1P vs. 3P: A Tale of Two Parties
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When you order products online, who are you ordering from?
If it’s an independent ecommerce website, it’s pretty way to tell. You can even find the brand’s About page and read their origin story. But if you order on Amazon, are you always certain?
With large, established consumer bases, online marketplaces like Amazon and Walmart enable merchants to sell their products to a massive audience.
These marketplaces make it much easier to get in front of your potential target audience, but you have to be strategic about the type of selling model you choose.
Both Amazon and Walmart will let you choose between 1P and 3P selling models, and it’s up to you to figure out the right option for your business.
In this article, we’ll explore the differences in relation to each marketplace and how to choose which one’s best for you, so you can make the right decision for your business.
What is 1P vs. 3P?
1P involves supplying products to a retailer (e.g., Amazon or Walmart), whereas 3P involves selling products directly to consumers through the retail marketplace.
Both 1P and 3P come with a list of advantages and disadvantages. Let’s take a closer look at the pros and cons of each option.
1P refers to a first-party relationship with a retailer. With this selling model, you act as a wholesale supplier for the retailer, who will then sell your products to their end customers and take care of every aspect of fulfillment.
A common example of 1P is Amazon inviting you to sell your inventory to them, then Amazon sends you a purchase order to ship the inventory to Amazon (in other words, Amazon own your products).
- Very hands-off
- Minimized inventory risk
- Leave customer-facing operations to the retailer
- Consolidated fee structure to simplify and minimize cost
- No control over product pricing strategy
- Lower profit margins
- No control over inventory and product listings
3P refers to a third-party relationship with the retailer. In this model, you use the online marketplace to sell directly to end customers and take care of the entire retail fulfillment process without the retailer’s help.
A common example of 3P is Amazon’s fulfillment method, FBM (Fulfilled By Merchant).
- More inventory control and flexibility
- Better control over product pricing
- Higher profit margins
- Requires more work and overhead, including fulfillment needs
- Needs expertise with listing optimization and marketing
- Involves more added fees
What about 2P?
Alternatively, you can also opt for 2P, which is a hybrid model that involves listing your products to sell through a retail marketplace and leveraging the retailer’s services to fulfill your orders.
Here, you still retain control over your prices and listings but pay a fee to the retailer to fulfill the orders on your behalf.
A common example of 2P is Amazon’s fulfillment method, FBA (Fulfillment By Amazon).
So, is 1P or 3P better?
The answer depends on the level of control you want to maintain and the amount of work you’re willing to do. Moreover, the 1P and 3P options may vary across different platforms. You may even find that neither option is what you’re looking for.
Let’s make a detailed comparison between the 1P and 3P options for both Amazon and Walmart to make this decision easier.
Amazon 1P vs. 3P
On Amazon, you can sell 1P through Vendor Central and 3P through Seller Central. You can gain access to Vendor Central only by invitation, whereas any seller can sell through the Seller Central.
When selling through Vendor Central, you’ll receive purchase orders from Amazon on a regular basis and you won’t need to worry about physically managing the inventory yourself.
Alternatively, Seller Central gives you full control and responsibility for your inventory and product listings.
In the 3P option, individual plans cost $0.99 per item sold, or you can choose to sign up for the professional plan at $39.99 per month. Both plans come with additional selling fees.
Plus, there may be additional costs depending on how you choose to fulfill the order.
For example, you’ll have to consider the additional costs associated with Amazon Multi-Channel Fulfillment or Fulfilled by Amazon fees if you choose to sell 2P.
Alternatively, you may fulfill orders directly through the Seller Fulfilled Prime (if approved) or Amazon Fulfilled by Merchant programs.
On the other hand, selling through Vendor Central simplifies payments as it involves paying a consolidated fee that includes marketing, packaging, remittance, and co-op. And you get a dedicated account manager to provide you with assistance.
At the same time, Amazon will try to negotiate with vendors to increase their own profit margins, which means you can expect to get only wholesale profit margins.
Walmart 1P vs. 3P
Similar to Amazon, 1P selling on Walmart involves shipping your products to Walmart, which will then be in charge of listing, marketing, selling, and shipping the products. This simplifies the supply chain process for you.
If you choose the 3P selling option, you’ll have to manage your inventory and order fulfillment on your own.
However, Walmart doesn’t charge monthly account fees to 3P sellers, unlike Amazon. You only have to pay referral fees that vary by product category and typically range between 8-20%.
While first-party sellers enjoy many benefits, they have limited control over prices and listings. Walmart tends to cut prices to offer the most competitive rates and entice buyers, which will significantly bring down your profit margins.
A GrowByData analysis on Walmart product listings for shoes even found that 1P sellers mostly dealt with shoes priced under $50, whereas 3P sellers offered more variety in terms of price points.
How to choose what is best for you
Your resources and current growth stage play a significant role in determining whether 1P or 3P is a better option for you (or neither). Here are some questions to consider to help you land on the right decision.
How involved do you want to be?
3P selling gives you better control over your prices, marketing, listings, and inventory. This makes it an excellent option for businesses that want to be highly involved in the process and want to build a strong brand image.
However, it also involves a lot more time and hands-on work. If you don’t have the time and workforce, 1P selling may be the better option.
How is your logistics set up?
If you already have a well-established logistics system and are capable of fulfilling orders yourself, 3P selling is an excellent option.
Businesses that don’t have a mature logistics system set up may want to consider 1P selling as the retailer will handle everything on your behalf.
Alternatively, you can also outsource fulfillment to a third-party fulfillment provider while selling the products across sales channels, including marketplaces.
What infrastructure do you have?
3P selling is a good option if you have the capability to store and manage the inventory yourself. However, if you don’t have the infrastructure necessary to store and manage your inventory, 1P may be a better solution.
Alternatively, you may want to consider storing the inventory at a 3PL’s fulfillment center, or selling 2P and leveraging the retailer’s fulfillment solution.
How ShipBob can help with 1P and 3P fulfillment
While first-party sellers must work directly with the retailer they partner with, if you decide to sell third-party, ShipBob provides you with fulfillment solutions that will streamline your operations (e.g., 2-day shipping for Walmart or FBM shipping for Amazon).
ShipBob is an omnichannel fulfillment provider with with two-day shipping capabilities, B2B fulfillment services, and international shipping expertise.
Additionally, ShipBob offers a wide range of integrations and fulfillment services for third-party sellers to leverage, including other channels like fulfillment for ecommerce websites and even B2B services for EDI-compliant orders.
“Most other companies like Amazon are structured in such a way that you don’t have flexibility — you’re just a small part of their business, so there’s no patience for you. The amazing thing about
ShipBob has not just been its flexibility and ability to customize, but also the support it’s given us whenever we’ve faced problems.
Having support through ShipBob has really allowed us to capture growth well.”
Aaron Patterson, COO of The Adventure Challenge
ShipBob ecommerce integrations
ShipBob offers integrations with leading ecommerce platforms and marketplaces so you can streamline order fulfillment coming from these channels.
That means when an order is placed on any of these channels, the data is automatically sent to ShipBob, where the fulfillment process if automatically triggered.
In other words, orders are processed and sent to the fulfillment queue, ensuring that they get out the door faster and reach your customers faster.
Moreover, you will be automatically updated with real-time inventory data. This enables you to update your store and avoid selling out-of-stock items.
Currently, ShipBob offers integrations with the following ecommerce platforms and marketplaces:
Other useful ShipBob integrations and partners
In addition to the above, ShipBob also has several other integrations and partners that can simplify your ecommerce operations. Here are some of the essentials:
- Accounting, tax, and financing: These integrations can support your back-end operations, helping you keep accurate financial records and maintain tax compliance. They include tax compliance integrations like Avalara and TaxJar, finance platforms like Kickpay, and banking stacks like Mercury.
- Branding, marketing, and web development agencies: ShipBob partners with top agencies like Hawke Media, Eventige, Envoy, and eHouse Studio to help you with the branding, marketing, product development, and advertising aspects of your business.
- Ecommerce custom packaging and design solutions: ShipBob partners with several packaging solutions like Arka, Packlane, Packhelp, and noissue to deliver memorable unboxing experiences for your customers.
- Ecommerce marketing, CRM, and customer support: These integrations make it easier to manage customer data, market your business, and handle support tickets. They include sales integrations like CheckoutChamp, an integration with marketing platform Klaviyo, an integration with customer support tools like Gorgias, and partnerships with personalization tools like Zaius.
- Freight and shipping solutions: ShipBob enables you to lower your shipping costs through a host of carrier partners and shipping platform integrations. They work with carriers like DHL, FedEx, UPS, and USPS as well as other shipping solutions like Rush and ShipStation.
- Returns management platforms: ShipBob lets you manage and process your returns easily by directly integrating with platforms like Returnly, Happy Returns, and Loop Returns.
- Ecommerce operations, inventory, and order management: These integrations simplify the process of managing your inventory, handling and processing orders, and forecasting demand. ShipBob offers direct integrations with platforms like Cin7, Inventory Planner, PackageBee, Zentail, Skubana, Fulfil.io, Order Desk, Linnworks, and SPS Commerce.
“This year alone we introduced 17 new SKUs. We’re launching them on Target, Ulta, Amazon, and selling them DTC. Each channel has its own complexities so having reliable partners to manage the launches is absolutely key.
Overall, the goal is to be truly omnichannel. Acne doesn’t discriminate. It impacts people of all ages and walks of life and so it’s important that our products be easily accessible.”
Dwight Lee, co-founder and COO of Hero Cosmetics
If you sell on marketplaces, ShipBob is a great choice for fulfillment. To learn more about ShipBob’s omnichannel fulfillment solutions, request a quote below.
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Online Sales and Its Sellers (1P, 2P, 3P)
So you have decided you want to expand your business. Maybe you have a small brick-and-mortar store and you want to expand your footprint and attempt to tap into a larger market. Maybe you don’t even have a brick-and-mortar store and raising capital to open one is your biggest barrier to even getting your product up and selling. That is the beauty of e-commerce and online marketplace. If you have what the buyer wants and you can ship it to them in a quick manner you too can enter the online marketplace. They don’t pass judgment based on the condition of your store, they just buy your product. It is truly egalitarian, you have what they need and they need it on time, the rest is just details. However, a lot of beginning sellers aren’t aware that there are a few different categories of sellers. There are 1st, 2nd, and 3rd party sellers (1P, 2P, 3P) that sell on Amazon. Hopefully, the following information will provide you with some insight into those categories and help you select what type of seller you would like to be.
1st Party (1P)
You are selling directly to Walmart, eBay, Amazon, or other marketplaces. They buy the product from you, store them in their own warehouses, and ship it for you. Basically, you have established a relationship with a marketplace (Walmart, Amazon, etc.) and they want access to your product before anyone else has the chance. You are selling TO them and not THROUGH them. Your product is the next new fidget spinner that removes tough-to-get-out stains and they see the value in that product and they want exclusivity. This is great news for you but it also has its pitfalls. If the public recognizes the value of your product they will buy it from the marketplace and in turn, the marketplace needs to restock and keep buying your product. This is a great relationship and very lucrative if it takes hold. The downside is that you lose control of branding and pricing on the e-commerce marketplace. Also, you are selling your product at wholesale and missing out on the added income from selling retail. You will also notice that when people buy your products the highlighted information is what they will see. It is your brand, but the marketplace is taking a little bit of ownership:
2nd Party (2P)
This is the type of seller who relies on the FBA (Fulfilled By Amazon) to get their products shipped. You own your product and likely manufacture it (or have a partner who does). Your products are in Amazon warehouses and when an order comes in, the Amazon fulfillment centers ship out the product to complete the order. You are selling THROUGH the marketplace. You retain full control of their branding but the marketplaces will charge you for their sales. The marketplaces fee is a flat rate, percentage, or by referral. This is a wonderful option for the users who want to enter the marketplace but they don’t have the brick-and-mortar option. Again, maybe you didn’t have the capital to start up and you see this as an opportunity. It could also be that you don’t have the storage area to keep and fulfill all of the orders that come through. Send bulk of items to the marketplace and they will fulfill for you. This of course comes with a cost, but convenience is not to be expected without a fee of some sort. When you sell your items as a 2nd party seller your products will appear like this on the website:
3rd Party (3P)
FBM (Fulfilled By Merchant) sellers are the 3rd party sellers. You own your product and don’t rely on the marketplace to promote it. It is displayed online and when an order comes in you have the item on hand and you fulfill it. You and the 2nd party seller share a lot of similarities. You however have decided to forgo assistance from the marketplace in fulfilling orders and are taking a direct hands-on approach. When your products are up on the marketplace they will show you have complete ownership and control of the product:
Please keep in mind that considering what type of seller you want to be doesn’t lock you into that group for life. There are many users who sell on a hybrid model who started out in one group and saw the benefits of selling with a hybrid model to help increase traffic and their own footprint. We hope that it cleared up the differences between 1P, 2P, and 3P. If you have any further questions regarding selling online and integrating with any marketplace please feel free to ask in our support chat or write us an email.
1P vs 3P: How to sell on Walmart and Amazon
Most marketplaces offer both 1P and 3P options. For Walmart and Amazon sellers, planning your strategy for what to do on each marketplace must be part of a cohesive plan to avoid getting delisted. To highlight the importance of choosing your steps in the eCommerce ecosystem carefully, here’s a cautionary tale.
One seller lost 90% of his business because of how he set up his items on Walmart and Amazon. He was supplying directly to Walmart, and using the Amazon marketplace to sell directly to consumers. He sold 10% on Walmart and 90% on Amazon, but since he was selling directly to Walmart, they were able to set prices lower than what the seller had listed on Amazon. When Amazon found out, they de-listed his items and he lost 90% of his sales.
Set up your 1P and 3P relationships well, across marketplaces, to avoid any losses in revenue or other seller nightmares.
What is 1P and 3P?
A first-party relationship (1P) means the marketplace acts as the retailer, and the brand is the wholesale supplier.
A third-party relationship (3P) is when the brand is the retailer, and sells directly to buyers via the marketplace.
Your options for the Walmart and Amazon mix include;
- 1P Walmart, 3P Amazon: Supply to Walmart, sell to consumers on Amazon
- 3P Walmart, 1P Amazon: Supply to Amazon, sell to consumers on Walmart
- 1P Walmart, 1P Amazon: Supply to both Walmart and Amazon
- 3P Walmart, 3P Amazon: Sell to consumers on both Walmart and Amazon
1P vs 3P on Walmart and Amazon
Benefits of 1P
Selling 1P on Walmart or Amazon means you sell directly to the marketplace, and they then sell to the buyers. Marketplaces are more likely to promote listings they own and can be sure of, and they’ll purchase items in bulk. 1P sellers may also get access to more marketing tools.
Since you’re the supplier, all you have to worry about is the supply, and the marketplace will handle customer-facing aspects. You remove all inventory risk from your business, because your items are sold and on the books.
Your items also get the benefit of being listed as an Amazon or Walmart product, which can encourage trust and potentially more purchases.
Drawbacks of 1P
The biggest drawback of 1P is lack of control and lower margins. Selling at wholesale instead of retail hurts your margins, but even beyond that, you give the marketplace power to control pricing, even beyond your recommended sales price.
In the case of Amazon, although you get access to more merchandising options, 1P sellers are still expected to pay for them.
You also lose some leverage in the relationship, since you end up becoming more dependent on the marketplace and are at the mercy of their accounting departments when it comes to getting paid in a timely manner. For example, 3P sellers on Amazon typically get paid every 7 or 14 days. However, 1P sellers typically get Net 90 terms, with the option for Net 30 or Net 60 if you provide discounts (2% or 1%, respectively).
Finally, you end up not controlling your entire inventory, so if you’re running low on inventory in Walmart, you cannot use your items with Amazon to fulfill additional orders.
Benefits of 3P
When you sell through the marketplace, you get the benefit of setting your own prices so you can protect your margins. You can also ensure you don’t get de-listed on any marketplace due to a price discrepancy, since Amazon crawls listings on competitor marketplaces.
3P also means you control your own inventory, so you can fulfill orders on various marketplaces from your stock.
Finally, you have complete ownership and control of your product, and get additional brand exposure for your seller account.
Drawbacks of 3P
Selling directly to consumers through Amazon or Walmart means you will have to set up your own listings, ensure they are optimized, and handle your own marketing. This option does come with more responsibility on the seller, but this can be mitigated by outsourcing to strategic partners.
How to sell on Walmart and Amazon
If you go with 1P on one marketplace, and 3P on another, you risk getting de-listed. Amazon and Walmart regularly monitor other marketplaces, and if they find your item at a lower price your listing will get penalized. This can have lasting effects on your seller account, so we strongly recommend against a combination of 1P and 3P for different marketplaces.
Note: Amazon used to allow sellers to do 1P on some items, and 3P on others. This is no longer the case, as Amazon is shutting down its Vendor Express platform.
So that leaves either 1P across marketplaces, or 3P across marketplaces.
If you do 1P across marketplaces, you let them fight it out amongst themselves on pricing. You send your products at wholesale price and then hope they end up selling enough to cover your margins and encourage reorders after the price war.
Plus, there’s no assurance that the marketplaces will purchase all of your products. That means you may be stuck with inventory and no place to sell them. We don’t recommend this.
Our recommendation: 3P across marketplaces
When you do 3P across marketplaces, you control your own pricing and can put all of your inventory up for consumer purchase. You maintain authority over your products and brand(s), get higher margins, have better payment terms, and even get better sales velocity.
Most sellers who prefer 1P over 3P do so because it seems more convenient, but it would be at the cost of your business health. 1P isn’t known for having good support unless you pay for dedicated service, it’ll cut into your margins, and could affect your supply line if you don’t get paid on time.
However, it can be just as simple (or even easier) to sell as a 3P seller than 1P if you choose your partners wisely. Logistics is usually the biggest stumbling block for 3P sellers, especially because it can be difficult to get on fast shipping programs or ensure seamless delivery.
3P seller with 1P benefits
If you’re a 3P Walmart seller, fulfilling with Deliverr will give you the same promotional benefits as a 1P seller. Deliverr integrates directly with Walmart to get you almost instantaneous access to Walmart Free 2-Day Shipping tags and Walmart Performance Ads.
3P sellers have seen their sales jump more than 500% after enabling free 2-day shipping, and Deliverr partners enjoy an easy onboarding process and transparent all-inclusive pricing.
Deliverr also offers exclusive 2-day shipping discounts for Walmart marketplace sellers.
Visit our cost calculator to find out how much it would cost you to fulfill with Deliverr.