What is Private Labeling? The Ultimate Guide in 2020
Dropshipping, private labeling, white labeling, wholesaling, manufacturing… ecommerce can seem pretty overwhelming sometimes – where should you start?
If you’re interested in selling products online, you’ve probably heard of private labeling – but where does it fit in the mix, and is it the right ecommerce model for you?
Let’s find out.
In this guide, you’ll learn how it works, weigh pros and cons, explore private label brand examples, and get trending product ideas.
(Psst! While we feature certain third party brands in this article, we are not affiliated with them, other than those related to Shopify and Oberlo.)
What is Private Labeling?
What does private label mean? Private labeling is a process used to source products. Retailers will contract other companies to customize existing products to their specifications. This means that retailers don’t need to design and manufacture products from scratch. Then the retailer sells those products under its brand.
How It Works
Say you want to start selling men’s jackets online. Instead of designing and manufacturing new jackets, you can contact a manufacturer or supplier who already makes a selection of men’s jackets.
You can then have the supplier make some simple changes to the jacket and brand it with your logo and labels – these steps will help differentiate your jackets from competitors’. Then, you would sell these jackets under your brand.
You won’t have to spend time and money on product design and development costs. And your costs will be lower than if you were to purchase other brand’s products wholesale. As a result, your private label products will have bigger margins.
Private Labeling Vs. Other Ecommerce Business Models
If you’re considering starting a private label business, it helps to understand how this ecommerce business method differs from other models.
To make things clear, let’s run through five different ways to source and sell products online to see how private label companies fit into the mix.
Level #1. Dropshipping
Dropshipping is the perfect ecommerce model for beginners. It carries barely any risk as you can get started for as little as $29 per month – the cost of a Basic Shopify plan.
So, what is dropshipping?
Dropshipping is the process of selling generic products online. The best part? You don’t need to purchase any inventory upfront.
Instead, you work with a third-party company that stores and ships the products to your customers. Once you receive an order, your supplier is notified and paid automatically. Then they’ll send the product to your customer for you.
In other words, you’ll only pay the supplier for products once you’ve sold them!
Dropshipping apps like Oberlo make it unbelievably simple to source products, too. All you have to do is use their search function to find products, click “add to store,” and you’re ready to start selling.
Level #2. Buying Wholesale and Then Selling to Consumers
If you want to take things up a notch, you can start buying products wholesale from other brands, and sell them through your online retail store.
Wholesaling is the process of purchasing goods in large quantities from brands, distributors, or manufacturers. You’ll need to arrange a way to store the goods and ship them to customers.
Selling another company’s products allows you to take advantage of their existing brand equity. Plus, they’ve already done the hard work of developing and validating the products for you.
Dollar Shave Club then raised $160 million in venture capital, expanded its product line, and eventually was bought by Unilever for $1 billion in 2016 – just five short years after it launched.
Here’s the thing: Dollar Shave Club is a private label company– its razors were made in South Korea by a manufacturer called Dorco. Plus, although distribution was originally handled in house, Dollar Shave Club then contracted a third-party company in Kentucky to take care of it.
2. Target’s Archer Farms
Big-box retailer Target has a whopping 45 different private label brands, such as food brand Archer Farms, household essentials brand EverSpring, and electronics brand Heyday.
Each of Target’s private label brands caters to a particular target market. These products have helped the company boost its margins and achieve considerable profits.
At first glance, you’d think Crate & Barrel and West Elm are now selling on Amazon. However, these brands have products developed and manufactured exclusively for the site.
Private Label Advantages and Disadvantages
Everything in life has its pros and cons, right? To better understand what it’s like to run a private label company, let’s explore some advantages and disadvantages.
Private Label Advantages
Save Time and Money: With private labeling, you don’t need to design and manufacture products from scratch. This can save a lot of time and money that can be spent on other aspects of your business.
Product Differentiation: Unlike dropshipping, white labeling, and selling other brand’s products, you’re in the driving seat. You can customize and improve your private label products to your heart’s content.
Branding: Private label brands can also customize product branding to differentiate from competitors and build brand equity.
Pricing Control: When selling other brand’s products, you’ll likely need to adhere to their pricing guidelines. However, when selling private label products, you can optimize your pricing in tandem with your costs to increase profits.
Quality Control: Unlike when selling other people’s products, you can decide on materials, measurements, etc, giving you the quality control needed to grow a successful brand and business.
Adaptability: Unlike businesses that design and manufacture their products, private label brands can quickly take new products to market. This speed allows them to outpace competitors and cater to changing market needs.
Private Label Disadvantages
Upfront Costs: Unlike dropshipping, private labeling requires you to purchase products upfront, ship them to where you plan to sell them, and store them – all before you make a single sale. However, if you’re serious about building a brand that you can scale, the upfront investment will be necessary.
Dependency on Manufacturers: Although you can customize and brand your products, they’re still mainly in the hands of your contracted manufacturer. So, you must partner with a reputable, reliable manufacturer with the ability to scale with you.
5 Trending Private Label Products for Small Businesses
If you’re considering starting a private label company, you may be wondering what private label products to sell.
Here are five trending private label products for small businesses to help you get started with your product and niche research. We used Google Trends and Google Keyword Planner to identify these product opportunities.
1. Athleisure Products
Google Trends shows that Athleisure – short for athletic leisure clothing – has been growing in popularity since 2014.
Athleisure refers to clothes that can be worn lounging at home, relaxing with friends, or working out. From leggings and sports bras to t-shirts and shorts, athleisure has plenty of private label potential.
Plus, the term “athleisure” receives 74,000 searches on Google each month, and the athleisure tag on Instagram has almost 1.6 million posts.
In fact, the yoga mat industry is expected to be worth a whopping $17.3 billion by 2025. Plus, the term “yoga mat” also receives a massive 550,000 searches on Google each month.
Again, look for ways to differentiate your products, such as making them more eco-friendly.
5. Teeth Whitening Products
According to Google Trends, teeth whitening has grown from strength to strength for decades.
The term “teeth whitening” also receives 550,000 searches on Google each month. Consider selling teeth whitening strips, kits, or other products like charcoal powder.
Summary: Private Labeling
Private labeling is the process of contracting a manufacturer to produce an existing product to your specifications and then selling the product with your company’s branding.
There are many famous private label brands out there, such as:
Dollar Shave Club
Target’s Archer Farms
Private label products provide many advantages. For example, you don’t need to design and manufacture products from scratch. However, you’re still able to customize and brand products to differentiate them from competitors’.
If you’re looking for private label products to sell, here are five trending opportunities:
Teeth whitening products
If you’re looking for private label manufacturers, consider checking out B2B marketplaces like Alibaba and IndiaMART.
Finally, it can take time to source a winning private label product, so take your time and do your due diligence. Make sure to source your products from a reputable, trustworthy manufacturer.