These days, more than 50% of Amazon’s sales come from third-party sellers. If you’re one of those brands who stopped receiving purchase orders from Amazon recently or are simply hoping to become an Amazon Third-party (3P) seller, this post is for you.
The good news? If you’ve got some determination, good products and work ethic, you can build a scalable business as an Amazon seller.
Before you get started, it’s important to understand a few things about Amazon and Amazon sellers. Amazon directly sells products from a variety of brands like Nike, and also has its own private label goods. Less than half of all sales are by Amazon, and the remaining transactions are all done by third-party sellers.
Amazon’s goal is to offer the best possible prices and the widest range of products online. That’s why existing retailers and entrepreneurs can list their own products for sale. 3P sellers can do extremely well by offering competitive pricing and top-notch products.
Here’s how to become an Amazon 3P seller:
Set up an Amazon 3P seller account
Before you can start selling on Amazon, you need to set up an account. To do this, you’ll have to prep a few things:
- Individual Seller or Pro Account
- Make sure you understand Amazon’s selling policies & seller code of conduct
- Gather your business details
If you’ll be selling fewer than 40 items a month, you can choose to be an Amazon Individual Seller. This means you’ll pay 99 cents per sale plus transaction fees.
For businesses planning to sell more than 40 items, you’ll need to sign up for an Amazon Pro Seller Account. This means that you’ll pay a subscription fee of $39.00 and transaction fees.
And if you’re manufacturing your own products, you can choose to have an Amazon Vendor account and become an Amazon wholesaler if you meet certain requirements. It is invite only for those brands that are considered nationally distributed brands currently. There are pros and cons with Vendor Central for manufacturers and brands. Recently Amazon quit sending purchase orders to thousands of those selling through the Vendor Central platform causing many to question the long term viability of choosing this route.
When you set up your Seller Central account, you’ll also need to choose where you’ll ship from and to, and include your bank and contact information, along with your legal name and address.
Set up a seller profile
Once you have an active account, you can complete your seller profile. This is where customers can see information about your company, review feedback from past customers, and see your return and shipping policies.
This is also where you can tell customers all about your business, share your mission or company philosophy, and create an emotional connection with your potential customer.
List your products
Now you can list the products that you’d like to sell in the marketplace. If your product is already for sale on Amazon, you can use the descriptions and stock images on the site. You just have to describe the products and list how many you have available.
If you are moving from Vendor Central to Seller Central all of the product (ASINs) you were already selling will make this process simpler. All of the content and images you created for your products in Vendor Central should stay.
If you are a manufacturer or brand you want to make sure you take advantage of Amazon’s Brand Registry.
If you have a new product, you’ll have less competition but you’ll need to provide a UPC/EAN Number, SKU, product title, description, bullet points, and images.
Choose your fulfillment method
You have two options when it comes to shipment and fulfillment. The first is Fulfillment by Merchant (FBM). That means that it’s your responsibility to maintain inventory, label, package, and ship your products to each customer.
The second option is Fulfillment by Amazon (FBA) this means that your inventory is stored in Amazon’s fulfillment centers, and you don’t need to worry about packaging and shipping. However, if you do choose FBA, you’ll need to meet the prep requirements. These include correct labeling, removing any other scannable barcodes, and packaging each unit within one secure package.
Poly bags must have warnings to prevent suffocation, and expiration dates must be clearly marked in the correct format. There are also a number of other prep requirements that you must follow in order for your products to be accepted.
Additional considerations for running your own 3P account
Tax Nexus Creation:
Before deciding to go the FBA delivery option as a seller it could create tax consequences because you still own the inventory until it is sold. The Supreme Court ruled in June 2018 that marketplace sellers, holding product in marketplace distribution centers (Amazon Fulfillment Centers) create a Tax Nexus for each state the distribution centers were located.
You are completely responsible for maintaining stock inventory levels that are consistent with demand. Both FBM and FBA will require you to retain enough inventory in your warehouse or in the FBA warehouses and regularly restock inventory to ensure that you are in stock on all products.
Out of Stocks:
If Amazon runs out of inventory of your product, it will be marked “Out of Stock” and the BuyBox will defer to another seller who will win the BuyBox in the place of your seller account. If all sellers are out of stock – the product detail page will no longer be searchable other than through an amazon.com/dp/ASIN url direct search for the product.
Out of Stock issues will affect your ability to leverage Amazon to grow sales more than any other thing. I refer to this as the “Amazon Death Spiral” - where because you are out of stock, your advertising is shut off, your sales rank drops, and you quickly lose any organic keyword ranking.
This will also open you up to unauthorized sellers jumping in to sell your product and fulfill the demand that is there, but you are not capturing because of inventory issues.
3P Customer Service:
As a seller of a product, you will be responsible to respond to customer inquiries and process returns. Amazon Seller Central mandates that customers receive a response no later than 24 hours after they submit a question including weekends and holidays. If you fail to respond within the proper time, you may have your account suspended.
3P Payment Terms:
Amazon will pay you twice a month and notify you after each payment. There are several costs and deductions that are taken out of your Amazon payments similar to accruals. These costs include:
- FBA Shipping Costs - Aggregated costs of all shipping FBA costs
- Seller Commission Fees - % of total retail value of the product based on category
- Long Term Storage Fees - Additional fees for products held in Amazon’s fulfillment centers over 6 months.
- Promo Rebates - for any discounts or concessions provided to customers
- Advertising Costs
- Premium Account Monthly Cost
3P authorized wholesale partner - the Pattern model
Another option available to brands and manufacturers is selecting to use a 3P authorized seller. This is where Pattern traditionally partners with brands. Pattern buys inventory from a brand and resells the inventory on the Amazon marketplace, (and others like eBay, Jet, Alibaba etc) as an authorized seller.
Pattern takes inventory risk and assists by reinvesting margins in to brand growth via content & advertising, brand protection, and brand global distribution.
The seller (Pattern) under this model will list on their own seller central account & select the fulfillment method based on margin economics and how to best represent the brand and enable sales on the Amazon platform.
Pattern always buys inventory directly from a brand and provides a prime eligible offer whether it be through FBA, Seller Fulfilled Prime, or FBA On-Site.
By using the above steps, you’ll be able to set yourself up as an Amazon 3P seller. Of course, there are a number of other things to consider along the way, and we can help with any questions or concerns. Get in touch to learn more.