The Economics of 1P vs. 3P: How Each Model Impacts Profitability and Control

When it comes to selling on Amazon, one of the most strategic choices a brand faces is whether to operate as a first-party (1P) vendor through Vendor Central, or a third-party (3P) seller through Seller Central. While both models grant access to Amazon’s customer base, they differ dramatically in how they affect profit margins, operational control, brand visibility, and cash flow.

This guide breaks down the real-world implications of both selling paths so you can better align your decision with your business goals.

1P vs. 3P: What’s the Difference?

Selling as a 1P vendor essentially means entering a wholesale relationship with Amazon. The platform issues purchase orders, takes ownership of your inventory, sets the retail price, and controls fulfillment and customer service. Your products display as “Ships from and sold by Amazon.com,” and participation is typically invitation-only. It’s a more traditional retail model, suited to companies that value simplicity and scale.

By contrast, 3P sellers maintain ownership of their inventory until purchase and operate independently on Amazon’s marketplace. Brands in this model have more influence over pricing, listing content, and promotional strategy. Fulfillment can be handled through FBA, FBM, or SFP depending on operational capability. The application process is more accessible, making 3P an appealing option for both emerging and established brands.

Profit Margins and Revenue Impact

Margin structure is one of the most immediate differences between the two models.

In 1P, brands typically see lower per-unit margins due to wholesale pricing. While predictable POs can be appealing, margins are frequently reduced by additional deductions—co-op fees, freight and return allowances, chargebacks, shortage claims, and negotiated discounts. These deductions often amount to 20–25% of the wholesale price, meaning net profitability can feel “thin” even at high volume.

In 3P, brands set their own retail prices and retain more control over how margin is managed. Though fees still apply—such as referral fees, fulfillment costs, and advertising expenses—these are clearly defined and can be optimized with active oversight. Many brands experience a 5–15% increase in net margin after shifting to 3P, though this varies based on category and internal efficiency.

Pricing, Content, and Promotional Control

In the 1P model, pricing is dictated by Amazon’s internal algorithms. This often results in MAP violations and can create challenges with other retail partners. Amazon also has the ability to edit your product listings, and while A+ Content is available, brands are limited in customization options and must often rely on Amazon support to make changes.

The 3P model gives brands greater control—but not total autonomy. Pricing decisions rest with the seller, and Brand Registered sellers can access enhanced content tools, including more flexible A+ Content options and a customizable storefront. Listing changes are easier to manage but may still require case submissions and compliance with Amazon’s content policies. Promotional authority is also broader in 3P, allowing brands to launch discounts, Lightning Deals, or Subscribe & Save campaigns on their own schedule.

Fulfillment and Operational Complexity

Fulfillment costs and workflows also vary between models.

In 1P, brands ship inventory in bulk to Amazon’s fulfillment centers. While this can streamline logistics, it introduces freight costs, returns and damage allowances, and potential chargebacks for compliance issues. The brand bears responsibility for meeting Amazon’s operational standards.

In 3P, fulfillment flexibility opens up multiple paths. FBA (Fulfillment by Amazon) offers convenience and scale, but comes with storage and per-unit fees. FBM (Fulfillment by Merchant) allows brands to handle fulfillment themselves but requires warehousing and shipping infrastructure. SFP (Seller-Fulfilled Prime) adds the Prime badge to FBM fulfillment, but demands tight delivery timelines and performance tracking. Choosing the right path depends on your team’s infrastructure and the product’s size, weight, and seasonality.

Financial Structure and Cash Flow

Cash flow is another area where the differences are significant.

1P vendors often operate on 30–90 day payment terms, and deductions may be applied after the fact. This can create cash flow strain, particularly for smaller or fast-growing brands. Chargebacks and shortages also introduce unpredictability in final payout amounts.

3P sellers are paid on a regular two-week schedule, and fees are deducted upfront. This predictability allows for more reliable forecasting and quicker reinvestment, making 3P especially appealing for brands that prioritize cash flow stability. For many ZQUARED clients, the working capital advantage of 3P has been a deciding factor in making the shift.

Advertising Strategy and Visibility

Ad strategy and KPIs vary significantly between the two models.

1P brands tend to focus on brand awareness and upper-funnel metrics, with more investment in tools like Amazon DSP and Sponsored Brands. This is ideal for market share expansion and new-to-brand acquisition, though limited pricing control can reduce efficiency in lower-funnel performance.

3P brands usually prioritize direct response campaigns like Sponsored Products, leveraging keyword targeting to drive ROAS and organic rank improvements. The ability to coordinate advertising with pricing, promotions, and inventory levels often leads to better efficiency and more profitable outcomes. At ZQUARED, we’ve seen a consistent ROAS improvement among 3P sellers who align their ad spend with flexible pricing strategies.

Transitioning Models: Operational Considerations

Transitioning between 1P and 3P is possible—but complex.

Moving from 1P to 3P means taking on direct responsibility for inventory forecasting, listing optimization, fulfillment, customer service, and pricing strategy. It also may result in lost reviews or sales history if ASINs must be restructured. For this reason, ZQUARED typically recommends a phased approach to ensure continuity and minimize revenue disruption.

While less common, moving from 3P to 1P shifts those responsibilities back to Amazon—but often at the cost of margin and flexibility. Brands need to weigh not only financial tradeoffs, but also how much control they’re willing to give up.

1P vs 3P Comparison

Making the Right Choice

There’s no one-size-fits-all answer. Your brand’s goals, internal resources, and financial model should drive this decision.Brands that value simplified operations and predictable orders may find 1P more aligned with their approach. Those seeking greater margin potential, faster cash flow, and strategic control tend to benefit more from 3P. The best model is the one that supports your brand’s growth without creating strain on internal systems.