What is private labeling: a complete guide

Alibaba.com FEBRUARY 01, 202115 MIN READ
What is private labeling: a complete guide

Whether you’re a manufacturer or an online retailer, you should be aware of the benefits of private labeling. A private label product is manufactured by a contractor or third-party manufacturer and sold under a brand’s name. Investing in private label goods means having complete control over ingredients, components, features, packaging, the label, and the price point. For online retailers, private labeling manufacturers make selling products online easier than ever.

So, here’s everything you need to know about manufacturers, online retailers, and the world of private labeling.

In this guide, we are going to cover the following topics:

What is private labeling?

First things first, what is private labeling?

Well, if you are going to sell goods, you can do this in three ways:

  1. You can design, develop, test, and manufacture unique branded goods to sell to your customers.
  2. You could invest in branded and ready-made products and sell on to your customers.
  3. You can find a private label manufacturer and place an order for unbranded products that will be ready to sell and customize with your branding, logo, and packaging requirements.

Using a private label manufacturer, you can save your company a considerable amount of time and money. Instead of designing and developing products that you hope will sell yourself, you can take advantage of a private label manufacturer and invest in goods ready to sell with your branding added.

💡Here’s an example of how private labeling works, to help you understand the process.

You own a fitness brand and want to start selling home gym equipment.

You don’t have a design team or factory that can help you to develop a branded product range.

Heading online, you find a private labeling manufacturer in China who has ready to ship goods that are unbranded.

After contacting the factory, you send over your branding guidelines and logo and place an order for kettlebells, dumbbells, and resistance bands in a range of sizes and colors that you want.

The manufacturer applies your logo and tagline, along with any additional branding guidelines you’ve provided, such as colors, font, graphics. They also follow your packaging requirements and ship your products directly to you.

You receive branded, ready to sell home fitness equipment. How much you choose to sell your goods for is completely up to you!

Private labeling vs OEM

Original Equipment Manufacturer, or OEM for short, is a service offered by a company that designs and manufactures a product for a client but uses its own methods and processes. They will often work with a company that has an idea and has designed and developed a product and just needs a factory to help manufacture it. Since the client has the original idea, the designs, plan, manufacturing process, and branding are ready to go, the missing piece of the puzzle is the OEM. In some cases, a buyer might need to expand its manufacturing process and acquire additional support from an OEM. This means that the OEM will follow the exact requirements of the client and produce goods to the same standards as the original manufacturer.

How is this different from private labeling? Well, a private labeling manufacturer will design, develop and make the goods according to the client’s requirements and branding guidelines. In some cases, a private labeling company will be able to replicate a product that the buyer wants, but the design, look, feel and performance might not match the original item that the buyer wants to sell.

Private labeling vs ODM

Are original design manufacturers the same as a private labeling company? Not quite!

An ODM is a company who can do everything in-house. From designing a product and developing it, to mass manufacturing. However, an ODM is capable of making and selling goods themselves, which can be risky. A similar process to a private label manufacturer, but there are some key differences.

A private label product will need to be fully tested and undergo quality control. Unlike an ODM who will carry out their own testing in order to develop a product or range of goods in-house, a private label company might not invest time into product testing, or look into product copyright and patents. Private label sellers will therefore need to carry out their own research into legal risks, regulatory risks, and trademark/ patent risk, or leave themselves open to being sued or facing legal action.

📌For more information about OEMs or ODMs check out our article on OEM vs ODM manufacturing: What's the difference?

Private label vs white label

A white-label product is something a company rebrands to make it look as though they have designed and developed it themselves. The name ‘white-label’ actually comes from the image of a white label on the packaging which can be filled in with the marketer’s branding or trademark.

An example of a white label product is a supermarket’s ‘own’ pasta sauce. This is a generic product that might be rebranded by other supermarket chains but is made to look as though the company has manufactured the item. The packaging will all be the same, with only the branding slightly different. For private-label goods, the branding and packaging are usually completely unique to the buyer.

How does private labeling work?

A private label manufacturer will work with individual businesses as well as brands that are looking for ready to sell products. The goods will be available to change and amendments can include the packaging, product features, and color scheme. Private-label goods can cover a wide range of industries, from food and medicine, to cosmetics, clothing, and technology.

Here’s another example of how this business model can become a mutually beneficial relationship.

A manufacturer makes manuka honey skincare. While the end product features a range of ingredients, branding, and packaging, they are able to leverage the popularity of this valuable ingredient and now use this to add value to their product. This can also be done with a branded ingredient such as Comvita manuka honey.

But, if you are trying to build a brand and develop your brand’s identity, private label manufacturing may not the best path to take. Your brand won’t receive the credit for the products you choose to sell. So, it is best kept for businesses looking to test buying trends and new product ideas rather than developing a respected and trusted brand.

private label

Why use private labeling?

Private labeling works best when used to improve the value of other goods. Trying to increase profit margins with generic goods can damage your company’s reputation and frustrate customers. So, use private labeling to give yourself more control over the quality of the goods you are selling and make charging a higher price point justified.

As one of the most profitable eCommerce business models that you can use, private labeling can help you control customer service, as you take ownership of the unboxing experience. Having control over product details, branding, packaging, quality control, and price point, you can purchase something you are proud to sell and believe in.

So, let’s take a look at the pros and cons of teaming up with a private labeling manufacturer.

Advantages of private labeling

First, let’s take a look at the advantages of using the private labeling strategy to grow your business.

  • No manufacturing experience required: Since the factory will take full responsibility for the manufacturing process from start to finish, you really don't need any previous manufacturing experience to start. Plus, the factory often has suppliers with who they have formed a long working relationship, so can produce goods far cheaper than you ever could.
  • Rapid sample production time: If you have a buyer and need a sample while goods are being made, no problem! This business model means the manufacturer will likely already have a sample product for you to show to new customers.
  • Customize goods: A major advantage of private labeling is that you will easily be able to adjust the product you want to make. From color changes to different types of materials, communicate with your manufacturer and create bespoke goods for your business.
  • Customer loyalty: A key advantage to private labeling is creating loyal customers that love your brand. Branding through private labeling will help you build trust and popularity as an online retailer. Customers will start to seek out your branded goods and form an attachment to your company.
  • Improve profit margins: By using private labeling, you can often increase your sales and profit. Rather than buy products that are already made or branded, use a private label company to save yourself money. Usually manufacturing goods to your own requirements works out a lot cheaper than buying branded ready-to-sell products. You can also add new and innovative features to an existing item to make it more desirable and valuable to a customer.
  • Exclusivity: You’ll have the exclusive rights to sell the product when you choose to work with a private labeling manufacturer. So, position yourself above the competition and create goods that are in demand and made to a high standard.

Disadvantages of private labeling

While there are many advantages of working with this type of manufacturer, there are some disadvantages that you need to be aware of.

Some of the disadvantages may include:

  • Minimum order quantity: Unfortunately, most manufacturers will have a minimum order quantity for bespoke products for private labeling. While this might not be an issue for medium to large enterprises, startup companies and small independent businesses might struggle to meet a high minimum order requirement.
  • Stale inventory: Since the minimum order quantity is often higher than a standard manufacturing order, some online retailers find themselves with a large number of goods, but limited sales. Without testing the demand and popularity of your products, you run the risk of creating a stale inventory of unsold goods.
  • Lack a trust: Customers tend to form brand loyalty with large well-known brands, rather than small private-labeled companies. The time and marketing resource that goes into developing and nurturing a brand can leave little room for private labeled businesses to grow.

Find private label manufacturers on Alibaba.com

If you would like to unlock the benefits of private labeled goods, the next step is to find a private label manufacturer. This can be achieved in 4 simple steps.

  1. Find a private label product idea that is successful and still in demand
  2. Connect with a private label manufacturer
  3. Build a strong brand
  4. Start selling affordable, branded goods

If you prefer to do things ‘old-school’, you can take a traditional approach to source a private label factory by attending trade shows and business networking events. But thanks to Alibaba.com, you can now source reputable and trusted private label manufacturers from around the world instantly.

Alibaba.com private label products are those that are manufactured by verified suppliers on the platform. These products are then labeled with your brand’s company name. The production costs, including materials, are the responsibility of the supplier. In the end, you get a fully prepared product completely branded and ready to sell.

Simply visit Alibaba.com and search for the product(s) you want to sell. You can search for ‘private label lip-gloss’ or ‘private label slippers’ for example.

Results can be filtered and sorted by a variety of different criteria, including:

  • Supplier type
  • Product type
  • Minimum order quantity (MQO)
  • Supplier country/region
  • Certifications
  • Features

private label alibaba

Now look for the third-party verifications of the product and certifications of the company. Click onto a seller’s profile and check their production capabilities, credentials, certifications, and of course their customer reviews on the seller mini-site.

Using this information, you can quickly find a private label manufacturer that you can rely on and start manufacturing branded and bespoke products.

Before finalizing your decision on the manufacturer that you will work with, you should carry out your own market research. Make sure to look into your unique target market so that you understand their buying trends, needs, and what can influence their decision. Knowing who your customer is, as well as feeling out the competition will help you to develop a winning line of products, as well as avoiding duplicating what’s already on the market.

Once you’re happy with your decision, you can send a final brief to your manufacturer and get to work! Contact the seller when you’re ready to place an order and make sure to ask relevant questions such as:

  • What is your minimum order quantity?
  • Can you tell me about your international shipping delivery?
  • What sectors do you specialize in?
  • What is the total price for my requirements and order?

If you still can’t find the right products with the right buying conditions, you have the opportunity to post a Request for Quotation in the RFQ market. This allows suppliers to reach out to you directly if they can fulfill your order requirements.

Other important things to consider

Here are some additional things to consider when placing an order for private labeled goods online.

Minimum order quantity

Minimum order quantity is so important! As we’ve briefly mentioned before, being forced into buying in bulk can cause a cash flow problem. Investing in stock that you have no idea will sell, can leave you with a dead inventory. And money tied up in stock that you can’t seem to shift is going to bring your business to its knees.

So, before you commit to an order, always ask about the factory’s minimum order quantity. This should be one of the first questions you ask or you have confirmed, as it’s going to save you both a huge amount of time in the long run.

Shipping and delivery details

You should also find out about shipping. You need to find out whether the factory you plan to work with is able to provide affordable and fast international delivery or not. Expensive shipping fees or long shipping deliveries can be frustrating and could cripple your profits.

Ask a private label manufacturer:

  • Do they ship to your country of residence?
  • What will it cost to ship goods in bulk and overseas?
  • Will you be able to save on shipping if you place a bulk overseas order?
  • What is the turnaround time on any order, local and international?

Before you inundate a manufacturer with the above questions, make sure you have a business license and bank account. Using personal details instead of business information can seem unprofessional and won’t make a good first impression for sellers. So, to be taken seriously when you reach out to a new seller, use your verified business name, bank account, license, and certification.

Be aware of Intellectual property rights

Protecting your brand and making sure you don’t run into any legal trouble when manufacturing private-label goods is key to your success. Brand protection is enforced online through Amazon, eBay, AliExpress, and Alibaba.com. Failing to protect your brand means potentially being undercut by other sellers and your ideas and concept stolen.

On the other hand, you certainly don’t want to receive a letter regarding copyright infringements, so double-check that your product idea, design, features, and branding do not copy or replicate well-known brands.

Become a private label manufacturer and find buyers on Alibaba.com

As a seller, offering a private label service can help you increase your profits as an international manufacturer. Another service means opening yourself up to a new market filled with buyers looking for a reputable and reliable factory.

Since large minimum order quantities and private label manufacturing often go hand in hand, there is potential for you to take large and valuable orders. Plus, working with a client and providing a high-quality service will help build strong business relationships and encourage repeat orders.

Working to a client’s brief, product needs and branding guidelines also helps to take all the hard work out of the manufacturing process. Following your client’s instructions to the letter will help streamline your factory floor and help you churn out orders quickly. Removing the need for a product design and development team in-house, as well as having to test and regulate goods.

How to become a private label manufacturer

So, how can you become a private label manufacturer? With ambition, innovation, and business sense, you can list your company on Alibaba.com as a private label manufacturer. With Alibaba.com, you can connect with buyers from around the world and list your services on the global marketplace today.

Manufacturing capabilities

One of the most important things to consider before offering a private labeling service is whether you have the manufacturing capabilities to meet buyer demand.

  • What can you manufacture?
  • Do you have a supplier for raw materials on standby?
  • How fast can you manufacture your minimum order quantity?
  • Do you have enough employees to scale your business?
  • Which industry do you specialize in?

These are all questions you need to ask yourself first.

Once you’ve established your niche as a manufacturer, you’ll need to find out which certificates you need and investigate the industry regulations you must abide by.

With more people than ever before following their business ambitions and becoming their own boss, now is the time to invest in the convenience and affordability of private labeled goods as an online retailer, or expand your manufacturing services to offer private label products.