What is private labelling?
Most products your purchase everyday are sold by retailers that do not manufacture the products. Very few manufacturers will sell their products directly to consumers. Private label products are those sold by a retailer and manufactured by a third party. Essentially the retailer develops a brand, sources the product from a manufacturer, and stocks the product in a bricks and mortar store or in a warehouse.
The process of private labelling generally involves the following steps:
- Product Selection: The company chooses a product that they want to sell under their own brand. This could be anything from electronics and clothing to food items or cosmetics.
- Supplier Identification: The company finds a manufacturer or a supplier who can produce the chosen product. This can be a domestic or an overseas manufacturer, depending on cost, quality, and other factors.
- Branding & Packaging. The retailer develops the look of the product including the logo, website, , brand name and packaging for the product. The goal is to create a unique brand identity that differentiates the product from any competitors in the market.
- Manufacturing: Once the retailer has developed the concept and tested samples, they work with the manufacturer to deliver a quantity of the product as required. This is one of the most complex parts of the private label, balancing the purchase of stock with demand for the product. Too little and you risk poor customer experience, too much and risk not knowing which variation of products will be purchased and potentially putting the business in financial stress.
- Distribution & Sales: The company then sells the product directly to the market OR via methods such as their own website or retail store, drop shipping, wholesale, ecommerce markets.
What are the advantages of private labelling?
- Brand Control: The company has control over the branding and marketing of the product, allowing them to build their brand identity and reputation.
- Low Initial Investment: Private labelling can be more cost-effective than creating a new product from scratch since the manufacturer’s expertise and facilities are already available.
- Faster Time to Market: As the product is already developed, the company can enter the market quickly without investing significant time in product development.
- Higher Margins: Controlling the pricing of a product means that the retailer is able to add better margins
Disadvantages of Private Labelling:
- Lack of Product Differentiation: Since the product itself is not unique and is available to other companies, it may be challenging to stand out from competitors who may sell a similar product under their brand name.
- Dependency on Suppliers: The success of the business is partially reliant on the quality and reliability of the manufacturer or supplier. Any issues with the supplier can impact the company’s reputation and supply chain.
- MOQ’s (Minimum Order Quantity): When you first start vin private labelling, the biggest challenge can be funding the MOQ’s required by most manufacturers. This is particularly difficult with packaging where MOQ’s are very restricted due to print adjustments (usually starting at 500+).
Private labelling is a common practice in various industries, including retail, health and beauty, consumer electronics, and food and beverage. It allows companies to offer a diverse range of products under their brand name without the need for extensive research and development or manufacturing capabilities.
How to succeed with Private Labelling.
Selecting the right product
Some people start with an idea they feel passionately about bringing to market in a certain way, many people have a burning desire to make money online so they research products to find the best one. Either way, selecting the right product is crucial to success. If there is too much competition for your product, which we call a saturated market, then competing with the same concept will be challenging. However developing a new product with little competition can be challenging also, particularly where no one has heard of the product before. Success lies somewhere in between these two extremes (or a large brand awareness budget for the latter).
There are tools available on the market that can help you determine products that are in high demand that may have less competition. Tools such as Helium10 or Jungle Scout which provide data on Amazon demand and competition, Everbee for Etsy and Semrush for Google keywords can help you identify any products that may have high demand and lower competition.
Your next step is to understand a gap in the market in terms of product improvements, a new brand look, a better experience for customers, anything that will set you apart from the competition.
Finding the right Private Label manufacturer
The right or wrong manufacturer will have one of the greatest impacts on your long-term success. This is where most entrepreneurs will come unstuck or end up spending significant time to perfect. Ideally you are looking for the following:
- Extensive experience in your product niche
- Excellent references and feedback
- Good communication with enquiries
- Quality Samples
- The right MOQ’s
- Returns/faults policies and processes
- Support with shipping
Local vs Offshore
The harsh reality is that local production in most countries is both expensive, and difficult to find. You will have more luck in the US, and in Australia it is virtually impossible to locate a manufacturer that will produce a product with enough margin for you to sell at competitive prices in the market.
China, Bali, India and Taiwan are the primary manufacturing countries particularly for textiles, electronic and beauty products.
It is easy to get caught up in the excitement of product development and your new manufacturer may be pushing you to order your first run quickly. Generally, you will be speaking to a sales team that just want sales. No matter how many photos and examples from other big businesses the manufacturer sends you, the reality can often be very different. Order as many samples from each of the product lines you intend to sell, that you can manage. Frequently there will be flaws in the product production in one or two samples but not others, be prepared to take time here to get it right.
Test the product in the market via friends and family or direct marketplaces such as Facebook marketplace. You need honest market opinions of how the product is received.
How do I market private label?
Understanding how you plan to sell your products is an important step of planning. You can sell via your own website, via a marketplace such as Amazon or eBay, via drop shippers, via affiliates or wholesale to other retailers. Ideally you sell via all methods for the best results. Your goal in the early days is finding the fastest path to market which is usually found in marketplaces, wholesale and affiliates/brand ambassadors.
How much does private labelling cost?
The cost is dependent on so many factors but as a baseline the cost to buy samples, MOQ’s, and branding will be between $20,000-$200,000. This is before the costs of marketing which will be significant in the first 12 months. Remember that bringing a product to market is either time or money (or both). You can get away with minimal costs, but it may take you longer to reach your goals.
How do I price my products?
Pricing is too often overlooked as a key factor in your success. There are many methods to determining price, with most people using a mix of “competitive pricing” with “cost plus”. There are no wrong answers but there are absolutely opportunities that can be overlooked. Consider pricing based on value, demand or consumption. Check out our pricing module for more information.
Which is better private label, drop shipping or wholesale?
There are cost and risk factors of each model and you should base your decision on the time and money (and risk) you are willing to input. We highly recommend starting slow with private labelling and bolstering your product offering with drop shipping and wholesale until you have a sufficient audience to enable larger stock qualities to be purchased. Check out our article on the ultimate battle between each model.
Have a business idea you want to launch?
The best place to start is deep research and staying focused on building a hypothesis. Ordering product samples, chatting to manufacturers, building a brand are all the fun parts of the business and it can be easy to get caught up in the momentum. Take the time to understand the demand for your product and the competition. Read reviews, talk to customers in your market, buy competitor products, and scour the internet for as much supporting evidence as possible.