Why Do I Need to De-Risk My Amazon Business?
Over the last few years, Amazon has made changes that impact both 1P Vendors’ and 3P Sellers’ ability to grow sales profitability. Amazon has done the following: reduced the number of vendors on 1P, refused cost increases, increased trade discount terms on the vendor side, and increased Amazon Referral and FBA fees (reducing reimbursement amounts for lost and damaged inventory and increasing pricing and promotion hurdles) on the seller side. All of this adds up to mounting pressure on sales and profitability plans, and for most brands, walking away from Amazon isn’t an option.
Why is Amazon Reducing the Amount of 1P Vendors?
Earlier in Q1 2025, Amazon announced an additional round of vendor terminations; they informed select vendors that their POs and vendor agreements would end effective April 7, 2025. The vendors who received this “Dear John Letter” from Amazon were likely in one or all of the following buckets:
- No Vendor Manager
- Under $5M in Shipped Revenue
- Little to No Sales Growth
- Low PPM Rate
Why is Amazon doing this? Because they are looking at their bottom line. Amazon is more profitable with 3P Sellers than with 1P Vendors, and the 3P business model holds less of an investment risk for Amazon since they are not owners of the inventory.
If you are a vendor that received this message from Amazon, you are probably already developing a plan to either move to Seller Central (if you weren’t on the platform already) or maybe leave Amazon altogether. If you were not one of these vendors, you probably read the articles and online posts and didn’t give it a second thought. But what happens when Amazon updates the shipped revenue or PPM threshold to consolidate their vendor base further, and your brand is on this new list? This isn’t the first time they have reduced their vendor count, and it most likely won’t be their last. Now is the time to proactively plan for strategic growth that you can control yourself.
How Does a 1P Vendor De-Risk Their Amazon Business?
Diversification is the easiest way to de-risk a business on Amazon. In the case of your Amazon business, you can diversify in big or small ways depending on your brand goals and internal capabilities.
An Omnichannel Approach
If you want to swing for the fences, an omnichannel approach to your eCommerce business is the best way to reduce a brand’s reliance on Amazon. You need to understand the following if you want to successfully build and execute an omnichannel strategy:
- Channel Specific Data: What is the penetration of the eCommerce channel to total online sales and is it growing market share? What is the Average Order Value (AOV) of the channel, and can it support your product’s price points?
- Barriers to Entry: Is the channel open to sellers and brands, or is it invite only with strict category selling approval processes? How saturated is the marketplace with sellers? Is there high price compression? If moving into a 3P marketplace model, what fulfillment options are available?
- Internal Capabilities: Does your team have prior experience on the specific platforms? Can your current team take on additional workload of managing multiple channels, or will you need to hire for bandwidth or expertise?
- External Resources: What are the functions or tools required to sell on this channel? Do brands need to provide customer service and last mile consumer shipping, or does the marketplace offer fulfillment services? Are 3rd party software applications required to complete orders for either fulfillment or payment purposes?
- Sales & Profit Goals: What is the size of the prize? How much do your sales need to grow to justify your brand’s time and financial investments into each channel?
If you’re interested in diving deeper into an omnichannel approach for eCommerce, check out our recent blog. It will guide you through what you need to consider for each channel.
A Hybrid Approach
If you are looking for a more modest move, a hybrid strategy of utilizing both Amazon Vendor Central and Seller Central platforms might be the better fit. Moving to a Seller Central model can be attractive for some brands, but a non-starter for others. The factors to consider are similar to those for an omnichannel approach, but there are other details that need to be weighed as well:
- Assortment Strategy & SKU-Level Profitability: Which SKUs are best suited from a profitability stand point to move to Seller Central? Multiple costs need to be considered: Amazon Referral fees, FBA fees, Inbound Shipment costs, Inbound Placement fees, Monthly Storage fees, and Return fees. A good place to start is the FBA Fee Calculator within Seller Central. You also need to consider how much of your assortment you can manage on Vendor Central vs. Seller Central.
Note: You cannot sell the same ASIN on Vendor Central and Seller Central at the same time; it is against Amazon Terms of Service (ToS) and Vendor Central will almost always win the Buy Box (negating the need for an 3P listing). - Platform Transition Timeline: How long will it take to sell out on transition SKUs completely? What are the marketing costs associated with advertising spend or promotions to re-ramp any ASINs that lingered with low stock levels, which result in Best Seller Rank (BSR) declines? What will the total financial impact be on your business during the transition?
- Fulfillment Options: Is your brand capable of fulfilling individual orders to consumers? Do you have an existing customer services team to handle Amazon customer inquiries? If so, your brand may also want to consider Fulfilled by Merchant (FBM), which can eliminate certain Seller Central costs if you have these capabilities already established internally. If not, FBA is the preferred option; associated costs are higher, but less internal resources are required.
- Cleanliness of Channel: If you have a 3rd Party Seller issue as a 1P Vendor, that problem still exists when you move ASINs to Seller Central. In fact, it can become a bigger obstacle to sales growth as your brand now must compete on price to win the Buy Box, reducing profit margins.
- Platform Knowledge: While this is still Amazon, the Seller Central platform is different than Vendor Central. There are policies and shipping/customer service thresholds that are different for sellers; these should be understood at a basic level before moving platforms. For instance, inventory reconciliation becomes challenging to audit; payment cycles and payout amounts are different, and there are tax considerations as well, so your brand’s finance team must be fully onboard with this type of approach.
What Other Tactics Should 1P Vendors Be Considering?
Regardless of the approach you take, you should start saving ASIN-level sales data right now. Amazon Vendor Central stores monthly ASIN-level data for a rolling two years, so every month you wait, you lose a portion of your sales history. The sales data will become invaluable if you are forced to move off Vendor Central, allowing you to build better financial models regardless of the approach you take to mitigate the loss of your Amazon 1P Business.
Downloading all your catalog data can be beneficial if you are looking to rebuild your business on Seller Central; having ASINs will ensure that you can populate your new Seller Central catalog as efficiently as possible.
Ensure that your Brand Registry user credentials are up to date and that all applicable brands are set up and registered; you will want Brand Registry fully operational when you go to link it to your new Seller Central account.
How Does a 3P Seller De-Risk Their Amazon Business?
Similar to 1P Vendors, diversification is the best way to mitigate risk to your Amazon business. An omnichannel approach will allow your customers to find your products if Amazon were to suppress key product listings or find you in violation of any of their Account Performance metrics.
Additionally, given increasing Amazon fees, a SKU-Level Profitability Analysis should be performed on your Amazon Seller Central ASINs annually. Fulfillment method changes, marketing costs adjustments (both advertising spend and promotions), as well as catalog edits, should be considered for all unprofitable ASINs. If you haven’t looked at your Amazon profitability at this level recently, there is no time like the present to get started. There could be a few extremely unprofitable ASINs driving down the margin on your total Amazon business.
Amazon sellers should also continue to keep good account health top of mind by reviewing the “Actions” listed on their Seller Central dashboard on a daily basis; urgent issues can arise at any time. There are certain items that need updates annually, such as documentation for the US INFORM Act, Certificates of Insurance, and other Amazon certifications such as Small Business or Minority Owned. There are also other day-to-day notifications such as FBA shipment issues, FBM orders to ship, return requests, and inactive listing alerts. All of these alerts require timely responses to ensure that your account stays in good standing and active.
Reach Out to Hinge Commerce for Help
If you’re feeling overwhelmed by the challenges of de-risking your Amazon business, you don’t have to navigate them alone. At Hinge Commerce, we specialize in helping brands like yours optimize their Amazon strategies—whether it’s transitioning from 1P to 3P, implementing a hybrid approach, or diversifying into new eCommerce channels. Our team of experts understands the complexities of Amazon’s ever-changing landscape and can provide tailored solutions to protect your revenue and profitability.
Reach out to us today to discuss how we can help safeguard your Amazon business and set you up for long-term success. Let’s build a strategy that keeps you in control!
