So, you got an invite to Amazon’s Vendor program... but you don’t quite know if that’s the right program for you. In our blog post today, we help you better understand this opportunity, by sharing their knowledge from helping brands grow their revenue on Amazon Vendor Central & Vendor Express.
Amazon’s Vendor program, aka “1st Party/1P” is an invitation-based program that comes with attractive perks, but features downsides that makes it difficult for brand owners to decide whether or not this program will be the right choice for their business.
Being invited to the Vendor Central program is a recognition of your brand’s potential and fair play in the marketplace, as Amazon takes into account brands that have registered high sales while playing by the rules.
Being a successful business in a marketplace with over 606 million product listings isn’t easy. For sellers that are currently struggling with their channel management, considering all available options to sell on Amazon is a good idea. There are 2 main ways to sell on Amazon, Vendor or Seller.
In the Vendor Program, your brand has a wholesale relationship with Amazon. Amazon makes Purchase Orders (PO) based on market demand, the brand fulfills the PO, and Amazon then basically handles the rest, from freight and shipping to customer service and even building your product detail pages. One of the biggest downsides is that you’ll be selling to Amazon at a wholesale rate (often a 50% discount on the selling price),
In the Seller Program (aka 3rd Party/3P), brands handle their channel by themselves, paying a percentage “referral fee” on each sale for the benefit of accessing Amazon’s customer base and for them to process the sale.
| Vendor, AKA "1st Party/1P"
- Wholesale relantioship with Amazon - Uses Vendor Central platform - Sell at a wholesale price (e.g. 50% discount to retail price) via Purchase Orders to Amazon - Amazon ships orders directly to customers (unless agreed otherweise)
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Seller, AKA "3rd Party/3P"
- Marketplace Seller on Amazon - Uses Seller Central platform - Selling to Amazon's customers via their marketplace platform - Amazon charges 15% (most categories) on each sale - Merchants ship orders directly to customers or use Fulfilled by Amazon (FBA)
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| VENDOR
- Amazon sets the price -Even if MAP (Minimum Advertised Price) policy is in place, Amazon will lower the selling price to the lowest advertised price online / in stores
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SELLER
- Seller sets the price - Because Seller sets the price, pricing can be more easily maintained. However, since it is a marketplace, other Sellers can create offers to sell your products at a lower price
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Currently, around half of total sales on Amazon are from marketplace sellers, versus Vendors. Amazon says that they’re agnostic on the 2 models.
From a financial perspective, 3P is potentially more profitable for Amazon, because:
*Source: ChannelAdvisor estimates that of the total 3rd Party SKUs, 36 million SKUs are FBA, versus around 300 million which are non-FBA.
Amazon will always have 1P, even though their margin is probably lower. 1P products will occupy the Fat Head, and 3P will occupy the Long Tail. Amazon wants Fat Head products (brand name household items) to be 1P so they can closely control prices (be price competitive) & supply; but they also want the long tail that 3P enables. Out of 400 million SKUs, only 4 million would be 1P*.
Some brands find that FBA can be more profitable on some or all of their SKUs. It is possible to have both a Vendor and FBA account on Amazon.
Amazon’s Vendor Program comes with perks and downsides, for some businesses it could prove to be a profitable opportunity to grow their sales in the marketplace and a way to expand their distribution network with potentially less fuss than on Seller Central.
Bobsled Marketing works with Sellers and Vendors to grow their revenue and reach on Amazon’s marketplaces. Bobsled Marketing can help you assess if moving into Amazon’s Vendor program is a profitable choice for your business.