Private labeling is a popular business model. But what is behind the term?
In this article you will learn everything you need to know about private labeling. These are the contents of this article:
- What does private labeling mean anyway?
- What is the difference with white label products?
- Step-by-step guide to successful private labeling
- What are the advantages of private labeling?
- The best strategies to find optimal private label products
And most importantly in our step-by-step guide, what’s the best way to find your own private label product? And how do you sell it successfully?
What is private labeling?
Private Label is an English term and translated into German means nothing more than “own brand”. The term private label can also be equated with the term “trademark”.
Private label products are therefore products that are manufactured for a specific retailer and then sold offline or online under the retailer’s brand name.
This brand name can, for example, correspond to the name of the commercial enterprise – but can also be completely different.
The trend of private labeling comes from the USA and is especially popular with young entrepreneurs who want to start their own business with a private label product.
A private label product is usually a small change or improvement made to an existing product. This modified version of the product is then sold under the company’s own brand name.
A good example of private labeling can be found in the food industry: brands such as “Gut & Günstig” (Edeka) or “Ja” (REWE) are classic private label products.
In private labeling, retail companies legally act as the manufacturer of the product and are thus responsible for compliance with all rights and obligations.
In recent years, private labeling has experienced an upswing, primarily due to e-commerce. However, private labeling is not a completely new business model. The business model has been operated by retailers around the world for many years.
Private labeling is also becoming more and more interesting for entrepreneurs who sell products via Amazon FBA.
Amazon is now responsible for over 50% of global e-commerce sales. It is logical that many private label sellers are on the sales platform.
Tips to successfully sell private label products on Amazon:
- If you sell on Amazon, then you can find and sell private label products with Helium 10.
- To learn how to sign up as a seller on Amazon, check out our article on creating an Amazon Seller Account.
- Here you can also learn how to register an Amazon FBA business .
What is the difference with white label products?
White label products represent an interesting opportunity for companies to quickly and efficiently establish their own product lines. They are produced in their basic form without specific branding or branding.
This allows companies to buy them and brand them with their own custom branding. The key advantage here is that product development and manufacturing have already been completed, allowing companies to save time and resources.
The term “white label” is derived from the traditional white labels that are applied to these products. These labels are like blank canvases, ready to be filled with the branding of the purchasable company.
However, when companies purchase white label products and apply their own branding, the result is a private label product. The private label product is unique to the company that brands and distributes it.
It allows the company to create an exclusive product line with its own brand values, design guidelines and packaging concepts. The bottom line is that the company gives a generic white label product its own identity.
So the main difference between the two is branding and brand identity. While white label products are neutral and applicable to a variety of brands, private label products represent a specific brand and are sold exclusively under that brand.
What are the advantages of private labeling?
Private labeling creates a USP
The biggest advantage to private labeling is the USP (Unique Selling Proposition), which is the improvement or change you have made to your product. For example, you could combine two products that complement each other.
With this USP, you have created a product with a unique selling proposition. In this way, your product stands out from the similar offers of your competitors, because your customers can only obtain this one product from you.
Private labeling is favorable
If you want to sell your private label products on Amazon and you can create your own logo and packaging, you can get started with a starting capital of about 1,000€.
Of course, €1,000 is the absolute minimum. In most cases, a higher start-up capital is necessary. But what is 1,000€ for a business start-up?
In any case, this small start-up capital is very interesting for many young company founders who want to take off with their private label product.
Own design of the product
Private labeling opens up many new opportunities for a retailer, for example, by not putting any obstacles in the way of creating a brand image.
Both the logo, the promotional film, various product designs and advertising clips, can be designed according to the wishes of the retailer. This creates a unique customer journey that is 100% in line with the retailer’s expectations.
Control over pricing
By selling private label products, companies gain full control over the pricing strategy of their products. This gives them the flexibility to adjust prices depending on the market situation, cost structure and competitive landscape.
Rather than being locked into the pricing constraints of established brands, private labeling allows companies to dynamically price their products to take advantage of market opportunities, maximize sales and strengthen their market position.
Step-by-step guide to successful private labeling
1. comply with legal requirements
The first steps to starting your private label business include ensuring all legal requirements are met. As a private labeling business owner, you are required to register a business and document all business transactions that affect the finances of the business.
In addition, you must register for tax purposes with the tax office so that you can obtain a tax number and VAT ID. You will need these for payment transactions with the tax office and for the payment of sales tax.
- Tax number: Used for identification at the tax office
- VAT ID: Via the VAT ID, every company within the European Union (EU) can be clearly identified
You apply for both numbers using the same form. The questionnaire will be sent to you automatically after you have founded your company. Otherwise, you can also find the form online on the site of the Federal Ministry of Finance or fill it out on the Elster portal.
2. find private label product
First, you need a white label product as a base. It is a good idea to look specifically for a product where the demand and the supply are right.
If you want to know exactly how to find a white label product as a base, then read through the article Finding Amazon FBA Products. This post explains in detail how you can find a really awesome product step by step.
With the help of Helium 10 or Jungle Scout, you can make your search for potential private label products much easier. With Helium 10 you can check the margin of any product on Amazon. For this you have to proceed as follows:
3. search for the product you want to sell.
4. check the profit margin.
5. make sure that your profit margin is higher than 10%.
You can then sell these products directly through Amazon using the tools mentioned above.
Create a list of white label products
The white label product represents your base product. By making changes and improvements to a white label product, you create your own private label product.
It’s best to create a list of different white label products. In doing so, you can apply the strategies from the article Find Amazon FBA Products.
Alternatively, you can also search for suitable white label products on Alibaba.com.
The USP of your private label product
As mentioned above, a USP does not always have to be a completely new invention. By making a minimal improvement to your product, you can already create a strong unique selling proposition and thus the basis for your private labeling.
It is important that the change or improvement of your product brings real added value for your customers. A USP can be, for example:
- A set composition
- A striking color
- The correction of errors
- Technical features
- A better design
- Various sizes
The elimination of defects is particularly lucrative. With Helium 10, you can research all negative customer reviews and find out the most common flaws of a product.
Think about a solution and discuss it with your manufacturer. If you patent your solution, then in the long run you can leave your competition out in the cold.
Why would potential customers buy a product that is defective when there is a defect-free product that meets all requirements?
If you have a patent pending, your competitors cannot follow suit and you will be able to maintain your position for a very long time.
Competitive advantages in private labeling
Finally, we want to show you the competition matrix of Michael. Introducing E-Porter.
You can use the matrix to align the market positioning of your private label products.
In private labeling, you can combine the different positioning options according to Porter. Below you will find a few examples:
- Products address the target group of a very specific niche
- Products clearly differentiate themselves from existing competition
- Products dominate cost leadership in the respective niche
Use Michael E. Porter’s competitive matrix to target your private labeling strategy.
3. find the best manufacturer
Once you have found a suitable private label product to sell under your own company, you should look for the right manufacturer.
In private labeling, it is common to purchase products from large manufacturers abroad (e.g. China). Of course, you should only choose manufacturers who already produce the desired product or are capable of converting their production accordingly.
Make sure to find a proven manufacturer who can incorporate their know-how. Also, you should pay attention to recessions so that there are no problems with the production and it can go without problems.
4. construct private label product
Once you have found the right manufacturer, you can discuss the desired changes to the existing product (=white label product).
Once everything is settled, a sample is made and sent by the manufacturer. If the sample meets your expectations, production can begin with the desired number of pieces.
5. select sales platforms
Amazon is definitely the largest marketplace in the world, which allows it to generate an enormous reach. You can make your private label products available to a very large audience and increase your sales.
The advantage of private labeling in combination with Amazon FBA (Fulfillment by Amazon) is that you can fully focus on marketing your own brand and you are not distracted by other activities.
Customer support, shipping, returns… you can outsource everything to Amazon. Of course, there are fees for this service, which may vary depending on the size and type of product.
Amazon is also known for its fast Amazon Prime shipping and uncomplicated returns. With an Amazon FBA business, you benefit from exactly these advantages and no longer have to convince your customers to order from you.
Besides Amazon, platforms such as eBay and Shopify are also a good choice. However, you should note that on eBay, for example, both private and commercial sellers sell. Accordingly, customer trust on this platform tends to be lower than on Amazon, for example.
FAQ – Frequently asked questions
Private label products are products that are manufactured for a specific retailer and then sold under the retailer’s own brand name. So an outside manufacturer makes your own custom products.
In our article, we’ve created a guide for you on how to make private labeling work for you.
You can use tools like Helium 10 or Jungle Scout to find potential private label products. You can find detailed step-by-step instructions in our article.
In private labeling, the buyer specifies the design, parts or ingredients. With white labeling, the product itself already exists, so only minor changes can be made.
Private labeling is cost-effective, it creates a Unique Selling Proposition (USP), it brings certain independence and one is free in the choice of design.