Transition from Vendor Central to Seller Central | Amazon 1P to 3P
Any company choosing to conduct business on Amazon is faced with a very important decision – whether they should operate as first-party vendors or third-party sellers. While vendors sell their products to Amazon, which in turn sells these products to consumers, sellers do business with consumers directly through the Amazon marketplace.
Many Companies Start Out as Vendors
Amazon can be a very confusing and foreign place for businesses that are new to the platform. Many manufacturers and brands are accustomed to sending a few large shipments to their distributors each week. The idea of shipping a large number of small retail orders directly to shoppers each day is completely incongruous with their traditional business model.
For that reason, it is very common for manufacturers and brands to start out as first-party Amazon vendors. In this scenario, Amazon operates as the distributor and businesses do not have to modify the way they handle shipments.
Sure, this may be the easier path in the short-run, but is Vendor Central the best choice for sellers in the long-term? Throughout this blog, we will discuss a variety of reasons why a transition from Vendor Central to Seller Central may be the wiser decision for many businesses and outline a path to help vendors transition as smoothly as possible.
Comparing Vendor and Seller Central
Aside from having independent Amazon dashboards and distribution methods, vendors and sellers are subject to different pricing structures, seller support, costs and fees, reporting tools, marketing opportunities and much more. Here is a quick overview of the primary differences from Amazon 1P to 3P:
- Pricing: Sellers have complete control over their own prices and promotions; Vendors are subject to Amazon’s Minimum Advertised Price (MAP) policy, meaning prices could drop at any time without vendor consent, even below your MAP
- Seller Support: Sellers have far more easily accessible and reliable resources for support than vendors
- Costs & Fees: Sellers are subject to more straightforward fees on a monthly basis; Vendor fees are generally lower, but they are more sporadic and more difficult to budget for
- Profit Margins: Because Sellers have more control over their prices, they also have more control over their profit margins than vendors
- Reporting: Sellers have access to much more detailed sales and inventory reports than Vendors do; Vendor access to Retail Analytics Premium can cost hundreds of thousands of dollars
- Marketing Opportunities: Vendors have access to certain invite-only marketing programs that sellers cannot take advantage of
- Inventory: Sellers have complete control over their inventory; Vendors are at the mercy of Amazon to place purchase orders and control inventory levels
- Payments: Sellers get paid every one to two weeks – minus any FBA fees and commission; Co-op fees, chargeback fees and disputes over delivery of inventory can make it difficult for vendors to get paid
- Customer Service: Sellers have complete control over their own customer service; Vendors relinquish all customer support to Amazon
A Rise in Third-Party Sellers
If the above comparisons reveal anything, it is this: while sellers have the freedom and flexibility to control their own products, vendors are generally at the mercy of Amazon to sell and manage products on their behalf.
For this reason, many businesses are making the decision to sell on Amazon instead of to Amazon. In fact, the number of third-party Amazon sellers has been on the rise in recent years, hovering at just over half of all Amazon sales since the first quarter of 2017.
More and more sellers are finding that the initial convenience of selling to Amazon as a vendor cannot outweigh the constraints of surrendering account control to Amazon. Seller Central requires more legwork on the part of the seller, but it also brings greater opportunities to conduct business as the seller sees fit.
There Has Never Been a Better Time to Switch to Seller Central
As more and more Amazon sellers seem to be flocking to Seller Central, Amazon has put recent guidelines in place that make it even more tempting for vendors to make the switch to third-party selling, Amazon 1P to 3P.
- Amazon is now asking vendors to have Brand Registry for their products as the platform “prefers to source products directly from brand owners.”
- Amazon shut down several Vendor Central accounts in March, some of which were never reinstated. If these vendors want to continue to sell on Amazon, they will need to open a Seller Central account.
- There has been speculation that Amazon will start requiring all vendors to have yearly sales of $5 million or more.
Should You Make the Switch?
If you are a vendor, you are probably feeling the pressure to make the switch to Seller Central. It might even be a move you have considered making it the past. And for many, the long-term benefits of increased profit margins, pricing control and more are well worth it.
But for other brands who still enjoy the convenience of fulfilling large purchase orders and simply shipping to Amazon, the thought of switching to Seller Central is a daunting one.
For some, a hybrid-approach, where you sell some products on Vendor Central and others on Seller Central, is the best solution. At the end of the day, the decision comes down to these three factors: sales volume, profits and profit margins.
- Where will you drive the most sales?
- Will making more at wholesale prices result in greater profits than the possibility of fewer sales at retail prices?
Asking yourself these questions will help estimate the best- and worst-case scenarios for each platform and determine whether a not a partial or complete move to Seller Central is right for you.
Ensuring a Successful Transition from Vendor Central to Seller Central
With Amazon’s new vendor requirements in place, we are finding that transitioning at least some SKUs over to Seller Central is a wise financial move for many brands.
However, many vendors do not know where to begin. They are used to Amazon handling all the intricacies of selling and they do not know how to navigate the Amazon marketplace on their own. Operations, inventory, transaction life cycles and pricing are all different than what most manufacturers are used to.
In these situations, the best way to ensure a successful transition is to work with an Amazon consulting team. These professionals have the expertise and knowledge most brands and manufacturers do not. They can help slowly acquaint you with Seller Central and put together a strategic plan for long-term Amazon success.