Amazon has become a normal part of life for most Americans, and many of us don’t hesitate to order the basics that arrive on our doorstep two days later. What you may not realize is that you can take advantage of Amazon’s reputation and these consumer habits to increase your profits as a business. There are two ways to sell your products with Amazon: either listing your products as an Amazon Seller or agreeing to supply products as an Amazon Vendor.
Amazon Vending vs. Amazon Selling
The biggest difference between vending and selling is who sells your product. With Amazon Selling, you control pricing and distribution, but with Vending, Amazon takes ownership of your product and resells it. With Vending, Amazon places orders in bulk and holds them at warehouses until they’re purchased by the end user. Amazon becomes the retailer, and once you’ve sold your product to Amazon, you’re no longer part of the sales process. Instead of interacting with the consumer, vendors only sell to Amazon wholesale and they control advertising, selling, and distribution.
By contrast, sellers retail their product on the Amazon marketplace and are involved in selling directly to consumers. This gives you more control over the selling process, which can directly impact inventory. Selling tends to be a higher profit per sale compared to Vending because of the control you have over pricing and listing optimization. Most businesses on Amazon make money as third-party sellers, using Fulfillment by Amazon (FBA) or fulfilling their own orders through Amazon marketplace.
Selling 101: How does it work?
There are definite benefits to Amazon Selling, as you can build a profitable business model and reach a wide customer base. Selling allows for international sales and puts your product in front of tens of millions of customers. The key attraction to Selling is control: you create the listings, manage the price and process, and directly oversee sales, discounts, and advertising.
Seller Central is what all sellers use for their product. It’s open to everyone and makes you a marketplace or third-party seller. You can either sell, store, package and distribute products by yourself or use Amazon’s FBA service, which gives you access to features like Prime’s free two-day shipping. With Seller Central, you deal with customers directly. Even though they purchase through Amazon, they will know they are dealing with a third-party seller. With FBA, it appears the same to the end user – from the buyer side, it looks no different than buying directly from Amazon.
The obvious pros of Amazon Selling are the flexibility and autonomy you have over your products. It’s an attractive option because it is low cost in exchange for reaching a larger audience. You control marketing and messaging, pricing, and distribution. In return, you receive insights and data into product performance that allow you to optimize your product listings. The downsides of Selling are juggling logistics, product fulfillment costs, and storage fees. It can be difficult to turn a profit with FBA, and sales can initially be lower. Selling is typically better for small businesses, brands and startups who have lower inventory and want optimal supervision of the sales process.
Vending 101: How does it work?
In contrast to Selling, Amazon Vending is not as common and is only available by invitation. When you sign a vending agreement with Amazon, you gain full access to Vendor Central, where you can list your products for Amazon to purchase. Vending offers a simpler business model because Amazon handles the marketing, orders, and shipping, and vendors are only concerned with billing, inventory, and purchase orders. Sellers are responsible for all of that along with lost inventory, customer service, marketing, and customer communication.
There are some similarities between Vendor Central and Fulfillment by Amazon (FBA): products qualify for Amazon Prime, inventory is stored in an Amazon warehouse and Amazon handles shipping, fulfillment and customer service relating to shipping and fulfillment. The biggest difference with Vendor Central is that you sell your inventory to Amazon, and they own it. With FBA, you only get paid for products that have been purchased by consumers; with Vendor Central, you get paid for any products sold to Amazon. As a seller using FBA, you set the retail price and pay commission and fulfillment fees to Amazon; with Vendor Central, Amazon sets the retail price and you are paid the wholesale price. FBA gives you direct contact with the consumer and you can see individual orders; with Vendor Central, there is no contact with the customer.
Although Vending is currently invitation only, there are several ways to become a vendor. Buyer reps oversee relationships with buyers and manage orders with suppliers in a specific category. They are responsible for inviting companies, brands and sellers to the Amazon Vendor program and make invitations based on how well they believe your product would do. Well-recognized brands have a higher likelihood of receiving an invitation to the Amazon Vendor program, and becoming a top seller increases your chances of gaining a buyer rep’s attention. This is particularly true if you are doing well using the FBA model of selling with Amazon.
Amazon buyer reps regularly attend trade shows looking for new products that show promise, and this can also be a good way to get noticed. If you already use FBA and want to take a more direct route, you can meet buyer reps and request to become a vendor. The request will be reviewed, and if you are a top seller or have a strong sales record, you have a high likelihood of receiving an invitation. Bottom line: you need to be a big enough seller to attract Amazon’s attention. Amazon typically works with manufacturers and brand owners as vendors, but occasionally work with distributors as well.
There are definite benefits to becoming an Amazon vendor. You will most likely see increased buyer faith because of the connection to Amazon, and Vending offers a simple business model with better options that includes marketing and promotions. However, it’s important to do your research – Vending is not the right answer for everyone. It can be logistically difficult to meet Amazon’s guidelines and the payment structure is that of a traditional retail model. As a vendor, you lack control over pricing and messaging and lose the flexibility and autonomy that comes with being a seller. However, if you are ready and able to supply large orders, Amazon’s vendor program may be a good fit.
Vending vs. Selling: Which is Better?
The answer of whether you should remain a seller or become a vendor comes down to your business model and the level of involvement you want to have. Keep in mind that Vending means handing a large part of control over to Amazon. If this is what you’re looking for, it can be a great move. Vending is a good option if you are looking to expand into larger distribution channels and is typically best for distributors, manufacturers, and wholesalers. If you are a direct-to-consumer business and don’t wish to become a wholesaler, Selling most likely makes more sense. Selling allows you to stay involved in the day-to-day work of shipping, selling, pricing, and distribution, and if that’s important to you, it’s best to remain a seller.
It’s also important to consider the pricing structure of Vending and Selling. Vendor Central requires a reduction of prices to meet wholesale pricing, and Amazon will also charge a 4 to 10 percent cash payout for co-op costs. Selling only requires a flat referral fee, which is generally 8 to 20 percent of the price for each item you sell, plus the cost of FBA. If your product moves well, Vending can prove to be quite lucrative for the amount of time invested, but keep in mind that Vending instead of Selling doesn’t guarantee you will sell more product.
Is Vending or Selling best for you? Depending on what business model you’re working with, the answer might be one or the other, or neither. Becoming an Amazon Seller or Amazon Vendor isn’t a magic bullet for success, but it can prove to be a great addition to your business plan. Either option can be successful; it depends entirely on your brand, business model, and what you hope to accomplish.