Starting a business is hard. There’s a seemingly never-ending task list, from building a website and hiring employees to managing inventory and manufacturing products.
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But what if you could outsource that last step to an established supplier that already creates similar products? Many retailers do this through a supplier relationship called private labeling.
Private-label products are produced by third-party manufacturers based on specifications provided by retailers, who then market and sell those products under their own brands.
Read on to learn what private labeling is and how to create a private-label line of products for your store.
Private labeling is selling a product manufactured by another company under your company’s brand name. Retailers often use private-label products to offer exclusive items, expand their catalogs, and undercut competitor pricing.
Private-label products can be similar to existing products but with unique manufacturing specs. For example, a private-label business selling chocolate chip cookies must use a precise and completely original recipe. The same applies to private-label brands selling consumer electronics, jewelry, and clothing.
The private-label business model involves two types of companies:
A reliable private-label manufacturer helps ensure a profitable pricing model.
Private-label goods are often confused with white-label goods. White labeling also involves third-party manufacturers making products on behalf of retailers. However, white-label products are not custom-designed.
A white-label manufacturer produces large quantities of generic items and then sells them to individual retailers. Each retailer sells those products to consumers under a brand name.
In other words, private-label product lines are unique and sold exclusively through a single retailer, while white-label products are generic and sold under multiple retailer brands.
The private-label business model benefits manufacturers and retailers alike. Advantages include:
Private labelers design and sell distinct products. As a private-label entrepreneur, you can develop original product ideas and become known for a signature item.
Some (often larger) retailers use private labeling to create value product ranges and undercut competitor pricing. However, smaller businesses may choose private labeling to develop premium products they couldn’t afford to produce themselves.
Private-label products often boast higher profit margins than resale products. Retailers may choose to set a high price point on them or leverage their existing brand power to cut marketing costs.
Depending on the type, quantity, and customization levels, manufacturers may offer private-label products for less than resale products.
Private-label sellers and producers can tweak manufacturing costs and price points on their product lines. They can experiment with different pricing strategies to maximize profit margins.
As a private-label retailer, you create your marketing campaigns. You don’t have to adhere to campaigns run by national brands.
It can take months or years for an established brand to change a product formula, pricing, or marketing strategy. Private-label sellers, on the other hand, can pivot quickly. They can respond to negative reviews or low sales and adjust.
Despite the benefits, private labeling also has its drawbacks. There’s the possibility of product inconsistencies, less flexibility for innovation, and the challenge of building a brand from scratch.
One of the main drawbacks of private labeling is its dependence on third-party manufacturers. Manufacturer problems, such as production delays or quality issues, can impact private-label sellers by causing stock shortages, customer dissatisfaction, and potential brand reputation damage.
When you’re working with private-labeling services, there may be limits to the level of product customization available. Depending on suppliers and product categories, retailers won’t always have as much control over the product design process as they may want.
However, you can mitigate product design issues by developing a close working relationship with your manufacturer, which can also lead to bespoke research and development.
If selling private-label products is right for you, here’s how to find the right partner:
Understand your target audience and what they want. Analyze competing products in your market:
List your product requirements in detail, including materials, design features, and special manufacturing processes like fabric treatments for clothing or flash freezing for food items.
Determine your initial order quantity and budget. Consider per-unit costs and related expenses such as warehousing, shipping, customs fees, and testing, if required.
Increase profit by knowing your costs
Use this free product cost calculator to track expenses and understand all the costs involved in bringing your products to market.
Download calculatorOnline platforms are the easiest databases for finding private label manufacturers. Explore Alibaba, ThomasNet, and Faire to discover reliable partners worldwide. Read manufacturer profiles and find product examples and minimum order requirements (MOQs) to determine the best fit.
Trade shows are another option. You can meet manufacturers face-to-face, see real-life sample products, and get a feel for how you might work together. Industry-specific shows often feature manufacturers who understand your market’s requirements and standards.
Don’t overlook Google. Search for your product type and include terms like “private label” or “manufacturer” to find options.
Quality control should be at the top of your evaluation list. Ask potential manufacturers about their quality assurance procedures and what certifications they hold. International Organization for Standardization (ISO) and Good Manufacturing Practices (GMP) certifications, for example, demonstrate commitment to consistent quality standards.
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Have detailed discussions about:
Compare pricing structures and minimum order quantities between manufacturers. Remember that the lowest price isn’t always the best deal—be sure to factor in quality, reliability, and communication, too.
A good manufacturer will expect you to order samples, so don’t skip this step. Product samples show exactly what you’ll be selling to your customers.
When requesting samples:
Once you’ve identified your preferred manufacturer, it’s time to negotiate. Discuss pricing tiers, payment schedules, and delivery timeframes. Be clear about your expectations and what happens if products don’t meet quality standards.
Be sure to document all your agreements. Your contract should cover:
???? Tip: To protect your business from potential issues, consider hiring a legal professional to review contracts, especially for large orders or deals with overseas manufacturers.
You may be surprised to discover how many consumer products and national brands are made by private-label manufacturers. The model exists across most product categories, including:
Private-label coffee has exploded on the internet. Many brands use coffee dropshippers, which send batches to customers as soon as they order them.
Many pet stores, especially online ones, sell private-label pet foods made by big manufacturers that serve multiple clients.
Online marketplaces are filled with private-label LED lights, each with a slightly different design but sourced from a few manufacturers.
Chances are the third-party accessories you buy for your —chargers, cases, etc.—were made by a private-label manufacturer and sold under another company’s brand name.
Many online clothing retailers use private-label garment manufacturers for shirts, dresses, skirts, shoes, handbags, and more. These clothing manufacturers can print custom designs on apparel. They may also offer custom tailoring and leatherworking.
Lots of personal care products, from mouthwash to makeup, come from manufacturers that serve private-label sellers. The formulas for these products are customized for specific clients but produced on the same assembly lines.
Browse this extensive list of private-label products and learn more about the popular private label business model.
Here are three examples of large retailers that have launched successful private-label brands.
(It’s worth noting that you don’t necessarily need to offer private labels under a separate brand. Smaller businesses may incorporate private-label products into their existing product line.)
Launched in , Kirkland Signature is Costco’s private-label brand. It includes a wide range of products produced by various national manufacturers and is known for offering impressive value.
Take Kirkland Signature vodka, for example, which has been compared favorably to high-end brands like Grey Goose. Or consider its extra virgin olive oil, which is USDA-certified organic.
Kirkland is an example of a private-label product line that has grown to national status and become synonymous with its retailer. As of , sales of Kirkland products account for 23% of Costco’s total revenue.
Amazon Basics launched in , allowing Amazon to compete with other retailers on its own marketplace.
The private-label line offers affordable electronics, home goods, pet supplies, and other items, often at the lowest price points in a product category.
Some of the most popular Amazon Basics items are device charging cables. These cables are praised for affordability compared to those from official manufacturers such as Apple, which place high profit margins on their accessories.
Another well-known Amazon Basics private-label product is its microfiber sheet set, which has more than 419,000 reviews.
Unlike Amazon Basics and Kirkland Signature, which harness private labeling to lower prices, luxury UK department store Harrods uses its private-label brand to offer a range of premium goods.
Harrods’ brand covers a range of products, including gourmet food and beverages, high-end fashion, accessories, and home goods.
Its teas are sourced from around the world, packaged in distinctive Harrods-branded tins, and sold at higher prices than similar products from other retailers.
In the new age of Internet the concept of dropshipping has emerged as a potential very attractive business concept. On the surface, seems a great business model. You find a brand, a wholesaler or a manufacturer ask them to display their product on your own website apply a profit margin and with no inventory risks, you are earning rivers of money. Unfortunately, business world is not so easy.
As mentioning before the concept is simple. You have a website, you make a deal with a third party supplier, you don’t stock inventory, you simply ship from the supplier directly to your customer.
The main advantage of this business model, is that there are no big risks involved. You don’t stock inventory, so investments in advance are not needed and you don’t need warehouse to stock your products. However, not all is great in the dropshipping world.
First issue you will face is with dropshipping is the big volume of e-commerce businesses selling the same product and brands as you are. This means for buyers to find you, will need to invest in SEO or advertising campaigns.
With SEO you might doing great, but time spending is incredible high and difficult. Marketing campaigns can achieve faster results, but do not forget you are are competing with a big number of others sellers with the exact same product you have, so you will need to beat them with your price offer – and low down your margins. Finally, to complicate it even more mots of your suppliers will place the product available to you at retail price, this means you need to apply your margin to a price that is seen already as right by the producer and possibly by the customer as well.
If looking for something unique, creating a business model matched with your values and with your own identity – opting by your own shoe brand can be an interesting option. The shoe will have a logo, a label or something that identifies the product as being yours and “your creation”. This is great to mark the difference among your competitors. Stores selling Adidas, New Balance or Veja are thousands, so at the end if you invest with wholesale buying this brands, you will be able to get better margins that with dropshipping, but a sea of seller with the same products as yours will still be there. Even if you have a physical store, it is possible your retail neighbour sell the same product as yourself.
This is the gap, private label shoe manufacturing try to fill. You find a distributer or manufacturer with a valuable collections of shoe style, that you can choose and place with your brand. You just need to choose the models already developed by the shoe company and choose the way you want to brand/customize the shoe with your own brand. Comparing with shoe manufacturing development, it will cost you less money and much less time to get the things started.
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