Private Labels: Best Practices for Your Business

Private label products are a cost-effective way to grow your business and brand. Partner with manufacturers who create products that increase your revenue and draw more customers to your store. This article explains what private label means, how it works, pros and cons and tips for choosing a good manufacturer.

 

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What are private label products?

Private label products are items made by a third-party company and sold under a business’ brand. Most retail stores purchase products they’re unable to create themselves and place their own brand name on it. The company or individual who created the product receives a profit when the item sells.

Some companies sell their products for a brand to use as an ingredient in their product. For example, an ice cream shop would source milk from a dairy farm. The dairy farm wouldn’t receive brand recognition but would still earn a strong profit since the store regularly uses their milk to make ice cream.  

 

How does private labeling work?

Business owners looking to strengthen their brand visit manufacturers with products related to their brand. Manufacturers negotiate a deal with the business owner, with details like:

  • Profit the manufacturer receives when a customer purchases the product
  • Amount the manufacturer charges to make each product 
  • Projected number of products the manufacturer can make
  • Expected delivery time 

Most small businesses find success in private labeling as customers buy products from established manufacturers they trust. 

Related: How to Hire a Merchandiser

 

Pros of offering private label merchandise

Some advantages of private label merchandise range from strengthening your brand to saving costs. Other pros of offering private label merchandise include: 

 

Pay only for the product

Since you’re not using the brand’s name, you don’t have to pay a premium for it. The vendor also cuts costs by letting your business promote their brand for them. Neither of you has to launch marketing campaigns to promote the product.

 

Full control to alter the product

The brand is now under your name, meaning you’re allowed to charge the price you desire, helping you stand out from the competition. If customers have problems or complaints with the product, you’re able to alter it as needed to fit their preferences. 

 

A strong brand for your business

Use these items to build your own brand by purchasing private labels that strengthen your business. For example, a local fitness center would sell protein bars and shakes, bottled water and cleaning products under their own brand. Design your own label and logo and attach it to all your products for consistency.

 

More money for sales incentives 

Since your private label products have a stronger profit margin, you have a higher budget for the sales team. Encourage them to sell more of these and give them commission for each private label item they sell. Your business still sees an increase in revenue, since you’re paying less than for the branded products. 

 

Increased loyalty and relationships with customers 

Customers who enjoy your private-labeled products know they can only purchase them at your store. Effective customer service and impressive products influence customers to return to buy more. Strong trust means they’re willing to try new products you sell since they’re satisfied with previous ones. 

 

Cons of private labels 

Possible drawbacks of offering private label merchandise include: 

  • Some merchandise doesn’t sell: You may see profit loss if customers aren’t interested in your new items, which you’re usually unable to return to the manufacturer.
  • Minimum order requirements: A minimum quantity is required by most manufacturers, which can be a large amount, costing a significant portion of your budget.  
  • Lower quality product assumptions: Some customers trust well-known brand-name products over smaller private labeled ones.

 

Tips for choosing a good private label manufacturer

Finding an effective private label manufacturer takes research and time. Follow these tips to choose an effective private label manufacturer: 

 

Learn about your target audience 

Research your current and prospective customers to understand their buying habits and purchasing patterns. Look at your inventory to learn what your customers regularly purchase and distribute surveys to learn what they’d like you to sell. Search for products that match their preferences. 

 

Look for smaller, unique manufacturers

New businesses benefit from larger manufacturers as they often produce more and offer discounts. As your business grows, consider buying products from smaller manufacturers who make unique products. You can stand out from the competition that uses well-known brands. 

 

Attend trade shows and networking events 

Find great manufacturers to partner with at trade shows hosted by organizations like the Private Label Manufacturers Association. Listen to presentations and business proposals to understand if they make a product that benefits your brand’s image. 

 

Frequently asked questions about private labels

 

What is a private label example?

An aromatherapy store sells essential oils made by a third-party company. The product has the aromatherapy store’s brand packaging and brand listed. A portion of each item’s profits goes to the manufacturer.

 

How much does it cost to private label? 

The price to privately label products varies according to how many you need and the type of product you have. New businesses may save more money when they privately label their products. Private labeling a product costs a few hundred dollars, while proprietary products start at around $10,000

Related: 10 Steps to Starting a Business

 

What is the difference between a private label and a brand? 

A private label is a product made by a third-party manufacturer and is promoted by a retail store’s brand, while a national brand is an established and usually well-known product. Most retailers sell a mixture of well-known, national brands and private label brands to save money and build their own brand.

 

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