Should I make my product available for Private Label?

Should I make my product available for Private Label?

Over the years, we’ve had several clients faced with the question of whether or not to make their products available for private label. And in the course of working with these companies (and often with the companies who end up private labeling the products), we’ve learned some of the ins and outs (and do’s and don’ts) of private labeling.

Be aware of your own goals 

It can be exciting to be contacted by a company that thinks highly enough of your product to consider adding it to their own line of products. After all, no established company wants to risk putting their name on something that will tarnish their brand.

If faced with this prospect, there are several questions you have to ask yourself:

  1. Can you handle the quantities this company will require?
If a major retailer wants to start selling your product, you will have to evaluate whether or not you have the capabilities to serve their needs. If you’re currently operating out of your home, and will need to acquire office space, employees, additional equipment, etc., it may not be feasible. In fact, even if you made the investment required to serve this one client, is there a guarantee the client will be buying enough from you to make it worthwhile? 
  2. Will the private-labeled product cannibalize your sales?
If you have a semi-recognizable brand and a small-but-loyal client base, will they flee to this major brand once they see an identical product available from a well-known brand? If you’re only private-labeling your most popular product, will people be enticed to visit your website or storefront once they can get that product from a known brand? It’s possible that you will lose potential for “add-on” sales as well as for sales of the product or products that you private label for another company. 
  3. What kind of company do you want to be?
This is, perhaps, the most important question. In most instances, making your products available for private label will increase your revenue, but decrease your profit margin. The sales of your own brand may diminish, and may dry up completely depending on the success of the private-labeled version. So, do you want to be a manufacturer/producer of products for others? Or do you want to build your own brand, in the image you envisioned at the start, and be in control of your marketing and reputation? Either answer is valid, as long as you are aware of your ultimate goal(s).

Making a product vs. Marketing a product

If you are private labeling your product for someone else, you become simply the “maker” of the product. The brand selling the product will then be responsible for all of the marketing decisions (and costs). Unless your private label agreement states otherwise, they will be in control of the product’s image, sales channels, etc., leaving you to simply take orders and provide the product.

Of course, if you are able to negotiate it, you may be able to control certain things. For example, you may dictate that the private labeled product can not be sold online, or may not be sold in a certain country. You may also be able to insist on a minimum advertised price for the product – all things that may make it possible for you to continue to market your brand successfully, without having to compete against the private-labeled version of your own product.

There are pros and cons to making your product available for private label, of course. But it can be a way to grow your business, as long as it’s carefully considered and executed.

Feb 03, 2015

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There are 2 comments for this entry. Leave a comment below »

Pricing will be a big consideration when offering your product for private label, and it will typically be in the same range as your distributor pricing. Of course, there are a few other things to consider. When private labeling a product for someone, the packaging – and even the pack-out – are different. You will need to negotiate up-front who is responsible for the cost of the packaging (design, printing, production, etc.). If you are providing the finished product, you will want to make sure the cost for the additional packaging cost is worked in to the price you are charging. If your customer is providing the final, produced packaging – leaving you to simply pack it out – they will likely expect an even deeper discount on the product, since you no longer have to provide the packaging. Of course, you may also need to store this packaging, which comes with a cost.
You will need to have a good handle on your COGs, so you can be sure a private labeling opportunity is profitable for you.
And, yes, you can stipulate where a private label customer can sell. You can even stipulate a minimum price they can advertise. Some companies will be willing to negotiate terms like these in order to avoid the process of developing their own product; but some may see such restrictions as too limiting, and may decide working with you is not worth it. It's up to you: it's your product and your brand to protect.

Mar 18, 2015

How should you price your private label products when you're selling them? The same as yours when selling to distributors or to retailers? Can you protect yourself against direct competition from your private label customer by stipulating where they can sell?

Feb 21, 2015

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