS numbers they provide. This is done through including branded search terms in ROAS reports, which naturally skew listing performance.
Let’s say, for instance, your brand is called “Annie’s” and you sell lollipops. Your brand has a very high likelihood of winning the top listing spots on Amazon for lollipop search terms that are paired with “Annie’s,” your brand name. So, SEO agencies will spend your ad money on those terms and report a very high ROAS.
To avoid scenarios like these, it’s best to look for an agency that either calculates their profits on metrics other than your ROAS scores or weighs branded search terms differently in the performance metrics reports. Regardless of your Amazon SEO agency’s cost structure, you should align onbranded search terms before committing to a scope of work.
A great indicator of a high-quality Amazon SEO agency is the level of insight they can provide into your competitors’ listing positioning and how it compares to yours. Data fanaticism is so important at Pattern that we’ve developed proprietary technology to display this exact information with precise detail for every brand we work with. In fact, you can find our free version here to see how you compare to some of your top competitors based on ASIN.
It’s certainly possible to improve your Amazon search performance with blind spending strategies. But a truly great solution will help you to know where your dollars are at their most powerful and competitive.
Amazon’s A10 algorithm prioritizes customer satisfaction—it wants to show consumers the best products that align with their search intent to improve conversions and sales. So, the best way to gain momentum on Amazon is to work on incremental wins.
Improving your performance on more obscure search terms that align with your customers’ search intent is a great way to increase ROAS for the long term. A10 will reward your success with better rankings on higher-volume search terms and the virtuous cycle can help you conquer your most-coveted listing spots. And the best part? This process of gaining momentum, if done right, will naturally decrease your ad spend over time as Amazon recognizes your value and works with you to keep your products at the top of consumers’ search results.
As an Amazon SEO specialist, Pattern knows how to help your brand win better success for long-term profitability on Amazon. With our data-driven tools and brilliant teams of ecommerce experts, we help brands with listing management, content optimization, Amazon ad strategies, and more.
Contact us to learn more about our SEO optimization services.