Every entrepreneur needs to understand the difference between an Amazon seller vs vendor before committing to the marketplace. This is because choosing one over the other is the first key decision to make. In this post, we will outline the key differences of these two models. Our aim is to give you enough information to decide which one you want to dive further into.
Understanding Amazon’s Two Models
Amazon Seller Central is for individuals and businesses of all sizes. This model is a retail selling model. Anyone can create a Seller Central account. You list your products on the Amazon marketplace, set your own prices, and manage fulfillment. This can be on your own or through Fulfillment by Amazon (FBA). You are responsible for customer service and returns.
Amazon Vendor Central is for manufacturers, distributors, and brand owners. It’s a wholesale selling model. Currently, Amazon’s vendor program is invite-only. Amazon selects vendors based on factors like brand reputation, product quality, and sales history. If selected, you would sell your products in bulk directly to Amazon at a wholesale price. They then handle storage, fulfillment, listing creation, customer service, and delivery.
Amazon Seller vs Vendor Control and Relationship
Amazon sellers maintain a direct relationship with customers and gave more control over their business operations. This means they have more control over pricing, branding, and product listings. This model is suitable for a wider range of sellers, including those new to ecommerce.
Note, however, that being an Amazon seller takes more time and effort, requiring you to manage listings, fulfillment, and customer service while facing tougher competition. This often means you need extra marketing to attract buyers. Additionally, sellers deal with issues like unauthorized sellers and counterfeit products. Agencies like ThornCrest offer brand protection services to help businesses selling on Amazon overcome these challenges.
Vendors have a direct relationship with Amazon itself rather than Amazon’s customers. This means less control over pricing and branding. In addition, vendors face strict performance requirements. Failing to meet these expectations can lead to account suspension.
Still, being an Amazon vendor has its advantages. First, because of the direct relationship with Amazon, vendors can reach the large audience of Amazon shoppers. They also enjoy potentially higher sales volume due to Amazon promotion and placement. Third, they have less day-to-day management requirements
Pricing Strategy
Sellers set their own prices and control their profit margins. They pay various fees depending on their fulfillment method, Amazon FBA vs FBM. However, they face lower selling fees compared to Vendor Central, in some cases. Amazon sets the selling price for vendors, and it may not always align with your desired profit margin. Vendors also have less control over product listing details. On top of this, higher fees may apply compared to Seller Central.
Logistics and Fulfillment
When selling on Amazon, both vendors and sellers have options for how their products are stored, picked, packed, shipped, and returned to customers. Sellers can opt for Fulfillment by Merchant (FBM) or Fulfillment by Amazon (FBA). With FBM, sellers handle everything themselves. This includes storing their inventory, picking and packing orders, shipping them to customers, and managing customer service and returns. FBM gives sellers the most control over their fulfillment process and costs. However, FBM requires more upfront investment because sellers need to have their own storage space and a system for managing fulfillment.
With FBA, sellers send their inventory to Amazon warehouses. Amazon then takes care of storage, picking and packing orders, shipping them to customers, and managing customer service and returns. FBA is a convenient option that frees sellers up to focus on other aspects of their business, but it comes with additional fees.
However, FBA can be more cost-effective for high-volume sellers because it simplifies logistics and potentially reduces overall costs. FBA can also improve product visibility and boost sales because they are often eligible for Prime free shipping. Vendors have only one fulfillment option, which is Amazon Fulfillment, or Direct Fulfillment. In this model, vendors ship their products in bulk directly to Amazon warehouses. Amazon takes care of everything from there, including storage, picking, packing, shipping, customer service, and returns.
Advertising and Marketing
Both sellers and vendors can access Amazon Marketing Services (AMS), the platform for advertising on Amazon. This includes various ad formats like Sponsored Products, Sponsored Brands, and Display Ads. They can also leverage Amazon DSP (Demand-Side Platform) for programmatic ad buying across Amazon properties and external exchanges.
Note that this only applies to qualified sellers. Vendors have access to an additional retargeting feature through AMS that allows them to target customers who have previously viewed their products on Amazon. Sellers can achieve similar results through Sponsored Display campaigns with some audience limitations compared to Vendor Central’s retargeting option.
While both can leverage AMS, sellers primarily rely on self-service advertising tools. Vendors may have access to more account management support from Amazon advertising specialists, depending on their agreement. This makes ecommerce marketing easier for vendors. Sellers primarily rely on self-service support resources provided by Amazon, including help articles, tutorials, and webinars. While some seller plans offer limited phone or chat support, it’s generally less comprehensive than what vendors receive.
Moreover, because of their relationship with Amazon, vendors may have larger advertising budgets. This money is usually allocated by Amazon to promote their products, depending on the vendor agreement. Sellers independently manage their advertising budgets. Still, advertising costs for both vendors and sellers are performance-based, typically charged as pay-per-click. This requires Amazon PPC optimization to justify the costs.
In a nutshell, sellers have more control and flexibility, but higher competition and responsibility for customer service. Vendors, on the other hand, face the challenge of potentially lower margins, wholesale pricing challenges, and brand control issues.
Making the Choice: Amazon Seller vs Vendor
Choosing between the Seller Central and Vendor Central models on Amazon depends on several factors specific to your business. First, established brands with a consistent high sales volume are ideal candidates for Vendor Central. Amazon might invite them to leverage their bulk buying power for wholesale deals. If you have a limited product line or prefer more control over storage and fulfillment, Seller Central might be better. You’ll manage your own inventory and decide on fulfillment options (FBM or FBA).
If you have a strong marketing team and are comfortable managing your advertising campaigns, Seller Central offers more flexibility. Vendors may receive more support but might have restrictions on some ad formats. Seller Central allows you to set your own prices and manage your brand image more directly. Vendor Central offers less control over pricing and product listing details. Amazon sets the selling price, which may not always align with your desired profit margin.
Note that vendors are subject to strict performance requirements, such as maintaining a certain minimum stock level. Failure to meet these requirements could lead to account suspension. Sellers have more flexibility in this regard. Vendor Central also requires less day-to-day management of fulfillment and customer service. Amazon handles most of these aspects. Seller Central requires more effort to manage listings, fulfillment (FBM or FBA), and customer service.
If you’re a new seller or have a growing product line, Seller Central allows you to test and experiment with different strategies before potentially being invited to Vendor Central. Some businesses use both models. They might sell some products through Vendor Central for wider reach and others through Seller Central for more control.
Transitioning Between Models
Shifting from Seller Central to Vendor Central, or vice versa, requires strategic planning and execution. The same is true for adopting a hybrid model. First, make sure you know exactly why you want to switch. Many businesses start with Seller Central to establish their brand and product performance. Then they wait to be invited to Vendor Central. Ultimately, the best way to decide which one is best for you is to carefully evaluate your needs and see which best aligns with your business strategy.
If you’re moving from vendor to seller, carefully review your existing Vendor Central agreement. This will help you with any termination clauses or notice periods you need to honor before transitioning to Seller Central. If you used Direct Fulfillment, you will also need to figure out either FBM or FBA.
Create a Seller Central account if you don’t already have one. Familiarize yourself with all its functionalities. You will need to migrate your product listings from Vendor Central to Seller Central. Amazon has some migration tools to help with this process. However, you should do a manual review to ensure accuracy. Then, you need to implement a pricing strategy and come up with advertising campaigns that align with your profit margin goals and target audience.
Know that transitioning from vendor to seller might temporarily impact your sales. You will need to establish a Seller Central presence and optimize your listings before customers will notice you. Seller Central has different performance metrics than Vendor Central. Get familiar with them and create a plan to maintain a good seller ratings and account health.
Always maintain clear communication with your Amazon vendor or seller support contact throughout the process. They can offer guidance and help you with any challenges you encounter.
Opting for a Hybrid Model
When you choose a hybrid model, you need to first decide which products are best suited for Vendor Central versus Seller Central. Generally, products with high volume sales from an established brand are great for Vendor Central. You can sell new products and those that you need or want more control over on Seller Central.
Next, you need to choose a robust inventory management system to track products sold on both. This is so you maintain optimal stock levels. Consider whether FBA will work for both your Vendor Central and Seller Central products, keeping the fees in mind. Closely monitor the performance of your products to refine your strategy and optimize your listings. You might want to try A/B testing to see what model works best for specific products.
If you’re not that experienced on Amazon, consider consulting with eCommerce specialists. They can answer your Amazon seller questions and help you learn how to be a vendor, too. We also recommend that you start small. Migrate a limited number of products and test and track performance. Then move more over and repeat the process until you have everything where it needs to be. This way, you won’t get overwhelmed with your entire catalog. It’s always best to learn the ropes and gain experience before scaling up.
Frequently Asked Questions
What are the tax implications for an Amazon seller vs vendor?
For vendors, Amazon generally acts as the customer, buying products at wholesale prices. So, Amazon is typically liable for collecting and remitting sales tax in states with applicable Marketplace Facilitator or similar laws. Consult a tax professional for specific advice on when a vendor takes on this responsibility. For income taxes, vendors are responsible for reporting their wholesale income from Amazon sales and paying taxes on their profits.
Sellers are generally responsible for collecting and remitting sales tax and income tax. There are some sales nexus and Marketplace Facilitator considerations, however. Check our Amazon seller tax guide for more information. Note that product taxability can vary depending on both the Amazon category and state regulations. Research these details with your state to ensure accurate tax collection and reporting.
How does choosing between Vendor and Seller affect my access to Amazon Prime and Prime customers?
Choosing between Vendor Central and Seller Central does not directly affect your access to Amazon Prime customers. Products on both can be eligible for Prime free shipping. Vendor Central products are generally eligible because Amazon directly fulfills them, but Amazon ultimately decides. Sellers need to work harder, but can increase their chances by using FBA for fast and reliable fulfillment.
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And here’s some free resources:
- Monthly Finance Meeting Agenda
- 9 Steps to Master Your Ecommerce Bookkeeping Checklist
- The Ultimate Guide on Finding an Ecommerce Virtual Bookkeeping Service
- What Is a Profit and Loss Statement?
- How to Read & Interpret a Cash Flow Statement
- How to Read a Balance Sheet & Truly Understand It
Conclusion
Ultimately, the choice of Amazon seller vs vendor depends on your specific business needs and resources. Consider factors like your budget, product volume, desired level of control, and growth goals when making your decision. Remember, Amazon’s policies and procedures can change frequently. Stay updated on any changes that might impact your accounts. By carefully planning your approach and considering these factors, you can transition between Vendor and Seller, or implement a hybrid model. This will help you effectively optimize your sales strategy and maximize your reach on the Amazon marketplace.
