Amazon Vendor Central or the 1P model is an invite-only model, where Amazon orders the products from you in bulk at a cost price, and Amazon sells the item to the end customers at a competitive price (not always at MSRP / List Price). Amazon offers 3 programs as part of Vendor Central.
1. In Network – In this Amazon sends Purchase Orders (PO) weekly and you would have to ship the items to Amazon FC and they will take care of the shipping to the end customer. You have the option of 2 shipping arrangements — Collect, where Amazon is responsible for the shipment pick up and Pre-paid, where you are responsible for the shipment to get to the Amazon Fullfilment Centers.
2. Dropship – Amazon will use your warehouse as an additional warehouse and will route customer orders to you for pick and Pack, shipping is taken care of by Amazon.
3. Direct Import – Amazon will pick up the item from the port of delivery, they take care of international transportation, customs, and Import Duties.
Pros
1. Amazon Orders items in bulk and pays you based on the standard agreement and CoOp fee
2. Having your products sold as a first-party seller through Vendor Central means that, as far as shoppers are concerned, your product is being “sold by Amazon.” That seal of approval can provide a boost in consumer confidence that you don’t have as a third-party merchant.
3. These items are Amazon Prime enabled except for a few customers who have higher lead time through the Dropship model. In the Dropship model, the Amazon Prime tag is conditional and the conditions are evaluated every 14 days based on the shipment metrics in the trailing 14 days.
4. Standard Payment Terms of 30 to 120 days.
5. If you think Amazon is not ordering any items, you can use the Born 2 Run program to get purchase orders. This is subject to approval based on profitability.
6. We can use Amazon Vine, in which your product is sent to top reviewers before it ever hits the shelves. Customer’s value what other customers have to say far more than they do advertisements, so user-generated content can translate into a sales boost.
Cons
1. Getting cost increased on items is next to impossible. There are some hacks to do this, but that’s for another day.
2. Amazon doesn’t adhere to MSRP or MAP. Amazon controls the retail price and it does parity with other large online and offline retailers.
3. The agreements change yearly and there are chances that Amazon might increase your terms %. So, with no cost increase and increase in % on your terms, your margin only reduces further.
4. The products must be shipped within the ship window end date, or you will get a chargeback
5. You must ensure that you follow standard Amazon guidelines of labelling the items and sending the items during the shipping window and once it is shipped you must submit information called Advanced Shipment Notification (ASN).
6. Shortage Claims – Though you would have shipped the items you accepted, the inventory would have got lost at any stage and Amazon will only penalize you in Shortages. There is only a theoretical process in disputing it and we have a 40% success rate in the disputes.
7. You must spend on AMS to drive visibility for your items.
Costs / Expenses Involved
1. Standard Agreement with Amazon, MDF (CoOp), Freight, Damage Allowance
2. Shortage Claims
3. Chargebacks – There are multiple chargebacks if you don’t follow their guidance.
4. Cost Increase is not possible on Vendor Central and no control on retail price as well, Amazon controls it.
Amazon Seller Central (or) the 3P model
Amazon Seller Central or the 3P model is a model, where you are the retailer and Amazon just provides the marketplace. You decide the retail price, and Amazon charges a transaction fee for facilitating the transaction and should you avail the Fulfilled by Amazon (FBA) program — there are additional fees for Storage, Pick, Pack and Ship from the a Amazon FC’s. There are 2 programs part of Seller Central.
· Fulfilled by Amazon (FBA) – In this, you will send the products to Amazon and Amazon takes care of fulfilling the items to the end customer, and they also take care of the customer support, returns and refunds. The biggest advantage here is that this program gets you the Amazon Prime tag. 60% of the users on Amazon search for Prime enabled products only, and a typical Amazon Prime member spends more on Amazon than a non-prime member.
· Fulfilled by Merchant (FBM) – In this, you will send the products to the end customer directly based on the orders you get. You are responsible for handling the customer support, returns, refunds and the onus of pick, pack and shipping to the end customer is on you. In this program you DO NOT get the Amazon Prime tag, unless you can avail the Seller Fulfilled Prime (SFP) Program or the Amazon Fulfilled by Amazon (FBA) Onsite program — both the programs are currently on hold in the US for new registrations.
Pros
· As a retailer, you can control your inventory and pricing.
· Fulfilled by Amazon Program (FBA) lets you use Amazon’s shipping prowess to deliver products to the end customer quicker than you could do by shipping yourself.
· In FBA, Amazon handles Pick, Pack, and shipping and manages customer service and returns. You will also get a prime tag for your FBA products.
· You can use Fulfilled by Merchant (FBM) just to cover the availability of products and this can serve as a back-up should Fulfilled by Amazon (FBA) run out of inventory.
· You Pay Amazon Seller Central Tool Fee (FBA and FBM, $39 monthly) closing fee (FBA and FBM 12 – 15% of the list price), FBA Fee (FBA only – depends on the size) Inventory Storage Fee (FBA only – depends on the size) and you can use Amazon Partnered carrier to ship your items to Amazon Warehouse (FBA) at a cheaper price.
· If you do not have great freight rates, you can use Amazon’s partnered carrier for shipping it to their warehouses.
Cons
1. Amazon ensures that the items sold on Amazon are at the best price in the market otherwise they will suppress the buy box. Hence based on other competitors, Amazon matches the price to determine you are selling it at the same price or lower price on Amazon. So, you should be flexible to dynamic pricing.
2. You must spend on AMS to drive visibility for your items.
3. You get paid only when the items get sold. It is a consignment model.
4. If you are a new seller then the limitation of 1000 units might be an initial issue, but Amazon reviews your capability on a weekly basis.
5. If you do not adhere to Amazon Policy guidelines and if your account gets blocked, the time taken to reinstate when compared to vendor central is on the higher side.
Hybrid Model
SalesDuo is a great advocate of a Hybrid model, which is nothing but a combination of Vendor and Seller Central. I have listed down the most common problems faced by our customers and why we recommend the hybrid Model.
· Cost Increases and Agreements – Cost increases on Vendor central is one of the most common problems faced by our customers. The margin becomes much thinner with the increase in MDF (CoOp) agreements.
a. Due to the diminishing profitability, we review your current cost and deduct the agreements to identify the net through Vendor and compare that against potential profit that you get out of seller central at an item level and recommend if the item can be moved or not and what channel we recommend for your product. In most cases you will realise that the margins you make on Seller Central would be more than what you make via Vendor Central.
· Amazon Purchase Order model — Amazon only orders items that have high glance views, purchase rate, and good profitability for Amazon. This make it difficult to launch new products on Vendor Central.
· MAP Adherence — If MAP adherence is a priority, Seller Central would work much better than Vendor Central.
· Chargebacks – Amazon has a stringent process when it comes to adhering to the standard procedures outlined by Amazon during various stages right from order acceptance, packaging, adhering to the timelines, and receiving process. This will further cut your margin if your internal process is not time bound / effective.
a. In seller central, the most common chargeback is when you send an oversized Carton or overweight Carton. You can avoid all other chargebacks related to the late shipment (Only in FBA), packaging especially the requirement of Ships in Own Container (SIOC) for large items.
· Shortage Claims – One of the most common problems on Vendor central is the % of shortages that Amazon claims for your shipment. There is a process to dispute, however, the direction in which you can approach the dispute is only theoretical as there is no way we can practically say that X units were sent to Amazon unless we take a video.
a. In Seller Central, the % of shortages claimed by Amazon is relatively low and we always wondered how the receiving process for Seller Central shipments is much effective than the vendor Central orders.
The above factors determine which items you should continue through Vendor Central and which ones through Seller Central.
Frequently Asked Questions
About the Author
Giridhara Prasad is an Associate Director at SalesDuo and a startup enthusiast. With extensive expertise in e-commerce, this ex-Amazonian has been instrumental in driving success for businesses worldwide. Apart from his passion for creating innovative sales strategies and optimizing online retail experiences, Giri finds interest in watching and playing sports, including starting to play pickleball, traveling, and exploring political science and philosophy.
