Are you considering selling on marketplaces like Amazon to maximise your revenue but unsure where to start? Well, it all begins with choosing the right sales model.
Depending on your level of experience in selling online, choosing the incorrect sales model may leave you overwhelmed or underutilised. While there are multiple factors to consider before making that decision, it all starts with understanding what these sales models offer for your business.
For now, let’s start by understanding what the 3P seller meaning is, which is one of the most popular sales models on marketplaces, then its benefits and features it offers to retail businesses.
What is 3P?
3P, or third-party, refers to a selling model followed by many retailers and marketplaces to sell products directly to end customers.
In this model, merchants and sellers become the retailers who market and sell products directly to customers instead of relying solely on the marketplace. In this situation, the marketplace simply becomes a storefront for sellers and buyers to carry out purchases.
The 3P dynamic assigns sellers and merchants control over all aspects of the selling process, such as listing management, pricing strategies, advertising, order management, inventory management, and even order tracking.
3P is a term coined by Amazon for merchants that sell products to customers through the Seller Central, so we will examine the features and process of selling products on Amazon throughout this article.
Now that we understand the 3P meaning, let us delve into the pros and cons in detail.
3 Advantages of a 3P
1. More Flexibility and Inventory Control
As a 3P seller, you retain complete control of the products in your inventory and the product listings. As a result, you can also better manage and have more control over your stocking strategies, thus ensuring an efficient inventory turnover.
Since the seller has total control, you can achieve greater flexibility in your selling strategies and make informed decisions to boost sales and revenue.
2. Better Control Over Pricing
The 3P eCommerce model involves letting sellers manage product levels and optimise pricing strategies.
Unlike the 1P model, where you hand over the reins of your product and its pricing to the retailer or marketplace, 3P lets you define the product prices based on supply and demand.
As a result, you can also maintain control of your brand’s reputation and earn more credibility and revenue in the marketplace.
3. Higher Profit Margins
With improved pricing and branding strategies, you can maximise the traction of your products and maintain your profitability.
Not to forget, other business models may often involve a hefty commission or platform fee that can be avoided in the 3P model.
This will help you boost revenue and profit margins. You can also optimise your listings and make more strategically informed decisions to get more out of your product sales.
2 Disadvantages of a 3P
1. Increased Workload and Processes
Having increased power and control over processes comes with increased responsibility and workload.
Since you will manage almost every aspect of the selling process by yourself, the onus of driving and maximising sales relies on your ability and skills as a business.
The workload in the 3P model can be particularly daunting for new sellers and retailers that don’t have the necessary team or resources figured out in the initial stages.
2. Higher Overhead Costs
While increased revenue and profitability may incentivise implementing the 3P model for your business, you must consider the costs associated with it.
For instance, Amazon’s 3P sellers get access to better features and controls via Seller Central but are also required to bear costs like fulfillment fees and FBA storage costs. These additional charges and taxes can add up to a much higher shipping cost compared to other selling models.
5 Key Differences Between 1P vs 3P Marketplace Models
Now that we have explored the pros and cons of implementing the 3P selling model, let us compare it with the 1P model, the most popular sales model chosen by businesses after 3P on various eCommerce platforms.
The 1P sales model involves selling your stock to marketplaces based on their orders, making them your customers and relinquishing control over most of your sales and fulfilment processes to the marketplace.
That considered, let us examine the key differences between the 1P and 3P marketplace models based on the following parameters:
1. Relationship
In the 1P eCommerce model, the marketplace is the retailer, and the vendor is the wholesaler.
For instance, with the Amazon 1P model, you will manage your orders through Vendor Central and sell your products in bulk to the platform.
On the other hand, with the 3P model, you remain the retailer, while the marketplace will simply act as a storefront for your business. You will manage all aspects independently, making this relationship or selling model more autonomous and flexible.
For instance, with the Amazon 3P model, you get access to Seller Central and control all aspects of the process.
2. Control
The relationship between the marketplace and vendor in 1P and 3P models is very telling when assessing the extent of control both parties have on the selling process.
The 1P model transfers most control of the sales process to the marketplace, while the 3P model ensures it is retained by the original seller.
In the 1P model, vendors get limited access to features and can primarily manage their purchase orders, product details and advertising.
However, retailers in the 3P model can manage everything from product listings to pricing strategies and even control how much stock to store or sell.
3. Profit Margins
Being a seller following the Amazon 1P vs 3P model involves working with different sales strategies, processes and customers.
However, the most important thing is that in the 1P model, you will generally work with lower wholesale margins, as you will take up the role of a wholesaler for a marketplace like Amazon.
On the other hand, with the 3P model, you enjoy much higher retail profit margins as you get to sell the products directly to customers using a retail pricing structure.
4. Logistics
Choosing the eCommerce 1P model will hand over the control of your logistics and fulfilment processes almost entirely to the marketplace along with the ordered products.
Once they receive your products, the marketplaces take care of listing, managing, selling and fulfilling product orders.
On the other hand, the 3P marketing and sales model deals with every aspect of selling products. You will post and optimise the product listings, promote them, sell your products, and even fulfill your orders on your own.
However, you can choose whether you want the marketplace to handle fulfilment or do it yourself (e.g. choosing between Fulfillment by Amazon (FBA) and Fulfilled by Merchant (FBM) on Amazon).
5. Costs
Typically, marketplaces ask vendors to pay a consolidated fee for all the services related to selling a product.
Say you are an Amazon 1P seller; you will have access to Vendor Central, wherein you will pay a fixed fee in exchange for the marketplace managing promotions, listing, pricing and sales of your products.
In contrast, opting for the 3P model gives you more control but also involves additional costs. You must consider multiple pricing plans in addition to the fulfilment fees and other charges, depending on your approach toward order fulfilment.
How to Choose the Right Selling Model For Your Business?
We have now looked at what is involved in the 3P selling model and how it is different from the 1P model. Let us now dive deeper into the factors to consider when choosing the right selling model for your business:
1. Gauge Your Desired Level of Involvement
Whether you are a brand-new online store finding your footing in a giant marketplace or a popular brand seeking an additional source of revenue, it all boils down to how involved you want to be in your operations.
If you want to be hands-on with complete control over every part of the selling and fulfillment process, opting for a 3P model is the better choice.
However, if you want to limit your involvement but retain some control over operations, you can opt for the 2P model.
Lastly, if you have too much on your plate or lack the necessary resources and want to relinquish control of your process almost entirely to the marketplace, the 3P model is the right choice.
2. Learn More About Your Logistics Set-Up
Even if you retain control over some of your logistics and fulfilment processes, you must ensure that your business is equipped for it. The last thing you want is to be overwhelmed with orders without the know-how or resources to cater to them.
With the 1P model, you can plan your logistics and inventory management better, as the purchase orders from marketplaces are consistent and can be forecasted.
So, it is a better choice for businesses that have not set up comprehensive logistics processes. As a 3P seller, you are required to take over the entire process, which is better for businesses that already have robust logistics processes.
3. Understand Your Budget Cap
While control and involvement are key factors in deciding the right sales model for your business, ensuring it aligns with your budget is equally important.
The 3P model gives you a lot of power but comes with hefty costs that many businesses may struggle to afford. Other models may offer less control over your selling or logistics processes but are more cost-effective for businesses.
4. Assess the Strengths and Weaknesses of Your Infrastructure
Highlighting the earlier point about evaluating your logistics setup, you must assess the strengths and weaknesses of your logistical infrastructure before deciding on a sales model.
If your infrastructure is still a work in progress or requires improvements, it is best to opt for a 1P or 2P model, as it will let you focus on strengthening your core capabilities.
Concluding Remarks
When you start selling on a marketplace, your choice of sales model defines not just your profit margins but also your success on the platform.
Marketplaces like Amazon and Walmart provide a wide range of features for managing everything related to your product sales, from listing management to order fulfilment, letting you decide how much control you want over your processes.
Be sure to choose the right selling model for your business by weighing factors such as budget, capabilities, convenience, and profitability.
Contact us to get professional assistance with fulfilling your orders on time, regardless of whether you are shipping them within the country or overseas.