Deciding between Amazon 1p vs 3p (First-party vs. Third-party) models can be challenging for sellers who are aiming to grow on Amazon. Both models bring their own set of benefits, shaping how you interact with Amazon and reach customers.
While Amazon 1P suits businesses with certain scaling needs, 3P offers more control and flexibility.
The question is, which one should you choose? Don’t worry, that’s why we have come up with this article.
Through this guide, we will break down what is Amazon 1p vs 3p to help you decide which model best fits your business goals.
Let’s dive into the details then, shall we?
| Jump directly to the section that highlights key Amazon 1P vs 3P differences, providing clarity on each model. |
Table of Contents
What is Amazon 1P (First-Party Seller)?
Amazon 1P, also known as Amazon First-Party or Amazon Retail, is when Amazon itself sells products directly to customers.
In this model, Amazon purchases products from manufacturers or distributors through Vendor Central and then sells them directly to consumers on the Amazon platform.
Here’s how the Amazon First-Party relationship works:
- Amazon Issues Purchase Orders (POs): Amazon sends POs to manufacturers who ship the products to Amazon.
- Ownership and Control: Once Amazon receives the products, they take ownership. Amazon then controls pricing, shipping, and customer service. Product listings display “Ships from and sold by Amazon.com.”
How to Become a 1P Seller?
Amazon’s 1P selling model, or Vendor Central, is currently invitation-only. And you cannot apply for it.
However, brands can improve their chances of receiving an invitation by signaling interest to Amazon through:
- A Strong Sales Record: Consistent sales on Amazon 3P can help strengthen your brand position and status in front of Amazon’s Vendor Managers. This can help to show that your brand is a reliable candidate for a Vendor Central relationship
- Engaging with Vendor Managers: Reach out to Amazon’s Vendor Managers to express interest in 1P.
- Attending Trade Shows: Participate in industry trade shows where Amazon scouts for potential 1P sellers.
- Maintaining High Performance Metrics: Positive reviews, low return rates, and solid customer service can attract Amazon’s attention for a potential first-party relationship.
- Using Amazon’s Feedback Mechanisms: Occasionally, Amazon may send surveys or feedback forms to sellers; responding can help you show your interest in Amazon First-party relationship.
Pros and Cons of Amazon 1P
When comparing Amazon 1p vs 3p model has clear benefits, though it also has some cons. Let’s look at both:
Pros
- Increased Brand Trust: Amazon 1P boosts brand trust. Many customers feel more confident buying products sold directly by Amazon as they see Amazon’s name under the “Sold by Amazon.com” label on product listings.
- Amazon-Managed Logistics: Amazon handles fulfillment, customer service, inventory, and taxes, simplifying operations.
- Prime Eligibility: 1P products qualify for Prime, making them attractive to Prime members.
- Better Search Placement: Amazon often prioritizes 1P products in search, driving more sales.
- Lower Inventory Risk: Amazon buys in bulk, reducing brands’ inventory management risks.
Cons
As we discussed, in the Amazon 1P model, brands sell their products to Amazon at a wholesale rate. Once Amazon owns the inventory, it controls pricing, listings, and promotional strategies.
This shift in ownership means sellers give up certain rights they’d typically have in a direct-to-consumer model, like setting prices or managing listing details.
This setup results in the following cons:
- Loss of Pricing Control: In the Amazon 1P model, Amazon fully controls product prices. Brands cannot adjust prices to fit their strategies or profit goals. Amazon may lower prices to stay competitive, sometimes below a brand’s minimum advertised price (MAP). This can impact a brand’s profit margins and pricing strategy.
| The Minimum Advertised Price (MAP) is the lowest price a brand sets for retailers to advertise its products. This policy helps brands keep pricing consistent and protects profit margins by preventing retailers from undercutting each other. |
- Longer Payment Cycles: Payment cycles can be slower from Amazon’s side (to be specific, between 30-90 days), which might affect cash flow.
- Limited Listing Control: Amazon manages product listings, availability, and other details. This limits what sellers can adjust.
- Dependence on Amazon Orders: Brands depend on Amazon to place purchase orders (POs) for restocking inventory. This reliance means that if Amazon reduces or stops ordering a product, the brand’s sales flow can get disrupted.
- Chargeback Risks: If inventory or orders are mismanaged, brands might face chargebacks from Amazon. And this can have a severe impact on profitability.
Cost of Amazon 1P Model
Selling through Amazon 1P involves a variety of costs on and off Amazon. Here’s a detailed breakdown:
| Cost Type | Description | Example/Details |
| Vendor Program Costs | ||
| Wholesale Price (PPM) | Amazon purchases products at a wholesale rate, generally lower than the retail price. | Retail price might be $100, with a PPM around $80. |
| Net PPM Deductions | Deductions from the wholesale price, which reduce effective earnings. | |
| Marketing Discretionary Funds (MDF) | Fees for Amazon-led promotions or events. | Cost for participation in Amazon campaigns. |
| Damage/Returns (DA) | Costs deducted for product returns or damages handled by Amazon. | Covers processing and return logistics. |
| Freight (FA) | Shipping costs for products sent to Amazon’s fulfillment centers. | Based on shipment distance and product size. |
| – Strategic Account Services (SAS) | Amazon account support fee for assistance through Vendor Central. | Includes account management support. |
| Operating Margin Costs | Additional expenses that impact the operating margin beyond initial deductions. | |
| Chargebacks | Penalties for non-compliance with packaging, labeling, or shipping standards. | Fees apply per non-compliant instance. |
| Shortage Claims | Costs incurred for any missing inventory in shipments to Amazon. | Calculated on missing stock quantity. |
| Annual Vendor Negotiations (AVN) | Fees related to annual contract and pricing negotiations with Amazon. | Can include additional promotional costs. |
| Other Costs Incurred By Sellers | ||
| Agency & Operational Costs | External fees for marketing, content management, and support services. | This can include additional promotional costs. |
| Data and Compliance Tools | Subscription fees for tools that track performance metrics and compliance requirements. | Analytics, reporting, and compliance software. |
| Employee and Software Expenses | Costs for dedicated team members and software to manage Amazon 1P account operations. |
These, together, shape the total cost of selling through Amazon 1P.
Examples of Amazon 1P Sellers
- Corsair
- MSI
- Corelle
Best Suited For
If your brand receives an invitation, you may consider Amazon 1P if your brand:
- Has High-Volume Sales Needs: Amazon 1P is ideal for brands with high-demand products. Amazon’s bulk buying power ensures a steady flow of orders, supporting brands with consistent demand.
- Needs to Outsource Logistics: For brands unable to handle logistics in-house, Amazon 1P offers a convenient solution. Amazon manages warehousing, shipping, and returns, easing daily operational tasks.
- Has Limited Resources for Daily Management: For teams lacking the capacity for hands-on management, Amazon 1P provides a hands-off approach. Amazon sets prices, fulfills orders, and handles customer service, allowing brands to focus on other are
What is Amazon 3P (Third-Party Seller)?
Amazon 3P, or third-party selling, allows businesses to sell products directly to customers on Amazon’s marketplace. In fact, around 68% of Amazon sellers operate as third-party (3P) sellers, managing their Amazon product listings, inventory, and orders through Seller Central.
Over recent years, paid units sold by 3P sellers have surpassed those from other seller types, with 3P sellers now accounting for 61% of total units sold on Amazon.
In the Amazon 3P model, third-party sellers have two fulfillment options:
- Fulfillment by Amazon (FBA): Amazon handles storage, shipping, and customer service.
- Fulfillment by Merchant (FBM): The seller manages shipping and customer support independently.
Amazon provides the marketplace infrastructure, covering the website, payment processing, and overall customer support to sellers. However, sellers handle inventory, pricing, listings, and advertising on their own. And for each sale, Amazon charges a referral fee, which varies by product category.
This model has grown popular, giving businesses access to Amazon’s wide customer base.
When you see “Ships from Amazon” (which can also mean FBA) and “Sold by [store name],” it indicates a third-party relationship with Amazon.
How to Become a 3P Seller?
Becoming an Amazon 3P seller is straightforward and requires a few steps:
- Choose a Selling Plan: Amazon offers two plans:
- Individual Plan: Ideal for sellers expecting to sell fewer than 40 items monthly. This plan has no monthly fee but charges $0.99 per item sold.
- Professional Plan: Suited for sellers with 40+ items per month. This plan costs $39.99 monthly with no per-item fee.
- Set Up an Account: Register on Amazon’s Seller Central platform. You’ll need business details, tax ID, and bank information.
- List Products: Create listings with high-quality images, clear descriptions, and accurate details.
- Select Fulfillment Method: Choose between Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM).
Pros and Cons of Amazon 3P
Pros
- Control Over Branding and Pricing: 3P sellers have full control over product listings, pricing, and marketing. This lets them adapt quickly to market trends and optimize for sales growth.
- Higher Profit Margins: Selling directly to consumers often brings higher margins than 1P’s wholesale pricing. 3P sellers set prices independently, adjusting based on demand and competition.
- Faster Payment Access: In the third-party relationship with Amazon, sellers receive payments after each sale. In contrast, 1P sellers might wait up to 90 days. Immediate payments support cash flow, making it easier to reinvest and manage expenses.
- Flexible Inventory Management: 3P sellers control inventory levels and fulfillment, choosing between FBA or FBM. This flexibility suits demand changes and supports logistical needs.
- Global Market Reach: 3P sellers access multiple Amazon marketplaces, reaching a wider audience. This boosts brand visibility and expands customer reach globally.
Cons
- Operational Complexity: 3P sellers manage inventory, customer service, and shipping logistics. This can be complex, especially for smaller businesses lacking dedicated resources.
- Marketplace Fees: Amazon charges various fees, like referral and FBA fees, which impact profit margins. Managing these fees accurately is vital for profitability.
- Risk of Suspension: 3P accounts face suspension risks due to policy violations or low ratings. This requires close attention to Amazon’s standards.
- Inventory Risks: Unlike 1P, 3P sellers handle unsold inventory costs. Misjudging demand can lead to losses.
- Tax Obligations: 3P sellers are responsible for tax compliance, including VAT and sales tax. Without accounting support, this can add complexity to financial management.
Additional Considerations for Running Your 3P Account
- Tax Nexus Requirements: Storing products in Amazon’s fulfillment centers may create a tax obligation in each state where centers are located. Understand these requirements before choosing FBA.
- Inventory Management: Regularly monitor stock levels to avoid “Out of Stock” issues. Stockouts can reduce visibility, affect your Buy Box, and disrupt advertising.
- Customer Service: As a 3P seller, you’re responsible for responding to customer questions within 24 hours. Delays may impact your account’s standing.
- Payment Terms: Amazon pays 3P sellers twice monthly, but fees like FBA shipping, storage, and advertising costs are deducted. Review these charges to understand your net earnings.
Cost of Amazon 3P
Selling as a third-party (3P) seller on Amazon involves a range of fees. Here’s a breakdown of the key costs to expect:
| Cost Type | Description | Amount/Percentage |
| Subscription Fee | Monthly fee for account type. Professional Plan for high-volume sellers; Individual Plan for low-volume | $39.99/month or $0.99/item |
| Referral Fee | Percentage taken per sale, varying by product category, typically averaging 15% | 6%-45% (avg. 15%) |
| FBA Fulfillment Fee | Charged per unit for storage and shipping if using Fulfillment by Amazon (FBA) | ~$2.50/unit |
| Storage Fee | Monthly fee based on the inventory volume stored in Amazon’s warehouses | Variable |
| Advertising Fee | Costs for Amazon ads to improve product visibility on Amazon’s platform | ~15% of sales |
| Closing Fee | Fee specific to media items such as books, DVDs, or video games | ~$1.80/item |
Examples of Amazon 3P Sellers
- Fintie
- Spigen
- Anker
Best Suited For
By default, all sellers operate under the Amazon Third-Party (3P) model. However, certain businesses may find this model particularly advantageous:
- Businesses Needing Control Over Pricing and Branding: The 3P model allows sellers to manage pricing, branding, and customer engagement directly. This flexibility is ideal for businesses that need to adjust quickly to market changes.
- Sellers Focused on Higher Profit Margins: By avoiding wholesale fees, the 3P model benefits those prioritizing profit margins, especially for niche products.
- Companies Aiming to Scale Efficiently: For businesses expecting fluctuations in sales volume, the 3P model provides the flexibility to scale operations without the limitations found in the 1P model.
Amazon 1P vs 3P: Key Differences
Let’s now look at the important differences between Amazon 1p vs 3p:
| Aspect | Amazon 1P | Amazon 3P |
| Control Over Pricing | Amazon controls product pricing, often to align with its own goals | Seller has full control over pricing, allowing flexibility to match market trends and demand |
| Inventory Management | Amazon buys and manages inventory, handling all fulfillment and storage | Seller manages inventory independently or through Fulfillment by Amazon (FBA) if desired |
| Relationship with Amazon | Operates as a vendor, selling products wholesale to Amazon | Functions as an independent seller, listing directly on Amazon’s marketplace |
| Marketing and Branding Control | Limited; Amazon manages most branding and listing elements | The seller has full control over branding and can create tailored marketing strategies |
| Listing Customization | Amazon controls listing content and restricts customization | Seller customizes listings, including descriptions and images, for better brand representation |
| Account Management | Managed through Vendor Central with limited data and control | Managed through Seller Central with more access to performance metrics and sales data |
| Cash Flow | Payment cycles are longer, often taking up to 90 days | Payments are made bi-weekly, helping sellers maintain a steady cash flow |
| Customer Interaction | Amazon handles customer service, returns, and inquiries | Seller manages customer support directly, which impacts customer relationships |
| Inventory Risk | Low risk, as Amazon owns the inventory once purchased | Higher risk; The seller is responsible for managing stock and avoiding out-of-stock situations |
| Branding and Visibility | Products benefit from Amazon’s established trust but lack custom branding | Sellers can build a unique brand image |
| Negotiation and Contracts | Operates on fixed terms and contracts set by Amazon | The seller has the flexibility to negotiate supplier terms and adapt strategies as needed |
Amazon 1P vs 3P: Which is More Profitable?
Now we come to the profitability aspect in this Amazon 3p vs 1p debate.
Amazon 3P generally offers higher profit margins compared to 1P. As we already discussed that with Amazon 3P relationship, sellers manage their own pricing and can adjust it based on market trends. This flexibility helps avoid wholesale fees and allows sellers to maximize profits per sale.
In contrast, Amazon 1P often results in lower margins, as sellers must sell at wholesale rates to Amazon.
Additionally, 1P sellers lack pricing control, which limits their ability to respond to market changes. For most businesses, 3P is often more profitable due to its flexibility and potential for higher earnings per sale.
Other Amazon Selling Models You Must Know
Beyond Amazon’s 1P and 3P models, there are some other selling models that offer unique benefits and flexibility. Here’s an overview of those:
| Selling Model | Description | Benefits | Challenges |
| 2P (Third-Party with FBA) | 3P sellers use Fulfillment by Amazon (FBA) for storage, shipping, and customer service. | Lowers logistics load; Prime eligibility attracts customers. | FBA fees increase overall costs. |
| 3P Unmanaged (FBM) | Sellers handle all logistics independently, shipping directly to customers. | Full pricing and inventory control; no FBA fees. | Higher workload; requires efficient logistics management. |
| 3P Partnership | Brands collaborate with an authorized seller for listings and fulfillment. | Shares operations; can access a wider customer base. | Requires careful partner vetting for brand alignment. |
| 3P Network | Multiple authorized sellers manage products across different regions. | Expands market reach; allows for flexible partnerships. | Potential coordination issues; risk of channel conflicts. |
| Hybrid (1P & 3P) | Combines 1P and 3P, allowing brands to sell some items directly to Amazon while listing others independently. | Balances branding control with Amazon’s reach; useful for different product lines. | Can complicate logistics; and requires management across platforms. |
Conclusion: Amazon 1P vs 3P — Which Model Is Right for You?
Deciding between Amazon 1p vs 3p depends on your brand’s goals. If your brand is invited for the program, then Amazon 1P can offer simplicity, with Amazon managing fulfillment and customer service, making it a solid option for large brands.
However, as Amazon gradually scales back 1P operations, this model may not remain the best choice for most brands in the future.
In contrast, the 3P model offers more flexibility and control. Sellers manage their own pricing, branding, and customer relationships, making it ideal for brands seeking freedom.
With nearly 61% of Amazon’s total sales coming from third-party sellers, the 3P model may offer stronger growth and profitability in the years ahead.
Ultimately, choosing between Amazon 1P vs 3P depends on your brand’s specific goals and growth plans.
Good luck!
FAQs
- What are Amazon 1P payment terms?
Amazon’s 1P payment terms vary, but they generally range from 30 to 90 days after delivery. This means vendors receive payment within that period, depending on Amazon’s agreement with the supplier.
2. What are the fees associated with Amazon 1P and 3P?
For 1P sellers, fees can include warehousing, shipping, and other processing costs. Amazon also takes a cut as it resells products. In contrast, 3P sellers pay referral fees, which vary by category, and additional fees if they use FBA.
3. Can I switch between Amazon 1P and 3P?
Yes, but it’s complicated. Switching usually requires ending the existing partnership with Amazon (1P) and starting a new 3P account. Approval from Amazon may also be necessary.
4. Is Amazon FBA 1P or 3P?
We can’t really call Amazon FBA as 1P or 3P. Rather, Amazon FBA falls under the third-party (3P) selling model. In this model, sellers list their products on Amazon’s marketplace and have the option to use Amazon’s fulfillment services to store and ship their products to customers.
5. What is Vendor Central vs. Seller Central on Amazon?
Vendor Central is for 1P sellers (vendors) selling to Amazon. Seller Central is for 3P sellers who sell directly to customers.
6. What factors should a business consider when choosing between Amazon 1P and 3P?
Businesses should consider profit margins, control over pricing, fulfillment needs, and brand control. 1P gives access to Amazon’s retail reach, while 3P offers more control over pricing and customer relationships.
