If you’re an existing brand selling on Amazon, you might have started out as a first-party (1P) seller, which means that you sell your products directly to Amazon and Amazon takes care of the rest, including pricing, listing, and shipping. However, as your business grows and evolves, you might want to consider moving to a third-party (3P) selling model on Amazon, where you sell your products directly to customers on the Amazon marketplace.
Note: In the fourth quarter of 2022, 59 percent of paid units were sold by third-party sellers. Statista 2023
Let’s explore different reasons why your business and your CEO might want to consider making the switch to a 3P selling model on Amazon and which business can benefit the most from it.
Selling as a third-party (3P) seller on Amazon can help CEOs develop a more effective Amazon strategy, lower costs, and generate potentially more sales. Here are some ways how:
Greater control over pricing: As a 1P seller, you give up control over your product pricing to Amazon. As a 3P seller, you have more control over your pricing strategy and can set your own prices. This can help you avoid Amazon’s high retail fees, which can eat into your profit margins. Additionally, 3P sellers typically pay lower fees to Amazon than 1P sellers. For example, referral fees for 3P sellers are generally around 15%, whereas 1P sellers can pay up to 30% in retail fees.
Access to Customer Data: As a 1P seller, Amazon owns the customer data and you don’t have direct access to it. When you sell as a 3P seller on Amazon, you have access to customer data, which can be used to better understand your target market and develop more effective marketing and sales strategies. This data includes information on customer demographics, search terms, and purchasing behaviors. With this data, you can optimize your product listings, develop targeted advertising campaigns, and create personalized promotions to attract and retain customers.
Greater Flexibility: As a 3P seller, you have greater control over your product listings, including the ability to make changes more easily and quickly. You can also choose which products to sell and when to sell them. This flexibility allows you to adapt quickly to changes in the market, adjust your pricing strategy, and optimize your product offerings to meet customer demand.
Increased Sales Potential: As a 3P seller, you have access to Amazon’s massive customer base, which can help increase your sales potential. According to Amazon, 55% of all product searches on the platform begin with the Amazon search bar, and more than half of all products sold on Amazon are from 3P sellers. Additionally, Amazon offers a variety of tools and programs to help 3P sellers reach more customers, such as Sponsored Products, Amazon Marketing Services, and the Amazon Influencer Program.
Improved Inventory Management: As a 3P seller, you have the ability to manage your own inventory and fulfill orders in-house, which can help you save money on fulfillment fees. You can also use third-party fulfillment services to streamline your operations and ensure fast and reliable delivery to customers. With more control over your inventory management, you can avoid stockouts and overstocking, which can improve your profitability and customer satisfaction.
Now, let’s talk about the potential savings when moving to a 3P selling model on Amazon. The amount you can save will depend on several factors, including your product category, sales volume, and fulfillment method.
Here’s a rough estimate of the potential savings:
| Amazon charges 15% referral fees for most product categories for 3P sellers. In comparison, 1P sellers typically pay 20-30% for Amazon’s retail fees. | With a 3P selling model, you can choose your own fulfillment method, which can impact your costs. If you use Fulfillment by Amazon (FBA), you’ll need to pay FBA fees, which can range from $2.50 to $137.32 per unit depending on the product size and weight. However, if you fulfill the orders yourself or use a third-party fulfillment provider, you might be able to save on fulfillment fees. |
The savings can be significant, especially if you have a high volume of sales. However, it’s important to keep in mind that the 3P selling model also comes with its own set of challenges, such as increased competition and the need to manage your own inventory and shipping.
While every business is unique, there are certain types of Amazon sellers that may benefit more from switching from a 1P to a 3P selling model. Here are a few examples:
Small to Medium-Sized Brands: Small to medium-sized brands that are looking to expand their presence on Amazon and increase their profit margins may benefit from switching to a 3P selling model. As a 3P seller, they have more control over their pricing, product listings, and fulfillment processes, which can help them save on fees and increase their sales potential.
Brands with Niche or Specialty Products: Brands that sell niche or specialty products may benefit from selling as a 3P seller on Amazon. As a 3P seller, they have more control over their product listings and can optimize their product offerings to better meet the needs of their target audience.
Brands with High Margins: Brands that have high margins on their products may benefit from selling as a 3P seller on Amazon. As a 3P seller, they can set their own prices and avoid Amazon’s high retail fees, which can eat into their profits.
Brands that Want More Control: Brands that want more control over their pricing, product listings, and customer data may benefit from selling as a 3P seller on Amazon. As a 3P seller, they have more control over these aspects of their business, which can help them develop a more effective Amazon strategy.
Brands that Want to Expand Globally: Brands that want to expand their business globally may benefit from selling as a 3P seller on Amazon. As a 3P seller, they can use Amazon’s global infrastructure to reach customers in other countries, which can help them grow their business and increase their sales potential.
Brands planning to move to 3P should evaluate their business goals, resources, and capabilities before making the switch. They should also consider working with a third-party seller consultant like us or Amazon agency to help them navigate the transition and optimize their 3P selling strategy.
In conclusion, if you’re an existing brand selling on Amazon as a 1P seller, you might want to consider moving to a 3P selling model to gain greater control, access to customer data, lower fees, more flexibility, and increased exposure. While there are certainly challenges to selling as a 3P seller, such as increased competition and the need to manage your own inventory and shipping, the benefits can be significant for brands looking to grow their presence on the platform.