Selling on Amazon: 3 Questions to Ask Before Working with Third-Party Sellers (3Ps)

On Amazon, third-party sellers (commonly referred to as “3P sellers”) are any company selling on Amazon’s marketplace other than Amazon itself. Amazon owns its marketplace, so Amazon is a “first-party” seller, while everyone else is a “third-party.”

You can divide Amazon third-party sellers into two main subcategories: private label sellers and retailers. By private label, we mean that the seller is also the manufacturer; the same company manufactures and sells the product. Retailers, on the other hand, buy the product from manufacturers at wholesale cost, then resell it for the retail price on Amazon. There are over 6 million of third-party sellers on Amazon as of 2021.

Amazon is both a private label seller and a retailer because they sell original products, such as their Amazon Basics line, while also retailing products of major companies. Kaspien operates similar, retailing products for hundreds of brands, while also curating several private label brands as well, which we use as guinea pigs to test new strategies and marketplaces. We then apply our findings to retail partners’ strategies.

Many brands choose to work with a third-party retailer to sell their products on Amazon because of the work it requires. Producing a product is one thing. Selling it on Amazon is another. Both require a great deal of expertise and infrastructure, so oftentimes brands will focus on product creation and partner with another company to handle logistics, marketing, sales, and customer service.

If you’re shopping for third-party sellers, discerning which is the best fit for your brand can be quite difficult. To help you narrow down the third-party sellers worth your time and your business, here are 3 questions we recommend asking to quickly identify the top candidates.

1 — How Much Does It Cost to Have You Retail My Products?

If you partner with an Amazon third-party seller solely to retail your products, there are no upfront costs. Instead, third-party sellers typically purchase from you at wholesale cost and retail your product for a thin margin. Costs enter the equation only if you choose to utilize other services they offer.

Almost all third-party sellers offer the standard services of storing, listing, and distributing. Many differentiate themselves by offering additional services, such as digital marketing, brand protection, and logistics support.

These services will vary in cost. Payment structures range from a flat fee, hourly rate, discounts on purchase orders, and so on. Usually, these services are optional, although in some select cases, brands may be asked to pay a retainer upfront. Retainers are usually charged when the margins on a product are low, such as when launching a new product and investing heavily in marketing to spread the word.

It’s important to be aware of these costs before you sign on to work with a third-party seller. When you approach a potential third-party seller, ask them a few questions about their cost structure, such as:

1. What are your upfront costs?
2. What is the payment structure for your services?
3. Will we have to pay a retainer?

2 — What are the Benefits of Working with You as Our Amazon Third-Party Seller?

One of the main benefits of partnering with a third-party seller is that they can leverage economies of scale. The economics of scale are cost advantages that companies reap as they combine volume with heightened efficiency. As companies produce more goods, the cost per good generally decreases. This is one reason why you can find better rates when buying in bulk. When third-party sellers work with many brands and/or products, they enjoy a similar situation, facing a higher total price, but better rates. They can pass on these better rates to the brands they partner with in the form of better margins

Some third-party sellers also offer a variety of different products and services that their partners can leverage to improve results. As previously mentioned, many 3P sellers offer digital marketing services, creative services, brand protection services, and logistics & supply chain services. These areas of specialty are important for growth and scaling your brand, and you can outsource them to your third-party seller instead of taking on the expense of an Amazon agency or full-time employee.

There is also the financial situation to consider when planning your online strategy. By working with a third-party seller and employing their additional services, you save on the costs of hiring new staff, building out new processes, purchasing software, and a host of other costs. These actions might not be feasible for your organization, especially during the COVID-19 pandemic.

For many brands, leveraging a third-party seller is much simpler and more affordable than developing in-house capabilities.

3 — What Expertise/Tools Do You Have and How Will They Grow My Brand?

In addition to asking what a third-party seller could do for you, you should also reflect on what you can do for yourself.

1. What capabilities, expertise, and core competencies do you have in house?
2. What capabilities couldn’t you develop in-house?
3. What software and services does your potential third-party seller have and how will they supplement your business?

By asking these questions, you can identify the gaps that could be filled with a third-party seller. For example, many newer brands have a limited understanding of selling on the Amazon marketplace, how to optimize their online channels (which differs significantly from brick and mortar), and the overall impact of scaling on Amazon. For a newer brand like this, it would make sense to find a 3P seller who has a long history selling on the Amazon platform.

Focus on Your Brand

There’s a lot to deal with in the world of ecommerce. Climbing marketing costs, low visibility, a saturated marketplace, and more create challenges for established and emerging brands. Working with a third-party seller may be the best way to gain the kind of traction your brand is looking for, freeing your time to focus on developing great products that consumers want.

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