Transitioning from a 1P to a 3P seller on the Amazon marketplace: Reflections, Advantages and Disadvantages

The transition from a 1P sales model (retail) to the 3P model (marketplace) on Amazon represents a strategic shift for already active brands seeking more control, fewer constraints and increased margin potential.

This evolution requires in-depth analysis and the taking into account of several key considerations.

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Understanding the Differences Between 1P and 3P Sellers on Amazon: Choosing the Right Model for Your Business

Model 1P / Retail / Vendor Central :

The 1P seller, also known as a supplier or direct seller, sells its products directly to Amazon. In this model, Amazon acts like a traditional retailer, buying products in bulk and then selling them on its platform. The 1P seller is often the manufacturer or official distributor of the product.

Main advantages and disadvantages :

• +  Access to Prime: As a 1P seller, products are sold by Amazon and therefore eligible for Prime deliverywhich can boost sales through increased visibility and fast shipping.
• - Price and presentation control: The 1P seller has less control over the final selling price and product presentation on the platform, as Amazon can adjust these aspects automatically.

Model 3P / Markeplace / Seller Central2. Seller 3P :

The 3P seller, or third-party seller, sells its products on the Amazon platform as a separate entity from Amazon itself. These sellers can be individuals, small businesses or large brands that use the platform to sell directly to customers.

Key benefits :

• +  Increased control: As a 3P salesperson, you have more control over pricing, product presentation and inventory management. This allows you to implement more personalized marketing strategies for optimize the sales performance of your products.
• -  Intense competition: The third-party seller market on Amazon is extremely competitive, which means you need to be proactive in your marketing efforts to stand out from the crowd and attract customers.

The transition requires a careful assessment of your business strategy and objectives. Assess your current relationship with Amazon, your target market and your long-term goals.

If you would now like to explore the possibility of becoming a 3P salesperson, here are the questions you need to answer before taking the plunge:

Marketing and Sales :

Product :

What products should you offer?

How can I calculate my sales price, including VAT, what my margin should be, and how can I be sure of making money?

Place :

How can I stand out in my categories? Which markets should I address first, second, etc.?

Promotion:

How do you launch, push and promote a product?

Use Amazon's promotional features strategically to launch your products, increase product visibility and boost sales. (Vine, AMS, Deals, Coupons....)

Set up targeted promotions and special offers to attract customers' attention .

Logistics

What's the best logistics approach for guaranteeing delivery to 500 different customers in less than 48 hours throughout Europe: using a third-party service provider (3PL) or Amazon logistics, and what are the costs involved in each option?

• Delivery capacity: Assess whether your current infrastructure can meet the demand for single and large-scale deliveries.
• You may, if necessary, hire a third-party logistics provider or use Amazon's logistics services to ensure fast and efficient delivery.

• Storing products abroad: If you decide to store products abroad, make sure you understand the tax implications and comply with all applicable regulations. Seek advice if necessary to avoid legal and financial problems.

To assess your ability to meet the logistical requirements of single deliveries and satisfy large-scale delivery demand throughout Europe, you need to consider several factors:

Existing logistics infrastructure :

• Create a detailed inventory of your current warehouses, including locations, storage capacities and equipment.
• Assess the condition of your packaging and shipping equipment and processes to ensure they are fit for purpose for efficient order processing.
• Identify partnerships with existing carriers and assess their reliability and ability to meet your current and future logistics needs at respectable costs.

Order processing capacity :

• Analyze your processes to identify any bottlenecks or inefficiencies.
  1. Process: Stock -> Picking -> Packing -> Shipping -> Tracking -> Return -> Stock or Rebus
• Invest in cutting-edge technologies such as warehouse management systems (WMS) to optimize order processing and reduce errors.
• Consider increasing your workforce or training your staff to effectively manage a higher volume of orders.

Geographical coverage :

• Evaluate your current distribution network to determine whether it effectively covers the whole of Europe, or whether it needs improvement or extension.
• Familiarize yourself with customs regulations and shipping requirements in the countries you plan to deliver to.
• Identify local logistics partners in target countries to facilitate deliveries and reduce lead times.

Costs and resources :

• Compare the costs of developing your own logistics infrastructure with the costs of using a third-party logistics provider or Amazon's logistics services.
• Request detailed quotes from several logistics providers to assess the costs of labor, shipping, storage and additional services.
• Perform a cost-benefit analysis to determine the most cost-effective long-term logistics solution for your business.

Reliability and speed:

• Set up key performance indicators (KPIs ) to measure the reliability and speed of your deliveries, such as the successful delivery rate and average delivery times.
• Identify potential areas for improvement, such as optimizing delivery routes or increasing order processing capacity, to ensure fast, reliable deliveries.
• Work closely with your logistics partners to quickly resolve delivery problems and improve service quality.

Finance and IT

• Financial and cash management: Keep a close eye on your revenues and expenses to maintain optimum profitability. Use appropriate financial management software to facilitate transaction documentation and reconciliation.

• Customer invoicing: Choose an efficient, tax-compliant invoicing system to generate accurate invoices for each customer. Make sure your system is integrated with your Amazon sales process for seamless transaction management.

Tax rules:

Tax rules concerning the storage of products abroad vary according to the country in which you choose to store your products, and the tax agreements between that country and your home country. However, here are some general considerations to bear in mind:

• Value-added tax (VAT) / Sales tax: You may be subject to VAT or sales tax in the country where you store your products. It's important to understand the applicable VAT rates , as well as any exemption thresholds.

• Corporate income tax: If you do business in a foreign country, you may be subject to corporate income tax in that country. Tax rates and reporting rules vary from country to country.

• International tax treaties: Check whether there are any bilateral tax treaties between your home country and the country where you plan to store your products. These agreements can have an impact on the way your income is taxed and on the tax credits available.

• Profit transfer rules: Some countries have strict rules concerning profit transfers between related entities. Make sure you comply with all applicable tax regulations to avoid any problems with the tax authorities.

Transitioning from a 1P to a 3P seller on the Amazon marketplace: Reflections, Advantages and Disadvantages:

Transitioning from a 1P seller to a 3P seller on Amazoninvolves weighing the pros and cons of each model against your business objectives and operational constraints .

The main difference between 1P and 3P sellers lies in the relationship with Amazon and the level of control over product sales and management.

In 1P format, ownership of the product is transferred to Amazon upon receipt of your products, and in 3P format, ownership is transferred to the end consumer upon purchase .

While the 1P seller sells directly to Amazon, offering less control but access to benefits such as Prime delivery, the 3P seller retains more autonomy but must more proactively manage its marketing and operational strategy to succeed on the platform.

Ultimately, the decision must be aligned with your long-term vision and your willingness to take on additional responsibilities to retain more control.

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