If you’re used to selling on eBay, or through your own website with a platform like Shopify or WooCommerce, or maybe you live in a region like Australia where Amazon is about to launch, you can be forgiven for being a little confused when you hear terms like ‘3P Seller’ and ‘Amazon Vendor’. If you’re in the process of mapping out your Amazon entry strategy, it is essential you understand these types of distinctions between Amazons different seller and fulfilment types. That’s why we’ve put together this quick and easy guide to the different ways to get your products sold on Amazon.
We often hear about roughly 50% of sales on Amazon being from 3P Sellers, but what exactly does that mean? Well first let’s break down the Amazon business model from the ground up. First and foremast, Amazon is an online marketplace – a website where different sellers can list their products for sale and connect with potential customers. A 3P Seller is any merchant who lists their products for sale on Amazon. When their products are sold, Amazon takes a little cut of the selling price as a referral fee for the privilege of selling on their marketplace.
So at it’s most simple level, a 3P seller is anyone other than Amazon themselves who is listing products for sale on their marketplace. By contrast, first-party sales on Amazon are those made by Amazon, either of their own branded products or through traditional wholesale arrangements with suppliers (through the vendor program – see below).
Within the distinction of 3P sellers we have two further breakdowns – FBA sellers and FBM sellers. This is to do with how a sellers products will be shipped to the customer once bought.
FBA stands for Fulfilled By Amazon and means that a seller not only lists their products on Amazon for sale, but they also send their products to an Amazon warehouse (or ‘Fulfilment Centre’) to await sale. Once purchased, Amazon will pick, pack and ship those products to the customer. They do this for another fee based on weight and selling price, so in addition to the referral fee that seller is also now paying an FBA fee, effectively making Amazon a logistics provider. The advantage for the seller is that they don’t need to invest in their own shipping and logistics infrastructure, and can rely on Amazon for storage, handling and shipment of their products.
Some sellers will want to leverage their own existing logistics infrastructure, and therefore will opt for FBM – Fulfilled By Merchant. When their product is sold, Amazon passes the seller the shipment information and the seller then arranges the products delivery to the customer. The advantage for some brands is that this is cheaper than paying Amazon FBA fees, but many Amazon and Amazon Prime customers prefer FBA sellers because they find the service more reliable and return options often more flexible.
Both FBM and FBA 3P sellers use Amazons Seller Central platform to list and manage their products.
1P Sales – Products Sold By Amazon
Whilst 50% of sales are from 3P sellers, the other 50% come directly from Amazon. Some of those include products that Amazon sources and manufactures, such as Amazon Echo and the Amazon Basics range. Others include products bought by Amazon through more traditional wholesale type arrangements as part of what is called the Amazon Vendor program.
This is almost somewhere inbetween 1P and 3P selling. For brands selling things through vendor, Amazon will raise a purchase order for a number of units of the product at a predetermined price (just like a traditional wholesale agreement) and take responsibility for listing, marketing and selling them on the Amazon marketplace. Some 3P sellers that find success with their brand will be invited by Amazon to join the vendor program with a Vendor Central account.
Private Label v Brands v Onsellers v Retailers
Within the community of 3P sellers there are different types of merchants. These aren’t classifications so much as insider names for the different strategies adopted by successful (and some not so successful) Amazon sellers.
Private Label sellers are people who will source generic products, often from China, and create new branding for them and sell them on Amazon through the FBA program. This is often a first foray into ecommerce and a way for someone to start selling online without being limited by resources needed for product development and setting up manufacturing and logistics infrastructure.
Established brands might also choose to use Amazon to sell their products direct to the consumer often using FBM to integrate Amazon sales into their existing logistics for their online store. Traditionally brands would gravitate towards wholesale arrangements and avoid a direct-to-consumer sales model, allocating their resources toward developing, manufacturing and marketing a product to sell wholesale rather than dealing individually with customers.
With the advent of online sales channels brands no longer need to commit high levels of investment into retail space and sales staff in order to ‘cut out the middle-man’ and sell directly to their customers, and Amazon makes it easy to do just that.
Many of the larger brands don’t engage directly with Amazon and instead focus on maintaining relationships with their wholesale buyers or promoting sales through their own online stores. This gap in Amazon’s catalogue is then often filled by individual merchants or retailers who list that brand’s products on the marketplace.
This gap can be filled by a few different types of sellers. Traditional retailers may use Amazon as an additional sales channel to compliment their online or physical store. Other sellers of those products might be dedicated Amazon re-sellers who buy that brand wholesale specifically to list on Amazon, or retail arbitragers and liquidators who buy products at discount to sell on Amazon at a higher price.