A private label business continues to sound more and more like a lucrative venture as time goes by. This comes as no surprise, as shown by the countless number of success stories floating around online. Private labelling can indeed be a gold mine – if you know what you’re doing. The truth is, times are changing and the money you’d have needed to establish a private label brand a few years ago now won’t be enough. Private labelling is more competitive than ever; on Amazon alone, 50% of all the sellers are involved in private labelling. Moreover, the number of sellers on Amazon has been increasing dramatically (65% in 2014 and 50% in 2015) not to mention other online selling platforms like eBay.
To succeed in a private labelling business, one of the most important things is an adequate capital base. You need to create your own brand that will sell sustainably and gain momentum along the way to ensure long-term success. For this to be attainable, you need enough money to secure a large inventory of your product, create a good brand and market it well.
Costs to consider
Starting this business can certainly be daunting when considering the costs you’ll most likely encounter. These costs will vary widely from person to person, but you can generally expect the following:
- The landing cost of your item – This refers to the costs incurred before your product lands in an Amazon warehouse or a location of your choice. These costs include manufacturing costs, shipping and customs, and inbound shipping. Ideally, all this should add up to $4 or less for one unit for your business to easily fall within your budget. Your first shipment should be 500 units or more, adding up to a total cost of $2000 (unit cost x quantity). This will cater for items sold with huge discounts at the beginning to acquire reviews and still allow you to get a tidy profit.
- Design and customization of your product – This is a major part of developing your brand, so don’t hesitate to contact a graphic designer to help you craft a beautiful logo and package design. You can spend as much as your budget allows for graphic design, but you can visit Upwork or Fiverr if you want a good bargain.
- Marketing costs – If you want your business to be successful, don’t hesitate to spend enough to get your product out there. You can run ad campaigns on Amazon or on various platforms like Facebook and Pinterest. Sponsored ads on Amazon alone could cost you up to $500 per month, so the expenses can be a bit steep. Fortunately, the resulting product sales more than make up for it.
- Other fees – When starting a business, additional costs will always crop up. For example, if you want to set up your own website or custom email for your business, you’ll end up having to pay some fees. $5000 is enough capital to comfortably take care of this cost.
To keep your costs within your budget, you have to make sure your product is small and light. There’s simply no way around this; bulky goods are expensive in every step of the way in your business. Your production costs, shipping costs and storage costs will all be too high to be reasonable or sustainable within your budget. Making large shipments and building up a suitably large inventory will be extremely difficult unless you’re assured that your product will sell. To avoid this, get a product that is small (can fit in a shoebox) and ensure the packaging during shipping and storage will maximize on space available.
Another good idea is to keep your product simple and durable. It shouldn’t be complicated with intricate components since the production costs will be very expensive. You’ll also have to spend a lot more time and money screening for a manufacturer that is competent enough to produce the product in good quality. With a durable product, you don’t have to worry about damage during shipping.
There’s a multitude of product ideas that fit the above criteria so finding one shouldn’t be too difficult. Examples of such products include: jump ropes, dog leashes, lunch boxes or insulated bottles. For more help on choosing your product, check out my article on 10 profitable product ideas to private label on sellerexpress.com.
Channel for manufacturing private label products
If you want to save on production costs, your best bet is to source products from overseas manufacturers, particularly from China. Chinese factories are known for having very affordable production costs, but you’ll have to select a supplier very carefully to avoid the many frauds and scammers waiting to exploit you. To help you out, check out here are some guidelines for you to do properly audit and vet suppliers in China. The reality is that not all qualified manufacturers or suppliers choose to list themselves in B2B sourcing platforms or directories; another option to find a reliable private label manufacturer is to hire a reputable sourcing agent or work on joint order with the sourcing departments of some worldwide retailers.
Channel for selling private label products
How you sell your product will greatly affect your costs so think very carefully before you decide on a method to sell your product. There are various options available:
Fulfillment by Amazon (FBA)
The FBA program is one of the best ways to get you started. You only have to ship your product to Amazon and let them handle everything else, including storage, packaging and shipping to the customer. You can therefore focus on other aspects of your business while starting out and also enjoy Prime Eligibility of your product. Amazon Prime members can therefore buy your product with free 2-day shipping. However, a small portion of your profit will pay for this service in addition to the $40 a month for your Amazon seller account, so the costs are high.
In this model, you don’t have to own an inventory but instead purchase orders as needed from your manufacturer or supplier. The supplier then ships the goods directly to the customer. You don’t have to worry about logistics or inventory, which can take a huge chunk out of the initial costs. However, you have no control over the process, and your customer service could suffer if the supplier is unreliable. Also, you have no inventory to call upon when there’s a product shortage from the supplier, which can be very risky.
This is where you are in full control of the handling of your product. You take care everything from inventory and packaging to shipping the product to the customer. With this control, you are always aware of what you have at hand, so you can avoid making false promises to customers. Also, you can enjoy increased profit margins due to investing through a wholesale or bulk price and not having to pay a third party to perform these functions. Unfortunately, you have to deal with high costs of inventory and storage as well as sacrifice a lot of your time for this to work.
Sarah Kaiser is a digital marketing manager at casino global sourcing, the sourcing division of a French retailer Groupe Casino. She’s in charge of godirek.com, the digital product catalog of casino global sourcing, which offers helps and handles enquiries about private label manufacturing and sourcing. She’s a fan of water sports and has studied business management in France. Her works have been published on dozens of websites and blogs.
Presented by a BusinessTown partner