Amazon made headlines earlier this year when it announced that it had finally cracked $100 billion in annual sales—the fastest company to ever reach that milestone. But here's an important stat that wasn't in the news: a staggering 50% of Amazon's units sold come from third-party sellers. These 2 million-plus merchants are key to the company's success, as they facilitate an unmatched selection of goods at competitive prices.
Not all merchants on Amazon, however, are third-party sellers. Amazon offers four business models—two third-party ("seller") models and two first-party ("vendor") models—that merchants can choose from. Here's what you need to know about each option:
Under a third-party model, the merchant, not Amazon, owns the inventory and is thus responsible for pricing and inventory management. This approach offers the most control and highest profit opportunities, but requires a high level of input and management. Amazon offers two third-party options:
Manufactured Fulfilled Network (MFN): You (the merchant) handle the entire order fulfillment process in house, from finding the exact item and packing it to sending it out and ensuring that the customer receives it.
Fulfillment by Amazon (FBA): Amazon stores your products in its fulfillment centers, and then handles all packing, shipping, and customer service. This arrangement is convenient but requires a fee.
Almost any merchant can develop a third-party relationship with Amazon, though several product categories ranging from beauty and healthcare to automotive and collectibles require pre-approval. For most third-party sellers, funds are transferred from the Amazon Seller Account to a bank account every two weeks.
To begin selling as a third-party merchant, you first need to establish an Amazon Seller Central account. Next, you need to determine whether you're a "professional seller" or an "individual seller." Businesses should opt for a professional account. The remaining registration process is fairly straight-forward and can be completed in under an hour.
Under a first-party model, merchants act as vendors selling inventory wholesale to Amazon, which then acts as a retailer and sells it to consumers on the marketplace. Amazon offers two first-party options:
Vendor Central: An invite-only arrangement reserved for larger manufacturers and well-known brands. Amazon buys your products, sells them at the prices they set, and pays you back. Your product listing will include the "Sold by Amazon" logo and will be Prime eligible. Vendor Central landing pages can also be customized more easily than third-party listings, with bullet points and keywords added to the descriptions.
Vendor Express: This option allows sellers to transition to vendor accounts without the need of an invitation—but also without the same level of services that Vendor Central provides. To sign up, sellers are required to send Amazon free samples of their products. If these turn out to be viable, then Amazon will place a bigger bulk order. For businesses unsure whether Vendor Central is the best fit, Amazon Vendor Express offers a low-commitment option to experiment.
As a first-party seller, you'll use a Vendor Central account instead of a Seller Central account. Amazon’s standard payment terms for first-party brands are Net 90, meaning that payment is made 90 days after invoice. You can apply to obtain Net 30 or Net 60 terms if you provide discounts to Amazon (2% or 1%, respectively).
The decision between being a third-party seller and a first-party vendor comes down to your type of business, your managerial experience, and the resources you have at your disposal. If you’re a large distributor or manufacturer, then Vendor Central, Vendor Express, or even Fulfillment by Amazon could help sort out logistics for you. If your business is small and you have the time and resources to directly oversee sales, then you’re probably better off as a standard (MFN) third-party seller.
For a more detailed analysis of the differences between Amazon's first-party and third-party models, try ChannelAdvisor's excellent white paper on the topic. To learn more about launching your own business (so that you can finally have a great product to sell on Amazon!), we invite you to download our SBN 101: How To Start Your Business guide.