Fulfilled by Amazon (FBA)
This model allows sellers to benefit from Amazon’s logistics but retain control of their brand(s). Sellers send their inventory in bulk shipments to Amazon’s warehouse and Amazon ships individual customer orders. Sellers pay a referral fee, fulfillment fee (depends on the size of the item), and the cost of shipping to Amazon’s warehouse. Returns are sent back to Amazon’s warehouse. Typically, the cost of the return is on the seller.
Merchant Fulfilled Network (MFN)
This is the most ‘basic’ version of selling through Amazon. Sellers ship their orders directly to customers that purchase from Amazon and pay Amazon a referral (differs by category). MFN sellers will either need to charge customers for or assume the cost of shipping orders. Returns are sent directly back to the seller. Sellers can charge for or assume the cost of shipping on returns.
Seller Fulfilled Prime (SFP)
This is the newest model of selling and is not open to all sellers. Sellers need to qualify for this program by proving they can meet Amazon’s high standard of logistics during a 3-month test period. If the seller meets the requirements, they will be able to have Prime offers on items shipped from their warehouse directly to the customer. Sellers pay a referral fee and the cost of 2-day shipping. Returns are sent back to the seller and the return shipping is paid for by the seller.
Amazon ranks 1p vendors higher than 3p sellers.
Organic search ranking is based on multiple criteria, but 1p/3p is not a point of evaluation. It’s common that 1p vendors outrank 3p sellers, but that’s only because 1p vendors are typically larger brands that have been traditionally more relevant with customers and have larger budgets to drive their ranking up.
3rd party sellers are small, private label brands.
This isn’t entirely true, but it’s not entirely false. While yes, most 3rd party sellers are non-national branded businesses that typically have their own private label that they distribute directly through Amazon or through a handful of online marketplaces/websites, it’s not exclusive to this. As brands are figuring out how to operate on Amazon, it’s becoming more common to see large (inter)nationally-recognized brands operate solely through the 3rd party model. Also, don’t underestimate the size of private label 3p sellers, I’ve seen some that are 3-5x larger than the largest brand in their category.
Sellers are responsible for creating their own listings, managing inventory levels, setting their pricing, and everything else that comes along with running an eCommerce business.
You don’t have Prime offers when you’re a 3p seller.
Depending on which model of 3p you use, this can be true. In order to have a Prime offer, you either need to be a 1p vendor, a 3p seller using Fulfilled by Amazon or a 3p seller that has qualified for the Seller-Fulfilled Prime program.
3rd party sellers need to fulfill their own orders.
Again, this can be true depending on which model of 3p you use. If you use FBA, you ship a bulk quantity of inventory into Amazon’s warehouse and they handle the individual order fulfillment for you. If you use the Merchant Fulfilled Network or the SFP model, individual customer orders need to be shipped by the seller.
If I’m established as a 1p vendor, Amazon will continue to work with me.
As we’ve seen with the recent headcount cuts in Vendor Managers and reduction in US-based account management, this isn’t true. During our time on the Amazon VM team, we rarely discussed margin but we ALWAYS discussed free cash flow (FCF). Jeff Bezos doesn’t want to buy your inventory – he wants to live in an inventory-free world where cash comes pouring in so he can build his space company. Think about the pitch, 3p offers manufacturers a means to control every aspect of their business on the largest marketplace in the US (generally making more margin $$) and Amazon doesn’t have to pay for inventory or shipping. Amazon only needs to invest in fulfillment centers then the rest is covered by the manufacturer. Eventually, we believe only very large ($50mm + in revenue) and private label brands will be sold through 1p.
If my 3rd party business gets to be big enough, Amazon will want me as a 1p vendor.
This definitely used to be true about 3-5 years ago. Amazon buyers would use internal data to find the largest 3rd party and pitch them on the benefits of becoming a 1p wholesale vendor. For several reasons, including our hypothesis on Amazon’s long- term strategy, this has become less common. Don’t worry though, being 3p can be better in some circumstances.
If I post it, they will come.
Last, but far from least, this is one of the most incorrect assumptions people make as they get involved with Amazon. Yes, Amazon has over a hundred million monthly users, but it is also a sea of product. We always suggest working through an agency filled with ex-Amazonians or having someone with a strong digital background on staff to manage this business.