Private labeling is when a company purchases products manufactured by another company to sell under its brand name. It’s a common practice in grocery stores with store-brand products, although it happens in various industries like household items and beauty products. The company selling the product puts its own branding and packaging on it and acts as the seller, and the company that manufactured the product remains anonymous. The intent of private labeling is to offer a product similar to well-known, premium-priced brands at a lower price point. Private label companies often can get higher margins and increased profitability by controlling both the production and marketing of the product.
Selling private label products on Amazon is an excellent option for companies and individuals. Amazon is one of the largest online marketplaces, with over 300 million active customers, giving sellers access to a vast audience of potential customers. Amazon also has a highly advanced logistics and fulfillment network that sellers can use to reach a broader customer base and increase sales by delivering products quickly to buyers. Also, Amazon shoppers have a high level of trust in the platform and will get what they order. New sellers can also use this to build consumers’ trust in their brands, increasing customer loyalty over time. These factors combined make Amazon an attractive platform for sellers looking to grow their profits and build their reputation.
Choosing between in-house manufacturing and contract manufacturing can be difficult as a private label seller. Both options have pros and cons. The best choice depends on a business’s goals, resources, and positioning.
In-house manufacturing is the process of producing products in your facilities. There is complete control over the production process, quality control is easier to manage, and there is a higher level of flexibility and responsiveness to changes in demand. The challenges of in-house manufacturing are the costs. Businesses must invest in equipment, materials, and personnel for the production process. It’s a significant investment and can be a barrier to entry for businesses just starting out.
Contract manufacturing is outsourcing the production of products to a third-party manufacturer. It is more cost-effective, and the seller does not have to invest in equipment or hire employees to produce products. The manufacturer’s expertise is also beneficial for things like operations and logistics. However, finding a reliable contract manufacturer can be challenging. It takes longer to change the product and production schedule as demand changes. Sellers will have less control over the production process and may run into quality control issues.
The manufacturing choice ultimately comes down to goals and resources. There’s always the option of bringing production in-house as the business grows. Consider the expertise of your current staff and the expected revenue when making this decision.
Sourcing the Products
The first step in choosing products to sell as a private label is researching market trends and demand. Identify a target market and ideal customer; what are their needs and wants, what do they value, and how much are they willing to spend on different areas of their life? Next, compare that ideal customer map to product categories on Amazon and look for one with higher demand and lower competition. The Best Seller List is a great resource for identifying high-demand categories. When choosing a product, take note of the features and pricing of the available highest-selling options.
After choosing a product, sellers must find a reliable supplier to produce their private label inventory. There are many ways to find suppliers, but the simplest is to search online directories. Platforms like Alibaba and Global Sources allow you to search for suppliers based on criteria like product and location. Sellers can also attend trade shows and conferences for their industry to meet suppliers in person and see their products firsthand before placing a test order. These shows are an excellent opportunity to network, build relationships, and negotiate terms. Sellers should also be networking with competitors. Many times other sellers can provide referrals to reliable suppliers. Referrals from other sellers can help find suppliers with proven track records of timeliness and quality. Verify a supplier’s credentials, like certifications and licenses, and read reviews before finalizing a deal.
Negotiating is a necessary part of closing a deal with a supplier to start selling private label products. Seek legal advice if you have specific questions, the Legion has tips, but a lawyer can address questions about unique situations. Before beginning negotiations, be clear on the product requirements. Write them down and communicate them clearly and concisely. Negotiations go more smoothly when the expectations are clearly set and when there’s good rapport between the two parties. Invest the time in the beginning to build a positive relationship. Both sides need to be willing to compromise and make concessions in order for a deal to move forward. Understand what each side can and cannot concede early in the process, and be respectful of the supplier’s requirements. Many businesses negotiate to “win”, which may net a favorable relationship in the short term, but it’s unlikely to last, and there will be a fair amount of rework. Think of winning as signing a mutually beneficial long-term deal.
Once an agreement is signed, the next step is quality control. Quality control is essential for private label sellers to meet customer expectations and comply with industry expectations. Start by specifying quality requirements in writing and getting buy-in from the supplier. This includes specs for materials, workmanship, and functionality. Place a test order or request samples for a pre-production inspection to ensure the requirements are met. Continue to inspect shipments once production begins, sampling random products from shipments to verify that the standards are still being met. Document everything, from the agreed-upon standards to the results of each inspection. If there are any issues, work with the supplier to resolve them quickly.
Sourcing and manufacturing are critical components of a private label business. Choosing products with low competition and high demand, finding reliable suppliers, and managing the manufacturing process are all key to success. Follow best practices, be diligent, and take time to build relationships in this process.
Consider the unique needs of the product and industry you’re selling in when making these choices. There is no one-size fits all solution here. Seek legal advice and use your network as you work through the process of building a sustainable business to meet the needs of the consumers.
Whether you’re just starting or expanding your brand, sourcing and manufacturing are essential areas to focus on. Take the time to fully consider options, research the market, and quality check suppliers to help create a successful and sustainable business for years to come.