As you’ve researched getting an FBA business off the ground, you’ve probably come across the term, “private label.” What is it? How does it work? Are private label products profitable? In this article, we’ll answer these questions and discuss how you can start your own Amazon private label business.
What is private labeling?
A basic definition of a private label product would be a product that is manufactured or provided by one company but sold under the name or brand of another. For this reason, they are often called “phantom brands.”
In effect, some person buys products that are unlabeled or unbranded from a mass manufacturer. They then label these products with their own branding and integrate them into their own business identity. They then resell these products under their brand or business to make a profit.
Usually, these products are manufactured in countries where the cost of manufacturing is very low (such as China, India or Thailand). They are then bought by someone in another country with a higher-value market and sold at a much higher price once they have applied their branding.
The private labeling process can range from as simple as not actually putting your branding anywhere on the item but just sell it under their own brand or store to others that actually create their own product labels and branding designs and alter the products by physically fixing it to them as part of the product.
For example, if your brand was “21st Century IT” you could buy generic laptop sleeves without any branding. You could then professionally have “21st Century IT” labels and badges made. When you receive these products you fix these labels and badges to them before putting them on sale.
Once the manufacturer has sold his product to this private labeler, he relinquishes all his rights to the product. The private labeler can do as they please with it from then on. The consumer might never know who the original producer is.
Benefits of private labeling?
Some of the benefits of private labeling should already be apparent from the description of the process. However, here are the biggest advantages that this business approach enjoys and why many people opt for private labeling:
No need to create your own product
This is a big one. If you don’t already have an idea of what product to you want to sell but know that you want to make a living selling online, it could take you many sleepless nights, hours and hours in a coffee shop trying to get inspired, and many brainstorming sessions to just get “that next big thing.” By going into private labeling, you can get started pretty much right away. You just need to develop your own branding.
You already have a fixed supply of goods
Coming up with “the next big thing” is just the beginning of your problems. Even if you already know what you want to sell, you might not have any experience or contacts in manufacturing. Not to mention the startup capital needed to scale your manufacturing according to your ambitions.
For many, it’s more than enough to find the product they want to sell from a generic manufacturer and make their dreams a reality by applying their own branding and vision to it. You already have access to a fixed supply in big amounts from the onset.
Sell unique products that have a proven market
Another huge plus is that since these products are probably already available in the Amazon marketplace. Things like the seasonality of the product, reasonably priced, the demand, and other factors should already be apparent to you from studying your future competitors.
For example, laptop sleeves are made by many different brands. Let’s not forget that on Amazon you can also resell the exact same brand as other sellers, however, through private labeling you will have the benefit of not competing for the coveted “Buy Box” with these established resellers as you are selling a unique product. If you have a good brand and vision, it could put you in the “sweet spot” of competition vs demand.
Low cost/high profit
Another attractive aspect of private labeling is the type of profit margins you can achieve. Everyone knows that many brand name products have their price inflated dramatically just because of the brand associated with it. If you do a quick search of laptop sleeves on Alibaba, most products are under $10 with some even at $1/piece.
In the U.S., Canada, UK or similar economy, you wouldn’t even be able to find cheap knock-offs that fall apart at that price. Obviously, you want at least some semblance of quality especially since you will be hedging your brand to it. This is why you should always order samples first and check out the quality for yourself. Many brand name laptop sleeves on Amazon cost $40+.
Shipping and branding will add some overhead but on a big scale, it won’t amount to much per product. This means that even if you double the price on a $10 Alibaba product you could be looking at a tidy profit margin.
How does private labeling work?
Now, we get down to the actual nitty-gritty of how private labeling works. We won’t go into too much detail but we will give you just enough to have a clear picture of what to do next at each step of the way.
Find a suitable niche and product
This is where you need to put your researcher hat on, pull your calculator closer, and start spending some time on the internet spying on your future competitors.
Many of you think that you need some fancy economics or business study degree in order to find a profitable product of your own. While that might certainly help, all you actually need is someone to explain some of the most important metrics and factors to you and you will be able to apply common sense to figure out the rest.
There are basically two parts to this. You need to decide on a niche to operate in and then you need to find an actual product in that niche to sell. If you don’t already have your heart set on a specific niche, you could start researching multiple products and then just settle for the one that makes the most business sense to you.
Some easy to sell products we believe are great for private labeling include:
- Baby products
- Tech accessories
- Bags or baggage protectors
- Fashion accessories or jewelry
Why do we believe that these five niches make sense? There are a few good reasons:
- They have a huge market of potential buyers.
- The buyers in these markets aren’t one-brand customers.
- They are generally easy to private label or rebrand.
- You can find many suppliers or manufacturers on sites such as Alibaba.
- They have a potential to have a good cost to profit ratio.
- They are easy to transport and fulfill.
Amazon Best Sellers Rank
We have already given you some pretty top tips. However, another important factor you should look out for is the Amazon Best Sellers Rank (or BSR). You can easily find products with high BSR by sorting according to this when you search for products on Amazon.
Many newbies think you should either go for products with a very high BSR or a very low one which means that you will face very strong competition or have very little competition respectively. We recommend hunting for products in the 1000-2000 BSR range to go in with a good balance of both and carve out your own market share.
Find a supplier or manufacturer
Now, you need to switch over to bargaining mode. When hunting for products, it’s obviously more desirable if you can find a local producer or supplier that is willing to sell you their products. This will eliminate a lot of overhead involved with shipping in large quantities of products from overseas as well as a lot of paperwork and hassle.
However, local sellers in countries such as the US and UK are extremely rare, especially if you want a high-profit margin individual products. Wholesale Central is one fantastic source if you are looking to procure locally in the US.
If you are looking to source products at basement prices and are willing to go to overseas manufacturers, Alibaba is the obvious choice. And you can always learn more about the suppliers that we, Sellers Playbook, work with by attending one of our events.
Here are a few important pointers if you’re looking for suppliers on your own:
- Never accept the listed price. This is especially true if you source from suppliers abroad in countries such as China. You can usually haggle for a better price if you show them you mean business.
- Always check a sample first! Many of these suppliers will even send you a free sampler. Depending on how committed to quality you are, you should carefully try out their product for yourself. Remember, your reputation will be tied to them if you want to build a brand.
- If you source from one of these overseas companies, don’t expect to find a golden egg right away. Many of these suppliers are very unreliable. If you can find some trustworthy reviews on them, it’s a big plus. This also means that you shouldn’t go all in from the very beginning. Remember, you still need to test your product live.
- Whenever you look for products, look for manufacturers that call themselves OEMs (original equipment manufacturer). These suppliers usually provide products for private labeling.
- Find out if you buy the generic product from the supplier or if they can do the branding for you (that you send to them). This plays an important role as you will need to allocate time and means to do your own branding if it’s the former.
Shipping to you
Assuming that you went with the foreign supplier option, you will need to find a way to get the product to you in the U.S. The two main options available to you are shipping as air cargo or by boat.
Air shipping is much more convenient because it is quicker, it delivers right to your door, and there is less organization necessary on your part. Marine shipping, on the other hand, takes longer and requires you to find a way to get it from the port to you or the FBA center. Remember to clearly check all the related costs, such as insurance, import taxes, etc.
Come up with your brand and business identity
Of course, there is no need for you to apply any branding to your products at all. However, having a brand associated with your product will make it much more desirable and will actually raise its legitimacy in the eyes of consumers. It’s also a way to really make the business feel like “yours.” Here is a great guide on how to start building a brand.
Depending on how creative and capable you are, you can either come up with your own visual identity and designs or invest a little and hire a professional designer. You will need logos, taglines, labels, badges, etc.
List your private label products on Amazon
Now for something a little easier. It’s common sense that without listing your private label products on Amazon, you aren’t selling anything.
Having a good brand identity in place will help you make your listings attractive to consumers. Additionally, be thorough when providing information and make sure users get exactly what you describe for each product. Not only does being thorough help convince viewers to buy, but it also helps to avoid any backlash because of unmet expectations.
To protect your brand you can register your products as a brand with Amazon. Amazon brand registry helps you by prohibiting others from copying your products as well as your descriptions. It helps prevent counterfeits and others profiting from your work in any way.
Use Amazon FBA to fulfill your deliveries
This is arguably where the real power of the Amazon platform comes from. Amazon FBA allows small companies to rapidly expand by taking ownership of their fulfillment logistics and providing sellers with easy to use tools to manage their experience.
It would simply be impossible for small businesses to start shipping on larger scales without the kind of infrastructure Amazon already has in place. On our blog, you can find many helpful articles to help you understand how Amazon FBA works and how you can effectively leverage it to take your business to the next level.
Time to get your Amazon private label business off the ground!
We hope that this has given you a clearer picture of how private labeling works and how you can start your own Amazon private label business. Keep in mind that Sellers Playbook can help you develop your Amazon private label and connect you with the resources you need to live the financially-free life that you deserve. Attend one of our events for more info. Or read this article on Amazon FBA for beginners. Good luck and happy selling!