What is 1P and 3P in Ecommerce

In the ecommerce world, you may have come across the terms 1P and 3P when researching how to sell products online. These abbreviations refer to First-Party (1P) and Third-Party (3P) selling models, two common ways that businesses list and sell their products on major online marketplaces such as Amazon, Walmart or eBay. Understanding the difference between these models is crucial because it affects how you control pricing, manage inventory, fulfil orders and interact with customers.

In simple terms, 1P ecommerce means selling your products directly to a retailer or marketplace, which then sells them to customers. 3P ecommerce, on the other hand, means you sell products directly to customers through the marketplace as an independent seller. Each approach has its own advantages, challenges and implications for pricing, marketing and profitability.

Understanding the 1P Model (First-Party)

In the first-party model, you act as a supplier or vendor to the retailer or marketplace. The retailer buys your products in bulk at wholesale prices and then sells them to customers under its own name. For example, if you sell on Amazon using the 1P model, you become an Amazon Vendor, and your products are listed as “Sold by Amazon.”

This setup is similar to how traditional retail works. You supply goods to a large retailer, and they handle everything else, from pricing and marketing to fulfilment and customer service.

How the 1P Model Works

The process begins when the marketplace (such as Amazon) issues a purchase order for your products. You then ship the goods to their warehouses, and the marketplace takes care of selling them to customers. You are paid wholesale rates, typically on a set schedule.

In this model, you lose some control over retail pricing and promotions, but you gain the benefits of scale and trust associated with selling under a major retailer’s name. Customers often prefer products labelled “Sold by Amazon” because they associate it with reliability, quick delivery and easy returns.

Advantages of the 1P Model

One of the biggest benefits of being a 1P seller is credibility. Being listed as a vendor to a major retailer enhances your brand reputation and often leads to higher sales volume. The marketplace handles logistics, customer service and returns, freeing you from those operational burdens.

Because marketplaces promote their own listings heavily, 1P sellers also tend to receive better placement in search results, especially for high-demand products. You also gain access to marketing opportunities and promotional tools exclusive to vendors, such as inclusion in special sales events or homepage features.

Disadvantages of the 1P Model

However, there are trade-offs. Once you sell to the retailer, you have little control over how your products are priced or presented. The marketplace may discount products to remain competitive, which can affect your brand positioning.

Payment terms are another consideration. Retailers often pay vendors on extended timelines, sometimes 60 to 90 days after purchase. For smaller businesses, this can create cash flow challenges.

Additionally, communication and negotiation with large retailers can be complex. They may require specific packaging, labelling or marketing standards that add to operational costs.

Understanding the 3P Model (Third-Party)

In the third-party model, you act as the seller of record and sell directly to customers on the marketplace platform. The marketplace provides the storefront and tools, but you retain control over pricing, branding and inventory.

For example, when you sell through Amazon as a 3P seller, your products appear as “Sold by [Your Business Name].” You can choose to handle fulfilment yourself or use a service such as Fulfilment by Amazon (FBA), where Amazon stores, picks and ships your products on your behalf.

How the 3P Model Works

When a customer buys from your listing, the marketplace processes the transaction, but you are responsible for ensuring the order is fulfilled and delivered. You decide on your pricing, promotions and inventory levels. The marketplace usually takes a commission or listing fee from each sale rather than buying stock upfront.

This model gives you greater flexibility and control. It allows you to build your own brand identity and maintain a direct relationship with customers, something that is not possible in the 1P model.

Advantages of the 3P Model

The 3P approach provides far more control over your business operations. You set your prices, manage your margins and decide which products to feature or promote. This flexibility makes it easier to adjust quickly to market trends or seasonal changes.

You also keep closer contact with your customers. Through reviews, feedback and communication, you can learn more about their preferences and tailor your offerings accordingly. This can lead to stronger brand loyalty and repeat business.

In addition, 3P sellers often enjoy faster payment cycles since transactions are processed directly through the marketplace platform. This can help improve cash flow and financial stability.

Disadvantages of the 3P Model

The trade-off for greater control is greater responsibility. As a 3P seller, you are responsible for customer service, fulfilment and returns unless you use a third-party logistics provider. This can increase your workload and operational costs.

Competition can also be fierce. Because 3P marketplaces are open to many sellers, you may find yourself competing with similar or identical products, sometimes at lower prices. Maintaining high product ratings and reviews becomes essential to remain visible and trustworthy.

Finally, marketplaces charge selling fees, referral commissions and sometimes fulfilment costs. These expenses can add up, especially if profit margins are already thin.

1P vs 3P: The Key Differences

The primary difference between 1P and 3P selling lies in who sells the product to the customer. In the 1P model, the marketplace buys your product and sells it under its own brand. In the 3P model, you sell directly to the customer through the marketplace platform.

This distinction affects control, pricing, logistics and customer relationships. In 1P, you give up control for convenience and reach, while in 3P, you take on more responsibility for greater flexibility and brand ownership.

From a customer’s perspective, the experience may feel similar, but the business implications for the seller are significant. 1P sellers operate more like suppliers, while 3P sellers act as independent retailers using the marketplace as a distribution channel.

Choosing Between 1P and 3P

Deciding whether to operate as a 1P or 3P seller depends on your business goals, resources and long-term strategy.

If your priority is simplicity and volume, and you are comfortable with lower margins, the 1P model may suit you. It is ideal for manufacturers or brands looking to offload inventory and benefit from the marketing power of established retailers.

However, if you want full control over pricing, customer relationships and branding, the 3P model is often the better choice. It allows for faster decision-making, flexibility in product listings and the potential for higher profit margins.

Many brands adopt a hybrid approach, combining both models to maximise exposure. For instance, they may sell bestsellers via 1P partnerships while maintaining a 3P presence for new or niche products. This strategy provides stability while allowing room for innovation.

The Future of 1P and 3P Selling

The ecommerce landscape continues to evolve, and the line between 1P and 3P is becoming increasingly blurred. Many marketplaces are offering more hybrid solutions that blend the best of both worlds.

For example, platforms like Amazon now provide tools for 3P sellers that rival the benefits once reserved for vendors, including advanced advertising options and fulfilment services. At the same time, some 1P vendors are negotiating more flexible terms to regain pricing control.

Technology and automation are also making it easier for sellers to manage complex operations across multiple marketplaces. As ecommerce continues to expand globally, sellers who can adapt quickly to both models will have the greatest advantage.

Conclusion

Understanding the difference between 1P and 3P in ecommerce is vital for choosing the right approach for your business. The 1P model offers simplicity and scale through retailer partnerships, while the 3P model delivers control and independence through direct-to-consumer selling.

The right choice depends on your goals, resources and willingness to manage logistics, pricing and customer service. Many successful brands find value in combining both models to balance efficiency with flexibility. Ultimately, whether you choose 1P, 3P or a mix of both, success depends on understanding your customers, maintaining product quality and using data to refine your strategy for growth.