Starting a business is hard. There’s a seemingly never-ending task list, from building a website and hiring employees to managing inventory and manufacturing products.
But what if you could outsource that last step to an established supplier that already creates similar products? Many retailers do this through a supplier relationship called private labeling.
Private-label products are produced by third-party manufacturers based on specifications provided by retailers, who then market and sell those products under their own brands.
Read on to learn what private labeling is and how to create a private-label line of products for your store.
What is a private label?
Private labeling is selling a product manufactured by another company under your company’s brand name. Retailers often use private-label products to offer exclusive items, expand their catalogs, and undercut competitor pricing.
Private-label products can be similar to existing products but with unique manufacturing specs. For example, a private-label business selling chocolate chip cookies must use a precise and completely original recipe. The same applies to private-label brands selling consumer electronics, jewelry, and clothing.
How does private labeling work?
The private-label business model involves two types of companies:
- Private-label manufacturers that work with businesses to design and produce products.
- Private-label retailers that brand, market, and sell private-label products to customers.
A reliable private-label manufacturer helps ensure a profitable pricing model.
Private labels vs. white labels
Private-label goods are often confused with white-label goods. White labeling also involves third-party manufacturers making products on behalf of retailers. However, white-label products are not custom-designed.
A white-label manufacturer produces large quantities of generic items and then sells them to individual retailers. Each retailer sells those products to consumers under a brand name.
In other words, private-label product lines are unique and sold exclusively through a single retailer, while white-label products are generic and sold under multiple retailer brands.
5 benefits of private labeling
The private-label business model benefits manufacturers and retailers alike. Advantages include:
- A unique value proposition
- High profit margins
- Customized pricing control
- Customized marketing control
- Adaptability
1. A unique value proposition
Private labelers design and sell distinct products. As a private-label entrepreneur, you can develop original product ideas and become known for a signature item.
Some (often larger) retailers use private labeling to create value product ranges and undercut competitor pricing. However, smaller businesses may choose private labeling to develop premium products they couldn’t afford to produce themselves.
2. High profit margins
Private-label products often boast higher profit margins than resale products. Retailers may choose to set a high price point on them or leverage their existing brand power to cut marketing costs.
Depending on the type, quantity, and customization levels, manufacturers may offer private-label products for less than resale products.
3. Customized pricing control
Private-label sellers and producers can tweak manufacturing costs and price points on their product lines. They can experiment with different pricing strategies to maximize profit margins.
4. Customized marketing control
As a private-label retailer, you create your marketing campaigns. You don’t have to adhere to campaigns run by national brands.
5. Adaptability
It can take months or years for an established brand to change a product formula, pricing, or marketing strategy. Private-label sellers, on the other hand, can pivot quickly. They can respond to negative reviews or low sales and adjust.
Private label drawbacks
Despite the benefits, private labeling also has its drawbacks. There’s the possibility of product inconsistencies, less flexibility for innovation, and the challenge of building a brand from scratch.
Dependence on third-party manufacturers
One of the main drawbacks of private labeling is its dependence on third-party manufacturers. Manufacturer problems, such as production delays or quality issues, can impact private-label sellers by causing stock shortages, customer dissatisfaction, and potential brand reputation damage.
Less flexibility for innovation
When you’re working with private-labeling services, there may be limits to the level of product customization available. Depending on suppliers and product categories, retailers won’t always have as much control over the product design process as they may want.
However, you can mitigate product design issues by developing a close working relationship with your manufacturer, which can also lead to bespoke research and development.
How to choose the right private label manufacturer
- Research your market and product needs
- Find manufacturers
- Evaluate manufacturers
- Request samples
- Negotiate terms
If selling private-label products is right for you, here’s how to find the right partner:
1. Research your market and product needs
Understand your target audience and what they want. Analyze competing products in your market:
- What features do customers love?
- What complaints do they have?
List your product requirements in detail, including materials, design features, and special manufacturing processes like fabric treatments for clothing or flash freezing for food items.
Determine your initial order quantity and budget. Consider per-unit costs and related expenses such as warehousing, shipping, customs fees, and testing, if required.
2. Find manufacturers
Online platforms are the easiest databases for finding private label manufacturers. Explore Alibaba, ThomasNet, and Faire to discover reliable partners worldwide. Read manufacturer profiles and find product examples and minimum order requirements (MOQs) to determine the best fit.
Trade shows are another option. You can meet manufacturers face-to-face, see real-life sample products, and get a feel for how you might work together. Industry-specific shows often feature manufacturers who understand your market’s requirements and standards.
Don’t overlook Google. Search for your product type and include terms like “private label” or “manufacturer” to find options.
3. Evaluate manufacturers
Quality control should be at the top of your evaluation list. Ask potential manufacturers about their quality assurance procedures and what certifications they hold. International Organization for Standardization (ISO) and Good Manufacturing Practices (GMP) certifications, for example, demonstrate commitment to consistent quality standards.
Have detailed discussions about:
- Their ability to meet your specific design requirements
- Typical production volumes and lead times
- Available customizations
- Manufacturing processes and equipment
- Quality control checkpoints
Compare pricing structures and minimum order quantities between manufacturers. Remember that the lowest price isn’t always the best deal—be sure to factor in quality, reliability, and communication, too.
4. Request samples
A good manufacturer will expect you to order samples, so don’t skip this step. Product samples show exactly what you’ll be selling to your customers.
When requesting samples:
- Ask for samples made with the exact materials and processes intended for production
- Order samples from multiple manufacturers to compare quality
- Test the samples thoroughly for durability and functionality
- Check packaging options if relevant to your product
5. Negotiate terms
Once you’ve identified your preferred manufacturer, it’s time to negotiate. Discuss pricing tiers, payment schedules, and delivery timeframes. Be clear about your expectations and what happens if products don’t meet quality standards.
Be sure to document all your agreements. Your contract should cover:
- Pricing and payment terms
- Production timelines
- Quality standards
- Intellectual property rights
- Confidentiality requirements
- Dispute resolution procedures
💡 Tip: To protect your business from potential issues, consider hiring a legal professional to review contracts, especially for large orders or deals with overseas manufacturers.
6 examples of private-label products
You may be surprised to discover how many consumer products and national brands are made by private-label manufacturers. The model exists across most product categories, including:
1. Coffee
Private-label coffee has exploded on the internet. Many brands use coffee dropshippers, which send batches to customers as soon as they order them.
2. Pet food
Many pet stores, especially online ones, sell private-label pet foods made by big manufacturers that serve multiple clients.
3. LED lights
Online marketplaces are filled with private-label LED lights, each with a slightly different design but sourced from a few manufacturers.
4. Phone accessories
Chances are the third-party accessories you buy for your phone—chargers, phone cases, etc.—were made by a private-label manufacturer and sold under another company’s brand name.
5. Apparel
Many online clothing retailers use private-label garment manufacturers for shirts, dresses, skirts, shoes, handbags, and more. These clothing manufacturers can print custom designs on apparel. They may also offer custom tailoring and leatherworking.
6. Personal care products
Lots of personal care products, from mouthwash to makeup, come from manufacturers that serve private-label sellers. The formulas for these products are customized for specific clients but produced on the same assembly lines.
Related article
40+ Private-Label Products To Sell in 2024
Browse this extensive list of private-label products and learn more about the popular private label business model.
3 examples of private-label brands
Here are three examples of large retailers that have launched successful private-label brands.
(It’s worth noting that you don’t necessarily need to offer private labels under a separate brand. Smaller businesses may incorporate private-label products into their existing product line.)
1. Kirkland Signature
Launched in 1995, Kirkland Signature is Costco’s private-label brand. It includes a wide range of products produced by various national manufacturers and is known for offering impressive value.
Take Kirkland Signature vodka, for example, which has been compared favorably to high-end brands like Grey Goose. Or consider its extra virgin olive oil, which is USDA-certified organic.
Kirkland is an example of a private-label product line that has grown to national status and become synonymous with its retailer. As of 2023, sales of Kirkland products account for 23% of Costco’s total revenue.
2. Amazon Basics
Amazon Basics launched in 2009, allowing Amazon to compete with other retailers on its own marketplace.
The private-label line offers affordable electronics, home goods, pet supplies, and other items, often at the lowest price points in a product category.
Some of the most popular Amazon Basics items are device charging cables. These cables are praised for affordability compared to those from official manufacturers such as Apple, which place high profit margins on their accessories.
Another well-known Amazon Basics private-label product is its microfiber sheet set, which has more than 419,000 reviews.
3. Harrods label
Unlike Amazon Basics and Kirkland Signature, which harness private labeling to lower prices, luxury UK department store Harrods uses its private-label brand to offer a range of premium goods.
Harrods’ brand covers a range of products, including gourmet food and beverages, high-end fashion, accessories, and home goods.
Its teas are sourced from around the world, packaged in distinctive Harrods-branded tins, and sold at higher prices than similar products from other retailers.
Key takeaways: What is a private label?
- Private-label products are produced for brands by third-party manufacturers.
- The business model is popular among large retailers, who use private labeling to create in-store brands with value-for-money products.
- Private-label manufacturers increasingly work with smaller businesses to produce unique products and premium branded items.
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What is a private label FAQ
What does “private label” mean?
A private label is a branding arrangement in which one company manufactures a product while another brands, markets, and sells it.
What is the difference between private label vs. branded products?
A traditional branded product is one manufactured and sold by the same company. These companies often spend years cultivating strong brand identities, and their products must meet their established standards. By contrast, the private label business model involves one company making a product and a different company branding and selling it. These products may not inspire the same brand identity and loyalty.
Why would a store have a private label?
Many stores turn to private labels to avoid the complexities of manufacturing. For example, some of the most profitable grocery store products are private-label goods, from pasta to jelly to eggs, all under the same store brand. The store isn’t burdened with operating a wheat refinery, jelly factory, and hen house. Instead, different suppliers provide the goods while the retailer concentrates on sales and marketing to generate bigger profit margins.
What is an example of a private label?
The Costco house brand Kirkland Signature has become a world-renowned private label. Costco sells similar-quality items to its competitors, but at lower prices.
How do you start your own private-label business?
Starting a private label begins with brainstorming private-label product ideas. Once you’ve found a promising product category, you’ll need to research private-label manufacturers in that sector. Contact manufacturers directly and learn about their pricing and manufacturing processes to determine a fit. You’ll handle branding and marketing separately, either on your own or with the help of a specialist. With your manufacturing and branding teams in place, you’re ready to launch your private-label products.
What are the benefits of selling private-label products?
Private-label products let you build your brand and potentially earn more than you would reselling other brands’ products, since you’re not paying extra to feature their name. You also gain control over item features and quality standards and can match your target customers’ needs.
Can I sell private-label products on Amazon?
Yes, you can sell private-label products through Amazon’s FBA (Fulfillment by Amazon) program, which handles storage, shipping, and customer service.
