Over the years, there’s been an influx in the number of companies that have taken up private labeling as a viable business model. At first glance, private labeling seems easy enough, but upon further inspection, entrepreneurs have found that it can become challenging logistically.
Private labeling has a lot of benefits from a branding perspective, but also has multiple barriers and hurdles that cause serious hold ups for aspiring entrepreneurs. One of the biggest hurdles in this obstacle course is sourcing the best private label manufacturer for your product.
It’s difficult to do, but you have to find the best private label manufacturers at the lowest cost so you’re able to turn a reasonable profit. With some insight and understanding about the relationship between businesses and manufacturers, you’ll be able to venture into private labeling with confidence. In this article, we will discover the benefits and risk of private labeling, what to look for in a manufacturer, the difference between domestic and overseas manufacturers, and how to begin sourcing private label manufacturers.
Private labeling refers to a brand owned not by a manufacturer or producer, but by a retailer or supplier who gets its goods made by a contract manufacturer under its own label. Companies who use private labeling as a business model, do so primarily because they pay less for privately labeled products vs. other national brands. Naturally, lower prices equate to higher profit margins. On average a private label retailer experiences 10% higher profit margins than traditional companies.
Other benefits of private labeling include:
- Direct dealing with your suppliers and sources
- Ability to create your own unique image
- More control over pricing, marketing, sales, and distribution
- Allows retailers to get products quickly
Risk of Private Labeling
While there are multiple benefits to private labeling, there are also risks to consider. Depending on the type of product you intend to have manufactured, there are some obstacles you should be aware of that could throw a wrench into your business. Retailers face issues with volatile changes in prices of raw materials and labor, supply sourcing, quality assurance, import/export compliances and other variables that affect day to day operations. It’s because of issues like these that make it imperative to choose the right manufacturer and product.
A manufacturer is defined simply as a person or company that makes goods for sale. These are the companies who take raw materials and process them into various products that are sold, typically at wholesale value, to retailers. Manufacturing companies produce goods by blending human activities with highly technical machinery, typically in a manner similar to an assembly line. The final outcome is a finished good ready for distribution.
Normally retailers have little, if any, direct dealings with manufacturers. Private labelers avoid this problem by operating by a different business model. By not selling branded items, private labelers deal directly with manufacturers and have control of the look and branding of their products. If you are considering venturing into private labeling or have already begun, consider what type of manufacturer you partner with and decide if they are really the best fit for your business.
What to Look For in a Manufacturer
A manufacturer’s value is different for every retailer because each manufacturer has different specialties. You will have to source manufacturers that are able to create your product from raw materials and label the finished goods with your company's custom design and packaging.
Ultimately, deciding what manufacturer to go with really boils down to what goods you intend to sell. You will have to assess your product and find which manufacturers can produce a high-quality product at the lowest cost to you. When making this decision there are several manufacturing logistics to consider. You’ll have to determine which manufacturer can provide:
- The goods needed to produce product
- The lowest factory direct prices
- Highest product quality
- Reliable on-schedule delivery
- Lowest defects and damage to goods
Domestic vs. Overseas Manufacturers
A good question to ask when looking for suppliers to manufacture goods is whether you want to source domestically or from overseas. Domestic refers to companies located in the United States and overseas can refer to any location outside of the United States. In this case, it most commonly applies to Asian countries like China, India, and Taiwan. You probably know that in most cases it’s cheaper to source products overseas, but there are other aspects to consider other than just cost per units. Domestic and overseas private label sourcing both have their advantages and disadvantages that you will need to know before making a decision.
- High-quality manufacturing and labor standards
- No language barrier
- Market appeal of American made products
- Faster shipping
- Higher payment security and resources
- Easier to verify reputable manufacturers
- Higher manufacturing costs
- Less product choice (There are many items that just aren’t made in North America anymore)
- Low manufacturing costs
- High number of manufacturers to choose from
- One-stop services like Alibaba have made it easy to navigate suppliers
- Lower perceived quality from customers
- Usually lower manufacturing and labor standards
- Little intellectual property protection
- Language and communication barrier can be difficult to navigate
- Difficulty/costly to verify manufacturer and visit on-site
- Longer shipping time
- Cultural differences in business practices
- Product importation and customs clearances
- Less payment security and recourse
How To Source the Best Manufacturers
Whether you are familiar with private label sourcing or new to the game, finding good manufacturers is easier said than done. However, when you learn what steps to take in the sourcing process you’ll be well on your way to lower cost and higher profit margins. Here are some ways to find new private label manufacturers.
Check out stores that specialize in your product category
Once you have done the proper research and have determined what products you will sell, go to local stores that stock similar products. While walking the aisles find your products and pick them up. Now, I’m not advocating retail arbitrage here, so just bare with me. Pick up items you would like to sell and read the packaging. While reading the package ask yourself: what country was this made? Who’s the manufacturer? Is this product positioned as a luxury item or bargain product? Take keynotes, like who manufactured the product, and do your research on the company and decide if they are a good fit for your business.
Browse through Alibaba’s Website
Alibaba is a marketplace, similar to Amazon, that sells various products around the world. You can use this platform to source the product you would like to sell as well as manufacturers for your private labeling business. Once you have found the item you wish to sell, scroll down to the product descriptions. If you see something that says: custom accepted, customizable, branding, white labeling, or OEM (original equipment manufacturer), it means you can source the manufacturer and contact them about producing your product.
If you find it too difficult to decide which manufacturer to choose, there are companies out there whose job is to find high-quality overseas manufacturers for you. Websites like Trillion Source will do the hard work for you. Just tell Trillion Source what product you want to sell and they will help you source manufacturers who will print your brand on products with custom packaging. If you are an FBA seller they will even deliver your product directly to Amazon. You don’t get the same hands-on experience and there are a few more extra fees to consider, but third-party sourcing is a good way to ensure you use quality overseas manufacturers.
Web Surfing and Manufacturing Directories
In today's technological world, the majority of businesses have some kind of web presence, including manufacturers. One could find the perfect manufacturer just by simply surfing the web. Enter keywords like “domestic/overseas private label manufacturers,” “white label manufacturers,” “private label sourcing,” etc., and you will be sure to find pages that will point you in the right direction. This method requires a little more digging and trial-and-error but yields a good chance of finding a suitable manufacturer.
If you are surfing the web and come across a directory of manufacturers it may be worth the look. Often times, manufacturers listed on online directories have higher standards and produce high-quality products which would be great for your private label company. Directories like ThomasNet, Makers Row, and MFG are great websites to source domestic manufacturers. If overseas manufacturing sounds more appealing to you then try sites like Alibaba, AliExpress, and IndiaMart.
Sourcing for the best private label manufacturers is one of the biggest challenges in private labeling. However, it's oftentimes worth the effort. If you use these tips to your advantage, you will find the right manufacturer for your business and can expect to see lower prices and higher profit margins.