What is a private label?
If you’ve ever considered launching your own business selling branded products online (or offline), you might have encountered this term already. Private labelling is just one of the many business models, or strategies, entrepreneurs can consider when they’re building their business.
All retailers need to get their products from somewhere. Those without the resources and technology to create items from scratch go to suppliers – people who manufacturer goods on their behalf. The private label model involves working with a specific manufacturer, capable of sourcing materials for your products, creating your items, and producing them according to your standards.
Today, we’re going to cover everything you need to know about private labelling, how it works, and the benefits it could offer to your growing store.
What is a Private Label?
In the retail world, the term “private label” is used to refer to any product made by a third-party, but sold under a company’s own brand. Private label manufacturers allow you to outsource the work involved with creating and packaging your product to another third party, so you can avoid the costs and complexities of producing your own products.
Unlike other strategies for business growth, such as dropshipping, or reselling another companies product, private label products are designed according to your brand specifications. For instance, you might create a line of candles with a private label manufacturer which includes the scents, colors, and labelling you’ve picked for your company.
Private labelling is a popular business model, particularly common in Europe. In fact, the private label makes up around 20-50% of supermarket sales in Europe, and approximately 19.5% of all retail sales in the US. This method is also a highly versatile option for a lot of companies, as it’s possible to add private labelling to a wide range of different products, from food to clothing.
Notably, while a private label offering can be similar to competing products on the market, the exact manufacturing formula needs to be a little different to ensure it doesn’t fall victim to any copyright issues. If you see a private label business offering a product, the chances are the exact same solution won’t be available anywhere else.
How Does Private Labeling Work?
While private labeling might seem like a complex concept at first, it’s actually one of the most straightforward business models for new entrepreneurs. The business model involves two parties: a private-label manufacturer, and a retail brand. The manufacturers are responsible for making a product according to the specifications of the retailer.
The retailer needs to provide information on the specs of the product to the manufacturer, as well as insights into how it should be packaged and presented. A private label manufacturer will then ensure they adhere to the standards set by the retailer, implementing quality control strategies, while minimizing production costs whenever possible.
Once products have been developed by the manufacturer, they’re generally passed back to the retailer, who chooses where and how to sell them. As far as any consumers are concerned, the products are presented as the retailers own “branded” products, with no third-party interactions.
Private labeling works best for companies who want to create unique products, using their own branding, without having to pay for the technology and resources to create items in house. Notably, private labeling shouldn’t be confused with “white labeling”, which is a separate business model.
Private Labeling vs White Labeling
Private labeling and white labeling are often confused as being two names for the same thing. However, private-label products have some specific differences to consider. A private label product is created according to the specifications of the retailer. Additionally, every product produced has a unique formula, even if the items only differ slightly from the competition.
White label products aren’t custom designed for a particular seller. Rather, a white label manufacturer makes large amounts of one generic product, such as a white t-shirt, and allows the retailer to add their own branding and sell it to a range of different customers. This means any number of companies can essentially sell the same product, with slightly different branding via white labelling.
In some cases, white label vendors can also offer additional support with logistics and order fulfilment. For instance, a sub-group of white label manufacturers, known as “print on demand” companies, can customize and create products for retailers, then send those items direct to a customer. With a POD company, however, items are only created when orders are placed, rather than being manufactured in bulk for storage and retail purposes.
The Benefits of Private Labeling
Like most business models, private labeling comes with various pros and cons to consider. Creating a privately labelled product can be more time-consuming and challenging than using a white label alternative, for instance. However, there are a number of unique benefits to consider with private labeling too. Some of the biggest advantages include:
- Unique value propositions: Private label retailers get to control all of the aspects of producing their own products, from its manufacturing formula to its design. This means you can create something that’s completely separate from other leading brands. A private label solution will never be exactly the same as something else created in the industry, so it’s a good way to differentiate yourself from your competitors.
- Adaptability: Private labelling allows you to adapt quickly to changes in the marketplace, without having to buy new machinery or hire new experts every time you want to create a new product. Private label sellers can respond quickly to negative reviews or changing requirements in their industry, so they’re more capable of competing.
- Production and quality control: As mentioned above, private labeling gives you absolute control over how your items are produced. You can provide instructions to your manufacturer on all of the aspects of your product, and establish quality control measures. You’ll also be able to order samples of products to ensure they align with your requirements, before buying everything in bulk. This reduces the risk of mistakes.
- Pricing control: Private label sellers and retailers can make changes to their pricing strategy whenever they like. They can experiment with different supply chain and logistics strategy, and control production costs with a manufacturer. You’ll be able to explore a range of price formulas to ensure you’re maximizing your profit margin.
- Brand growth: Perhaps the biggest benefit of private labeling over other methods like white labelling and dropshipping, is that you can establish recognition for your own brand. You can add your own logo and colors to everything from the products you create, to invoices and packaging. This makes it easier to establish a space for your brand in your industry.
Examples of Private Labeling
As mentioned above, one great thing about private labeling, is it’s extremely versatile. Many people don’t realize just how many consumer products are made by private label manufacturers. In fact, the private label model is one of the most popular in the world. Even big brands like Walmart, Costco, and Amazon have their own private labelling strategies.
Some of the most common examples of private labeling appear in the following industries:
- Technology and accessories: Tech products, such as batteries, chargers, phone cases, and even charging cases for headphones can all be made according to private label specifications. Even LED lights and similar solutions are available to create in this landscape.
- Coffee: Private label coffee, tea, and other beverage products are extremely popular in today’s landscape. Many coffee brands use coffee drop shippers to send batches to customers as soon as they’ve been ordered, to keep everything fresh.
- Groceries: Have you ever noticed just how many different food products appear to have almost the exact same ingredients, but feature different labels? That’s an example of private labeling at its finest. Even grocery stores create their own private label items.
- Apparel: Many clothing retailers use private label garment creators for their apparel. These clothing manufacturers can choose either a private label strategy to have everything made from scratch, or leverage a white label alternative.
- Pet food: Many online pet food stores and offline retailers sell privately labelled food for animals. These foods, alongside various other pet toys and accessories, are usually made by the same manufacturers as other solutions, but they’re sold under a different brand.
- Accessories: Accessories like hats, shoes, backpacks, and even home décor and living products are commonly sold under private labels. There are various manufacturers who can produce almost any kind of accessory you can think of according to exact specifications.
- Personal care products: Mouthwash, makeup, moisturizer, and countless other personal care products are often created by manufacturers selling various private sellers. While the formulas are specific to the brand, they come from the same assembly lines.
Other options can range all the way from blankets and home décor, to candles, musical instruments, and even specific technical products built for the B2B landscape. The options are endless.
How to Start a Private Label Business: Top Tips
The good news for anyone thinking of starting a private label retail business, is the process is relatively straightforward. You might actually find this strategy is cheaper and faster than producing products yourself. However, there are some tips you should keep in mind when you’re getting started.
1. Find a Niche Market
Whenever you’re creating a new product, it’s always worth doing your research on the target audience you want to serve. Selecting a niche market with a specific group of consumers will ensure you have fewer competitors to work against when you’re building your brand.
Some of the most popular private label products fall into the categories of hair and body products, baby products, pet products, and cosmetics. However, you can explore a range of options depending on your interest. Always make sure the market you’re choosing isn’t too over-saturated, and try to find a formula for your product that will set you apart from the competition.
Learn as much as you can about your customer base with market research and surveys. The more you know, the more you can tailor your brand to your customer’s needs.
2. Build your Brand
One of the biggest benefits of private labelling is it allows you to add your own branding and unique elements to every product you make. To ensure you’re making the right impact and setting yourself up for growth, you’ll need to ensure you have a solid brand in place. Think carefully about everything from your company and product names to your logo design.
Research color psychology to help with your packaging strategy, and use competitor analysis to find ways of differentiating your product from what’s already available on the market. Extensive product research can be helpful for someone new to product development.
You might need to learn a little about what other providers and retail stores are offering, so you can ensure your products have something unique about them.
3. Choose a Reputable Manufacturer
Once you’ve chosen the product you want to sell, and you’ve pinpointed your unique market, the next step is finding a reputable manufacturer. Look into a range of options in your local area, and make sure they have the tools and resources to create your items according to your exact specifications.
Create a shortlist of manufacturers who appear to be trustworthy, and contact them to see whether they offer private labelling. You may also want to ask about other services, such as dropshipping, to reduce your logistics expenses. Ask about how long it takes to produce each type of product, and whether the company has any limitations on what you can customize.
If your manufacturing is going to be importing any materials from outside of the country, you may need to know this too, as it can influence production times.
4. Order Samples
Even if you invest plenty of time and effort into creating the perfect formula for your product, there’s always a chance something will go wrong on the assembly line. With this in mind, it’s worth ordering some samples of the items you’re going to be selling before you dive in. Get in touch with the manufacturer and ask them to send out some samples before they continue producing the whole batch.
This will give you a chance to test the quality of your item, and decide whether you want to make any changes to your product formula before you take the next step. Most manufacturers will only require you to adhere to minimum order quantities after you’ve already approved your formula with a few samples. If your manufacturer doesn’t offer samples, look elsewhere.
5. Set up your store
Once you’ve got your products in development, the next step is to set up an online store where you can market and sell your items. There are plenty of ecommerce site builders you can use to develop a great store, from Wix and WordPress (WooCommerce) to Shopify and BigCommerce. If you’re going to be looking for ways to expand your brand presence, you might want to look for a platform that enables omnichannel selling across a range of platforms.
This will allow you to sell your items not just on your online store, but across marketplaces like Amazon, eBay, and even Etsy in some cases. Remember, your store should be easy to use, with plenty of template options to make it look as professional as possible.
You might also want to update your store from time to time to make it more impressive.
6. Promote your Products
Promoting your products starts with creating the right pages for your items on your store. Get high-quality product images, determine a good pricing strategy, and create impressive product descriptions which offer behind-the-scenes insights into everything you sell.
Once you’ve developed your product pages, start advertising your website to as many customers as possible. You can experiment with a wide range of different marketing options, such as paying for ads on Google and Facebook (PPC), and using SEO (Search Engine Optimization). You might also work with strategies like social media marketing, email marketing, content marketing, and customer loyalty programs, to increase retention.
Pay attention to the results of all your marketing campaigns, so you can ensure you’re investing the right budget into the strategies that generate the highest number of conversions.
Where Can You Find Private Label Manufacturers?
There are tons of private label manufacturers out there, capable of creating products to almost any specification. The right option for you will depend on the exact features you need. You may even choose to opt for a company that specializes in both manufacturing and dropshipping.
A few product sourcing platforms and apps you can try include:
- Alibaba: The Alibaba group is among the biggest ecommerce companies in the world. It offers access to a huge directory of suppliers capable of offering dropshipping, white labelled, and privately labelled products. You will also be able to access various third-party apps alongside Alibaba and its sister site, AliExpress, to help with automating order processes.
- SupplyMeDirect: Shipping from China, the US, and EU, SupplyMeDirect offers easy access to a range of manufacturers across different landscape. The platform comes with access to local shipping options, and automated order processing. There’s even an app that can sync with your Shopify store.
- Modalyst: A popular dropshipping supplier and private label solution, Modalyst is a partner of AliExpress. It makes it easy to access a wide range of manufacturers, offering all kinds of different products. Although you can access the service for free, there’s a premium plan which can give you more options for custom packaging and branding.
- Apliiq: Another print on demand company offering both white and private labelling, Apliiq specializes in apparel items trending in the fashion industry. The company can automate order processing and fulfilment on your behalf, and ship every order within as little as one week. You can also access tracking information for orders.
- AOP+: The AOP+ Easy Print on Demand service offers a range of white labelled and private labelled product options for different retailers. AOP can work with you to create your private labelled products from scratch, and specializes in a variety of apparel and accessory options. The company also has a live customer support team.
Should You Start a Private Label Business?
Creating your own private label brand can be an excellent idea if you want to get your brand name out there, and create a unique product line, without the extra expense and effort. Countless national brands, selling items from different product categories use private labelling for their own benefits. Just think of Costco and the Kirkland brand for instance, or Amazon and Amazon Basics.
Choosing to work with a third-party manufacturer means you have more freedom to create a wide range of different items for your ecommerce business, without having to pay a fortune for specialist machinery and tools. For a business owner, private label goods can even lead to higher profit margins than using white labelling, or creating products in your own brand name yourself.
However, just like with any kind of business, it’s important to know exactly what you’re getting into. For a small business, private labelling can be a little more expensive and time-consuming than other business models. You’ll have to adhere to a minimum order quantity with your supplier, and make sure you come up with unique product ideas. Plus, you’ll need to ensure you source products from the right distributors, to avoid any quality issues.
However, if you can build your private label correctly, you might find your items become just as popular as the store brands known around the world today.