Amazon 1P: Does it make sense to sell wholesale?
Brands can choose from different models on how they sell and market their products on Amazon. Amazon first-party (1P) is where you sell your products wholesale to Amazon, which then resells them to customers under its own label. The third-party (3P) approach is when you sell products to Amazon customers directly, and the second party (2P) model is a hybrid approach that incorporates 1P and 3P.
In this article, we’ll explore what the Amazon 1P model entails and its pros and cons over the 3P model.
What is Amazon 1P?
The 1P business model is when a seller is invited to act as a wholesale supplier to Amazon, which buys your products in bulk through a purchase order (PO). Once you receive and fulfill the PO, your products are then sold to customers directly by Amazon and will have the ”Ships from Amazon.com” and “Sold by Amazon.com” labels on the product detail page.
1P sellers use Vendor Central as the platform to receive and fulfill Amazon POs, check on the status of POs, and gain access to insights and analytics that can be used to improve their business. When starting as an Amazon 1P seller, you’ll be asked to provide product information, which Amazon will use to set up the product listing and determine pricing.
What are the advantages of Amazon 1P over 3P?
Below are the advantages of 1P vs. 3P selling:
- Less risk: As you sell in bulk directly to Amazon, it eliminates the many challenges of 3P ecommerce operations, as you are dealing with only one big buyer. Also, you don’t have to worry about stock sitting in a warehouse waiting to sell.
- Increased visibility and sales: Customers trust Amazon and would be more willing to buy from a brand “Sold by Amazon” over an unknown brand selling via the 3P model. Also, Amazon 1P items often appear higher in search results, leading to greater product visibility and sales without having to spend time, money, and effort to get there.
- Hands-off approach: As Amazon owns the inventory and sells it to the end customer, you eliminate all the responsibilities that come with 3P selling, like product listing optimization, customer service, pricing, etc., and you can put your focus instead on business growth, like improving and expanding your product line to encourage more POs from Amazon.
- Access to advanced tools: When you sell directly to Amazon through Vendor Central, you gain access to advertising and marketing tools, like A+ Content and more. As a 3P seller, you must be enrolled in Amazon's Brand Registry to access these tools.
The 1P model is best suited for brands selling fast-moving consumer goods (FMCG). These products are purchased frequently, consumed quickly, priced low, and generally bought in large quantities, like beverages, cleaning products, toiletries, and office supplies. Fashion items may be another great fit for 1P as trends evolve quickly.
In what situations is an Amazon 1P selling model a disadvantage?
There are some cons that come with the Amazon 1P selling model, such as:
- Reduced profit margins: As Amazon buys your products at wholesale prices, you'll likely make less profit than 3P selling to customers directly at retail prices. If there are any issues with inventory management, you’ll be hit with chargebacks, which can also impact your profit.
- Loss of control: As a 1P seller, you’ll have limited control of your products and branding, as Amazon calls all the shots on the product detail page and pricing, which could be below your MAP (minimum advertising price).
- Delayed payments: With the 3P model, sellers can collect Amazon payments from orders every two weeks. However, with the 1P model, Amazon’s payment terms can be 30, 60, or 90 days, which may present cash flow problems.
- Revenue is not guaranteed. Your sales may increase due to products being sold by Amazon, but it is not guaranteed. Also, Amazon can drop you as a 1P seller anytime for various reasons, which can be risky if you depend on the POs to keep your business afloat.
What are the fees for Amazon 1P?
With the 1P model, you pay a flat fee for participation, but there are other potential fees to be aware of, including marketing, co-op, remittance, packaging, and chargeback fees.
While the fees for Amazon 3P selling may be more predictable than the 1P fees, they are still plenty. There are referral, fulfillment, storage, and variable closing fees. For those who choose the Professional selling plan, that is an additional $39.99 monthly fee, or with the Individual selling plan, a flat fee of $0.99 per unit sold. And depending on the size and weight of your products, your Fulfillment by Amazon (FBA) fees could be much higher.
How do you get started with Amazon 1P?
Amazon must invite you to become a 1P seller, so there are no specific steps to take other than building up your sales and performance as an Amazon 3P seller. Establishing a solid reputation as an Amazon 3P seller and creating a strong brand identity on and off of Amazon can help catch the attention of Amazon's brand managers and vendor recruiters.
To help increase your odds of receiving an Amazon 1P invite, be sure to maintain consistent sales, healthy stock levels, positive product reviews, and excellent seller feedback. It's also a good idea to attend trade shows where Amazon brand managers may be seeking out new brands to form a relationship with.
Remember, even if you are an outstanding seller, there's no guarantee that Amazon will extend an invite to become a vendor. But if you meet the criteria above, you are already in a great position to succeed as a 3P seller.
Now that you know the benefits and potential drawbacks of being an Amazon 1P seller, you can decide if it would be the best move for your business if and when an invite is received. Most importantly, consider how much control and hands-on operation you want over your brand and products selling on Amazon. Some sellers are happy to give up some power in exchange for POs, while others enjoy success as a 3P seller and prefer to stay on that path.