By Will Tjernlund
VENDOR CENTRAL: All products sold and fulfilled by Amazon on Amazon are sourced by Vendor Central partners. In this business model you act as a wholesaler to Amazon. The Vendor Central business model breaks down like this.
- Amazon directly buys your product.
- You ship your products out to Amazon’s warehouses.
- Amazon turns around and sells your product as Amazon on Amazon.
At the beginning of the vendor central relationship you “the company” will send Amazon a list of your SKU’s and pricing. From that point Amazon analyzes the marketplace to see if your pricing is competitive to what is currently being offered. When they decide your pricing is competitive, they will offer you an opportunity to sell to Amazon. Amazon monitors other websites and almost always makes sure they are the lowest price on the internet.
Typically they will purchase inventory from you weekly. Amazon will forecast the demand of future months and on the Vendor Central platform you will have access to see these forecasted amounts so that you can manage your inventory accordingly. Amazon handles all shipping, returns and customer service responsibilities after they purchase the product from you.
But not all responsibilities fall on Amazon once they buy your product. You “the company” are still responsible for creating and editing the product’s listing which is a critical component to your product’s success.
Some benefits of Vendor Central include:
- A + listings – A+ Listings are aesthetic format for your listings that only Vendor Central sellers have access to.
- Automatic Top Rank Category Listing – We will get into further detail about this later but this greatly increases sales volume.
- Amazon Invoice/Billing and Inventory Request fits great in wholesale business models.
Now let’s take a look at Seller Central
SELLER CENTRAL: Seller Central is a way for third party sellers to sell their products on Amazon. In this business model you sell your product on Amazon. There are a couple of business models within seller central that are offered to third party sellers by Amazon. We’ll go into these business models in further detail but first let’s take a high level look at how seller central operates.
- You create listings for your products on Amazon.
- Amazon’s customers buy the product directly from you.
- Depending on the business model being used, either you are responsible for shipping, customer service and returns or you can pass that responsibility off to Amazon.
Now let’s take a look at the main business models within Seller Central. There is Vendor Fulfillment and Fulfillment By Amazon or FBA. Vendor Fulfillment is a very hands on business model. In Vendor Fulfillment you “the company” take on full responsibility for product shipping, customer service and returns once the sales are made on Amazon. Next let’s talk about Fulfillment By Amazon or FBA.
Fulfillment by Amazon is a business model offered by Amazon to relieve these responsibilities that can become crippling as your ecommerce business scales. Fulfillment By Amazon (FBA) leverages Amazon’s massive supply chain and logistics systems to your advantage. In the FBA business model, you ship Inventory in bulk to Amazon’s Warehouses. From there once a sale is made, Amazon ships your product out of their warehouse and to the customer. Amazon also handles all customer service and returns for the product. With this business model, Amazon takes a percentage of every sale as a fee and there are fees associated with your inventory storage in Amazon Warehouses.
In both business models, you are in full control of the product pricing, listing design and marketing.
Some benefits of Seller Central include:
- Price Point Control
- Quick Payment Turnaround Time (sales revenue minus fees transfers to your account every 14 days)
- Low Barrier to Entry
AMAZON BUSINESS MODELS CONCLUSION: In conclusion there is no perfect Amazon business model for every business. The choice of which business model your company should pursue is truly a case by case decision. There are many different variables and factors to take into consideration including but not limited to the type of product you are selling, how your business is structured, how your supply chain operates, inventory limitations, product price point etc. Goat Consulting completely understands all of Amazon’s business models and the factors that need to be considered when deciding between them. We can point your company toward the direction of eCommerce success and help you walk the path!
Will Tjernlund and Eric Sutton
Will Tjernlund is the co-founder of Goat Consulting, a consulting service that helps companies take control of their brands on Amazon.com and other online marketplaces. Will has been selling full time on Amazon.com for 3 years and speaks at conferences all over the world. To learn more, contact him through www.goatconsulting.com