Private Label Business – A How-To In 8 Steps

Currently reading

Private Label Business – A How-To In 8 Steps

Starting a Private Label Business

 

Private labeling has become a hot topic and many intrepid entrepreneurs are looking to figure out how they can capitalize on the exciting opportunities selling private label products can present, especially when doing so with an established online sales powerhouse like Amazon. Whether you are thinking of private labeling in the future or already getting started, you might find something in this article that will be helpful to you!

In the past two articles I’ve explained what private labeling is and the difference between private label and white label. Now I’ll present an 8 step plan for you to learn how to launch your very own private label product/s using Amazon.

How To Start a Private Label Business

Business Plan
Business Plan

Starting any regular sales business requires a large investment of time, effort and money. You need to have seed money, suppliers, manufacturers, outside investment, sales channels, third party certifications, label design, legal counsel, third party testing, marketing, insurance, storage facilities, a storefront if there is a physical location, etc….it can all really add up. With private label reselling on Amazon, you can be up and running in less than 30 days with a minimal investment and minimal risk. Essentially, what is involved is finding generic products that are already selling well on Amazon, creating your own packaging and logo, and doing a better job at marketing them than your competition.

Before continuing, it is important to understand this isn’t a get-rich-quick strategy. There is no guarantee in any business venture, and anyone who tells you otherwise is lying. I can’t tell you how many people I’ve heard of who got so excited about this opportunity that they quickly bought products in bulk without proper research first and sunk tens of thousands into inventory they cannot sell. With the following guide I hope to save you from making that mistake. While you can realistically make hundreds and even thousands of dollars every month, it takes diligence, patience and a willingness to see an idea through from start to finish. To be most successful, start off slow- Small investment, small risk. I’ll talk more about this in step 4 below.

Today, private labeling is the single greatest way to sell products online, and it can launch your own business into huge success. It is not without risks, but, if you follow the guidelines, these are small in comparison to the benefits. Still interested? I’ll break it down step by step in this guide for “how to start your own private-label business:”

Step 1: Research and Select a Product

research product
research product

There is always the chance that you’ll lose all of the money you invest, but by taking calculated risks you can reduce this possibility. Calculating in this business means research, lots and lots of research! With proper research, you can drastically increase your chances of success! Here are the main things you’ll want to know:

  1. Demand: how many searches does this product generate (or this type of product)?  How many are buying it?  What kind of sales can you expect in a given day, month, year?  Is it a rising or dying trend/fad? Is this a seasonal product? Picking a niche like cosmetics, ensures that you can sell throughout the year and that your product type at least will always be in demand.

 

  1. Competition: is the market very competitive? Will it be easy to get your product ranked high and seen?  Is the competition doing really well?   What could you do better than they can? What do they do better than you can?

 

  1. Profit margin: how much can you realistically expect to make?  Can you compete with the lowest priced product available and still earn a profit? Aim for a per-unit profit margin of at least 50%. It all depends on the product, but there’s a niche for every budget.

 

  1. Customer Reviews: what do customers like about competing products that you can duplicate (or what are areas you cannot duplicate?)  Are there specific products that are better than others?  What problems have customers brought up?  Are you able to offer something better than the competition?

 

By asking questions and researching the four areas above, you’ll be off to a great start! This is arguably the most important and time-consuming step in the process of starting your own private label business, but the friendly folks at Amazon ease the difficulty a bit by pointing you in the right direction. The site releases detailed lists of their best-selling products. These lists are designed to give consumers a chance to see what’s popular, but you can use them to your advantage, as well. The best-seller rankings essentially serve as your pre-market product research. You won’t need to go through the bother of developing a product and then testing to see if it sells well, you can simply check if the product sells well and then make a decision regarding whether or not you want to pursue it.

find what ranks on Amazon
find what ranks on Amazon

When combing through Amazon’s top-100 rankings for each category, you’ll want to look for small items that are lightweight, high-ranking and generic, like a hand-lotion, flashlight or splash resistant cup lid- all items that can easily be produced with your own brand and packaging.  Once you’ve picked a product-

Ensure a name brand item doesn’t dominate the market: It will be really hard to compete with a name brand. For instance you don’t want to sell cellphones. Apple and Samsung would crush say for instance Emily’s Cellphone. But think about categories like certain cosmetics, kitchen items and any type of accessories where there is no name brand dominance.

The product has multiple keywords: Would your buyer search for your item under multiple keywords? The more you have, the better and the higher your sales.

The top three items each have a sales rank under 10,000: If you’re going sell something you want to make sure there are enough sales to meet your income goals. It does no good to create an item for which there is very little demand. Generally items in the 8,000-10,000 range are selling 4-6 items a day. Ranks from 5,000-8,000 are selling 6-10, ranks from 2,000-5,000 approximately 10-20 a day and under 2000, a whole lot every day.

Do each of the first five products have less than 500 reviews?

Reviews are crucial in helping your item rank and extremely important in convincing your potential buyers to choose your product over a competitor. 500 reviews and above are not insurmountable, but it will take time, effort and money. If multiple items have less than 500 reviews you have an opportunity to overtake them with good marketing.

Do the other products on the first page have less than 200 reviews?

You don’t have to be in the top three positions on the first page in order to make money. Spot 8 may still be a $800-1,800 a month product. Would you complain about making this off just one of your products, month after month? When several items have less than 200 reviews, it just means you have a decent chance at getting on to the first page.

The average sales price is between $10 and $50: You want to make sure your margin is enough to pay for marketing, which will be another way to promote success. Remember, you have to do the same work to sell items that are $50 as you do for items that are $5.

Open up the first five or six listings for the product you’ve chosen and record the following information in a spreadsheet:  number of reviews, price, and Amazon best-sellers rank.

Using the information you gather from these listings, which serve as your sample of the marketplace, determine whether the product is worth selling. Don’t worry if you can’t find a product right away, this stage can take many hours. Once your research is done and you’ve picked a product, you’re ready to find a supplier.

Step 2: Find and Contact a Supplier/Manufacturer

Once you know you have a good product that can sell, it’s time to find a supplier. Choose a manufacturer based on the type of product you want manufactured and the minimums you are comfortable with. The manufacturer should already be producing the product you want.

find a supplier
find a supplier

Check that they have a good track record, so look them up with the Better Business Bureau or check the appropriate regulator’s website to see if the company has received any warning letters or complaints. Also, ask if they can put you in contact with any of their customers so you can get recommendations. Be aware though that most customers don’t want anyone to know how they use the private label manufacturer, so don’t be put off if it’s not easy to get this kind of information. Avoid manufacturers that don’t fit your criteria. For example, if a private label company’s order minimum is much higher than you think you can sell (or want to take the risk on) at first, keep searching.

The type of manufacturing process involved is another important product-related aspect of private labeling. In general, private labels are most appropriate for products that can be manufactured on a tight schedule while maintaining high quality standards. Private label manufacturers must be able to assure their retail clients of reliable, on-time delivery. In addition, they must be flexible enough to ramp up production quickly to meet increases in demand or to change the product’s formulation according to the seller’s wishes. In addition, the manufacturer must be able to assure that the product quality is as good, or better, than the leading brands.

You can search alibaba.com for manufacturers in China or find a supplier locally, though it’s highly unlikely that you’ll be able to find a cost-effective one. If you’ve chosen to sell cosmetics, which is generally a safer bet, another great option is Innovative Private Label.

Start your supplier search by entering the product you’ve chosen into the Alibaba search box. For example, a simple search of “hand-lotion” will give you many different products and suppliers. Find the style you’re looking for and research a few different suppliers. Depending on how thorough their listings are, you can usually see the price range, required minimum order quantity, style options, lead time and whether they allow for private labeling. However, you’ll need to email the supplier to get an accurate quote for your order.

Step 3: Create your Brand, Logo and Packaging

designing logo
designing logo

Once you’ve found a supplier who’s willing to let you private label the product, you have to choose your marketing materials. Don’t worry, though — you don’t have to create them yourself! To save time and streamline the process, you can often work on step three alongside step two. The easiest way to do this is to find a manufacturer (like Innovative Private Label) which can provide artwork, design, packaging etc’… Otherwise you can use a website like Fiverr or any other affordable graphic design site to hire professional designers at competitive prices.

Assuming you’ve had time to develop a brand name during this process, you’ll want your designer to create a logo that represents your brand and vibrant packaging that sets it apart from your competitors — the ones listed in your spreadsheet from step one. Once you have your design files, send them over to your supplier and tell them to proceed with your order.

Once you get the product, assuming you approve, you can send it to Amazon as is, relying on the special packaging to make the product look higher end than what is already on Amazon.

Step 4: Place Small Test Order

You do not want to be stuck with a large inventory of products that you cannot sell, so make sure that your first order is a small one. Think of this as your test batch, even if it costs a little more because you aren’t buying bulk. When you get the products, make sure they are up to the standards that you want. You’re really close to being able to start selling!

Step 5: Write an Interesting Product Listing

write an interesting listing
write an interesting listing

You could wait anywhere from 10 to 30 days, depending on your supplier’s lead time, for your shipment to arrive. You should use this time wisely. Start by focusing on your listing. Follow Amazon’s directions for creating a seller account and then create a listing for your product. To produce a compelling listing, have a clear and eye-catching title, a well-written description and bullet points highlighting the best points of your product. You should also use high quality images, clearly explain how the product works, and highlight what sets it apart from the competition

As you probably noticed while researching, many sellers don’t have great product listing, yet still sell well. Can you imagine how many more units they would sell with well-written listings? This is your chance to set your product apart and mark your brand as high-quality and informative.

Step 6: Use Fulfillment by Amazon

When you use the FBA (Fulfillment By Amazon) system, Amazon handles the fulfillment processes, meaning they will take care of the storing, packing and shipping once the items sell via their site. This is a huge advantage since you will not need to worry about any of these things. You’re saving time and money that you would otherwise need to spend on these.

FBA Amazon
FBA Amazon

Check out Amazon’s guide for getting started, to read detailed information on how to setup an FBA listing, how it works, pricing, success stories, and more. Once you set up your listing and ship your products to the Amazon distribution center, you can be as hands-off as you’d like. This too is a wonderful benefit. When a customer makes a purchase, you don’t have to do a thing. The FBA system takes care of everything, including returns and customer service issues.

The FBA does take a small percentage of your profits, but it is well worth it for most sellers, especially newbies. Your shipping costs are included in the fees and your products automatically become eligible for free Prime shipping, which could help you make more sales.

Step 7: Make Your First Sale and Utilize Customer Feedback to Improve

This will be your test sale. Take a deep breath. In any business or industry, the first sale is typically the hardest to make, so have some patience. You don’t have a reputation or any existing customers, so buyers might be shy at first. Many sellers run some sort of sale or discount during a product’s launch. By reducing the price, you lower the customer’s perceived risk and entice them to take a chance on your product despite your lack of reputation.

Customer Feedback
Customer Feedback

Also, Amazon has an internal advertising system, which you can use. You pay for your product to be listed in relevant on-site searches, which can really help increase visibility and encourage an initial burst of sales. If you prefer, you can use Google AdWords to drive traffic to your listing. While AdWords will be more expensive, it tends to generate more sales. While these are the most common strategies, there are many other ways to increase sales and traffic. This is where you can get creative and have fun with your product.

Remember, when you do start getting reviews, make sure you glean as much information as possible from them, and utilize them to improve your product if you see it is necessary. A good manufacturer will work with you and allow at least some freedom to tweak the product.

Step 8: Enlarge Your Inventory and Sell!

Once you’ve made any adjustments necessary to your products to fix any customer complaints, or assuming all was successful with your first sales batch, get a larger second order. Even if you had great success with the first batch, you shouldn’t jump from 500 units to 5000. Slow and steady wins the race! Try doubling your order, and repeating step 7, and so on and so forth, until you feel comfortable enough to buy in bulk.

Summing Up: What Can You Earn With a Private-Label Business?

There are people who spend a few hundred dollars getting their first brand off the ground, and also people who spend many thousands. You need to figure out what you’re comfortable with possibly losing, because the worst-case scenario, while less likely if you follow this guide, is always possible.

earning money
earning money

It is difficult to estimate the initial investment required for your own private-label brand, since it depends on your product, but I can give you an idea of how much I spent on my first one, a common kitchen accessory. My manufacturer did set a 300 unit minimum which I was ok with. I ordered the 300 units at a per-unit cost of $3.40. In addition to the $1,020 cost of initial inventory, I spent around $350 to design my packaging and logo, start a website, set up my Amazon business account and pay other minor expenses. So launching my first private-label brand cost me about $1,370, which I eventually covered and earned profit on.

Since different types of products have different price points and associated costs, these numbers are estimates. However, here’s an idea of your potential earnings. Products that rank within the top 100 in their category often bring in thousands of dollars per day in revenue. Products that rank in the top 500 typically produce hundreds of dollars per day. Even a product in the top 2,000 to 3,000 can earn you a steady passive income.

Consumers are always looking for something different. Private label is all about diversifying your product, and building a unique brand your customers will love and talk about. Setting your online store apart from the competition is essential, and private label can do that for you. And using Amazon, you’ll also build long-term, loyal customer relationships in the process.

There is a lot of information in this step-by-step guide, but it is by no means complete. Continue to research, incorporate good tips, strategize, speak with other sellers, and find out what else you can do to make your private-labeling business a successful and profitable venture.

Table of Contents