What is a Private Label and What are the Key Differences of such a Business Strategy?
Private label products are manufactured by a third-party manufacturer or contract and sold under the brand name of a retailer. Everything about the product is specified by the retailer, including how the product is packaged, what’s included in it, and what the packaging looks like.
The retailer also pays to have the product manufactured and delivered to the store. This is different from purchasing products from another company with their brand name on the items. The manufacturer doesn’t have any rights over the brand or label. They earn by manufacturing the products.
Private labeling a product requires patience as there are several steps involved in the process. Aside from this, you shouldn’t expect an instant increase in revenue when you’re just starting a private label. Creating a Private Label on Amazon involves finding a suitable niche/product and manufacturer/supplier, creating of design, logo, and packaging, listing the products on Amazon, using Amazon FBA, and selling the products.
How to Find a Product for Sale?
Brainstorm product ideas for private label products. Look out for trending products. You can also look for product ideas on Amazon. The site provides a detailed list of their best-selling products. The lists are designed to allow customers to see what is popular, but you can also use them to your advantage.
Your pre-market product research will be the best-seller rankings. You don’t have to develop a product and then test to see if it sells. Instead, you can begin by seeing if a certain product sells well and then decide whether or not you’re going to pursue it.
When looking at Amazon rankings by category, you should look for items that are generic, high-ranking, and lightweight. Generic refers to products that can be easily manufactured with your packaging and brand such as flashlights and water bottles. You don’t want to choose brand-driven items such as iPhones because those products cannot be privately labeled.
How to Understand that the Selected Product is Suitable for Sale on Amazon?
Specific Product Attributes
Start with products with the following qualities:
- Uncomplicated – Choose products that are not difficult to sell. For instance, clothing items may be fun to sell. However, such products require you to have multiple sizes and colors for one SKU.
- Unregulated – There are products such as batteries, food, and toys that come with red-tape, which can make selling those items difficult. Choose products that don’t require a lot of certifications and legal paperwork and are easy to produce and distribute.
- Non-seasonal – Avoid seasonal products as much as possible. You don’t want the sales of your products to be season-dependent. Examples of seasonal items include winter clothing, Christmas lights, and Valentine’s Day gifts.
- Lightweight and small - Your product should be less than 2 pounds. It should be able to fit into an 8 11/16" x 5 7/16" x 1 3/4" box or a small, flat-rate box so that you can save on shipping.
Once you have selected what products you’re going to sell, you can proceed to the next phase – conducting market research. This will help you determine whether or not the product is worth selling. Using an Amazon seller research tool will make it easier for you to conduct market research.
One of these tools is Jungle Scout’s Chrome Extension. Go to Amazon.com and perform a search using your product idea as the keyword. For instance, you want to search for a “tactical flashlight.” Wait for the search results then open Jungle Scout’s Chrome Extension by clicking the “JS” button. It can be found to the right of the browser’s address or search bar. The extension will show you the average reviews per product, the average monthly sales, and other stats for the product.
- Strong minimum sales per month – You’re looking for a niche or product with at least 2,000 sales every month. With an Amazon seller search tool like Jungle Scout, you don’t have to guess what people are going to purchase on Amazon. Look for products with 250 to 500 minimum sales per month.
- Low competition – You should also find products with low competition. The best way to do this is to look at the number of reviews your competitors have as well as how many people are offering a similar product. Find 3 or more products with less than 50 reviews. If the sellers have thousands or hundreds of reviews, it means your chosen niche or product is an extremely competitive market. Those listings and sellers have been in business for a long time, and you don’t want to get into such a market.
- Good margins – Look for expensive products because these items tend to have better margins and profits. If you are selling a product for 8 bucks, you won’t make more than a dollar on this item after it gets into Amazon and you pay the necessary fees.
- Sell products that people are purchasing and looking for even though they’re not very pleased with it. Improve the product and then sell it to the same audience. This is a timeless business strategy.
These categories have the best potential for private label products:
- Camera and photo;
- Home and kitchen;
- Cell phones and accessories;
- Grocery and gourmet food;
- Health and household;
- Toys and games;
- Tools and home improvement;
- Beauty and personal care;
- Musical instruments;
- Pet supplies;
- Arts, crafts, and sewing;
- Patio, lawn, and garden;
- Industrial and scientific;
- Office products;
- Sports and outdoors.
Read more about how to find your ideal product for sale on Amazon to understand its features.
How to Work with the Supplier
You can find a supplier in China or the US. It’s best to look for local suppliers because the near vicinity of your warehouse and the supplier will help you save a lot of cost on logistics. Importing from China will save a lot on the cost of the products, but incur logistic costs. If you want to import from China, you should consider Alibaba. It’s a popular website for wholesale B2B transactions. Alibaba exports low-cost generic items to western countries.
Sourcing from Alibaba comes with risks as well. There are many unreliable suppliers out there, so you need to find a trustworthy one that can give you a great deal. Here’s how you can find a trustworthy supplier.
- Choose suppliers who have been in business for more than 2 years. Find out if you can customize your private label products. Look for OEM brand names. OEMs don’t create their brand but manufacture private label products for other customers.
- The supplier should have the Gold Suppliers status. This means that such companies are verified by Alibaba.com employees or third-party companies to confirm the reliability and quality of products.
- Try to cooperate with suppliers that have been tested and have the status of Assessed Supplier. Assessed Supplier - voluntary testing for all types of Gold Supplier. It is conducted exclusively with the assistance of third-party agencies, such as Bureau Veritas or TÜV Rheinland.
- Go for suppliers who accept Escrow or PayPal.
- Ask the supplier to send samples of the products before the main delivery. Negotiate on the minimum quantity of the order.
Creating a Logo, Product Labeling, and Photos
You don’t need to create the marketing materials on your own. Hire a professional graphic designer to create your logo and product labeling. You can find them on freelance websites such as Upwork and Fiverr. Your Logo should represent your brand. Vibrant Product Packaging will set your product apart from your competitors. You can put helpful information or your brand’s website link on the packaging to boost your marketing efforts.
You must use high-quality photographs so that customers can view your product well. If you want to prove to buyers that it is your product that they should buy, hire a professional photographer. He will make high-quality photographs and show the goods from different angles. If you sell clothes, it will be great to show a photo of things on the model.
How to Make a Perfect Listing
Creating an attractive product description is also very important. To create an attractive listing, use high-quality optimized photos, and explain how your product works and why it is valuable. When creating a Product Listing, pay special attention to its title and description of benefits. It is important to use Keywords that very closely match your product. They need to be specified not only in the title but also in the product description field and bullet points. Emphasize the features that set it apart from other products. Use Bullet Points and bolded text to highlight key facts. Descriptive listings can differentiate your brand as informative and knowledgeable.
How to Use FBA When Selling Products under a Private Label
What is Amazon FBA? The Fulfillment by Amazon or FBA program helps you to reach more customers and scale your business by allowing you to store your items in Amazon’s fulfillment centers. Amazon picks up, packs and ships the product to its destination. They also provide customer service for the products. FBA charges a small percentage of your proceeds.
Shipping costs are already included in the fees. Using FBA also qualifies your products for free Prime shipping. You can enroll in an Amazon FBA course to learn how to set up and earn money with your FBA account. If you want to get started right away, here’s how you can set up your FBA account.
Go to Amazon FBA. Click Get Started > Register Now (if you don’t have an Amazon seller account). If you already have an Amazon seller account, click Add FBA.
2. Prepare Inventory.
Make sure your items are qualified for Amazon FBA and meet the labeling requirements. You can use the Amazon FBA Prep Service to save time.
3. Send Your Inventory to an Amazon FBA Center.
Assign your inventory online. Log in to your Seller Central account then click Inventory > Manage Inventory. Choose the products you want to be delivered to the FBA center. Click Actions > Change to Fulfilled by Amazon > Convert > Send Inventory.
4. Manage Orders.
You can also access your sales data at any time to influence your future strategies. Just go to Reports and select the area you’re curious about.
Pros and Cons of this Seller Strategy
Here are the benefits of private label products.
- Control the pricing – You don’t have to settle for what a company is selling. Private Label on Amazon gives you complete control over the pricing.
- Production control – You can create exactly the product you need; Specify the color, size, basic functions. And the manufacturer will do it the way you want.
- Branding control – You can choose your own logo and packaging design.
- Fast product adaptability – It is easier for you to change the characteristics of the product, to quickly adapt to the new needs of customers.
- Expansion of product line – You can easily add a new product from the same group to your inventory, and your customers may be interested. Your profit will be more.
- Variety – You can work with other brands to access a wider range of products that consumers are looking for.
Private labeling also allows you to grow at your own pace. Branded products have various limitations. You don’t need to deal with such hindrances when you sell private label products.
Private label products have some downsides as well.
- You will not get instant profit. You will need time to search for a manufacturer, deliver a batch of goods, create a logo, photos, etc.
- You need money to start a business under its own brand. At the start, you will only invest, and the first income will be received only in a few weeks.
- You usually get what you pay for. You’re extremely dependent on the manufacturer when it comes to product quality and production. If you order a large number of goods and there are defective items, you might incur heavy losses.
- If you have unsuccessfully selected a product for sale, it can simply get stuck in Amazon warehouses. You not only lose the invested money, but you can additionally pay a commission for long-term storage of the goods.
Private label is one of the ways to make money on Amazon, which can be profitable with a long-term perspective. But in order for you to be able to create such a business on Amazon, you must conduct in-depth market research. Only in this way you can find the right product and a responsible supplier who will manufacture a quality product.
When setting up a private label business, aim for a healthy profit margin. You can go for a per-unit profit margin of 50%. It depends on the product you want to sell.
And do not forget to use special software tools to help you make your business truly profitable.