๐โ Stop making this mistake:
Searching for the magic profitability bullet with hashtag#Amazon.
๐๐โ๐ ๐ฎ ๐ณ๐ฎ๐ถ๐ฟ๐ ๐๐ฎ๐น๐ฒ ๐๐ผ๐น๐ฑ ๐ฏ๐ ๐ฎ๐ด๐ฒ๐ป๐ฐ๐ถ๐ฒ๐ ๐ฎ๐ป๐ฑ ๐๐ฒ๐ฟ๐๐ถ๐ฐ๐ฒ ๐ฝ๐ฟ๐ผ๐๐ถ๐ฑ๐ฒ๐ฟ๐.
I see this all the time:
1P sellers are told that a 3P business would be more profitable.
3P sellers are advised that 1P is the solution to keep scaling.
Brands that have tried both are told a DTC approach with Buy with Prime (BwP) is the way to higher profit margins.
But here's the problem:
๐ฉ 1P doesn't scale if you don't know how to negotiate,
๐ฉ 3P is not automatically more profitable than 1P, and
๐ฉ DTC requires a very different skill set.
None of these generic recommendations should be taken seriously in the first place.
This is because each model serves different organisational constellations for brands with different capabilities.
So just because your #1 competitor is adopting a hybrid strategy with Amazon, don't assume copying their decision will lead to better margins.
The opposite is true if your operating setup and internal capabilities are just an inch different.
Instead, make sure you consider ยปyourยซ unique setup:
๐ญ- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ฒ ๐ฐ๐ผ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ฟ๐ถ๐๐ผ๐ป๐ ๐ฏ๐ฒ๐๐ผ๐ป๐ฑ ๐ด๐ฟ๐ผ๐๐ ๐บ๐ฎ๐ฟ๐ด๐ถ๐ป๐
Different sales models come with different hidden cost requirements.
A 3P account requires you to manage pricing and inventory yourself. With a DTC account, you must factor in the cost of maintaining and regularly updating the underlying technology.
These are all costs you must bear yourself or outsource via service providers, which can quickly add hidden cost centres to your P/L.
When evaluating the business case, make sure you go beyond a line-by-line comparison of existing costs.
๐ฎ- ๐จ๐ป๐ฑ๐ฒ๐ฟ๐๐๐ฎ๐ป๐ฑ ๐๐ผ๐๐ฟ ๐ถ๐ป๐๐ฒ๐ฟ๐ป๐ฎ๐น ๐๐๐ฟ๐ฒ๐ป๐ด๐๐ต๐
Instead of chasing the next "big thing" that may not even fit your team's existing strengths, your Amazon strategy needs to look at where you can leverage an existing competitive advantage.
Most audits I see that recommend moving from a 1P to a 3P setup are mainly concerned with commercials but ignore the available capabilities in an organisation.
And when implementing these recommendations, brands risk ignoring the opportunity costs of misaligning their future strategy with current competencies.
๐ฏ- ๐ง๐ฒ๐๐ ๐ฏ๐ฒ๐ณ๐ผ๐ฟ๐ฒ ๐๐ฐ๐ฎ๐น๐ฒ
Don't go at it all at once when changing your Amazon business model.
The enforcement of strict policies can limit your ability to move from an existing 1P or 3P setup.
I have seen countless manufacturer brands banned from selling on 3P directly or indirectly because they just wanted to escape trade negotiations with their Vendor Managers.
A better approach is to test your hypothesis in the market and not follow theoretical advice that may not stand up to the reality of selling on Amazon.
---
What's your experience evaluating different sales models with Amazon?
Let me know in the comments!