What Is Private Labeling and How Does It Work?

4 min read · 4 months ago

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Many of us take pride in the “do-it-yourself” projects we do at home. However, when it comes to expanding business offerings, the time and effort it takes to DIY could be prohibitive. With private labeling, a business can brand and sell products another company creates as its own. This article explains private labeling and how it works.

 

What is private labeling?

Also known as white labeling, this approach lets your business purchase a ready-made product. You don’t have to do the heavy lifting of design or development. Instead, you get something from a third-party manufacturer that your business only has to brand and market. 

If you’ve been to Costco, you’ve probably seen the Kirkland brand. That’s the store’s private-label brand for everything from over-the-counter drugs to boxer briefs. About one-quarter of the wholesale retailers’ revenue is generated via its Kirkland products. Other well-known, white-label examples include Archer Farms at Target and Great Value at Walmart.

There is a real market for private-label products. Total retail sales in the U.S. for white-label products reached $5.47 trillion in 2019. Statista data projects this market will increase to $5.94 trillion in 2024. 

Private-label products are available in a wide range of industries, from food or software solutions to cosmetics or clothing. This article will cover:

  • Private-labeling advantages
  • Potential pitfalls of private labeling
  • How to get started 

 

Private-Labeling Advantages

There are many good reasons for a small business to take the private-label branding approach. For one, designing and developing a new product is time-consuming. If you don’t have experience in that product area, the learning curve could be steep.

You’ll be embarking on a new product initiative without a full understanding of all the unknowns. You can’t predict all that the process involves, its duration, or the resources you will expend getting that product to market.

On the other hand, when you take the white-label approach, you work with private-labeling companies that have already done all the legwork. With private-label branding, you can:

  • Increase product distribution expediently
  • Minimize risk by leveraging vendors’ expertise
  • Reduce design and development resources expended
  • Expand your brand visibility
  • Offer customers a one-stop solution
  • React more quickly to market trends

By taking advantage of private-label dropshipping, you can also get that product out to your customers without adding more work for your own shipping department.

 

Potential Pitfalls of Private Labeling

There are some possible challenges to be wary of with white labeling. You’re putting your brand name on a product that you did not develop from scratch. Your business must trust that the vendor provides a high-quality offering manufactured in a way that fits with your business’s social responsibility goals. You are also reliant on the vendor to stay on budget and keep to deadlines. 

Meet these challenges by investigating a potential vendor thoroughly. Find out all you can about their product development and manufacturing process. Learn what they know about their supply chain’s environmental and social impacts. Set up quality control measures. Keep the lines of communication open so that there is a strong feedback loop to avoid confusion, missed deadlines, or budget overruns.

Another risk of the private label route is putting products on your shelves that customers don’t want. Or that won’t win them away from a brand that has their loyalty. Before adding private-label products to your offerings, do market research to learn whether your customers will be interested or not.

 

How To Get Started

There are many private-label products for small businesses. Private-labeling clothing may not make sense with your product line, but other white-label products could make immediate sense to your audience. To begin, find the options that add obvious business value. These are the white-label products that will make your customers’ lives better and build on their loyalty to you as a business that meets and anticipates their needs.

Another key thing with private-label branding is picking a vendor you can count on. You’ll want to meet with the private-labeling partner to see if you can work together. Find out how long they have been in business and what they’ve done in your industry. 

Try to gauge how easy it will be to scale the product partnership. Once you have one successful white-label product line, can you add another with this same reliable vendor? Looking ahead, you could also ask about a volume discount or other preferential treatment for white-label partners that scales up. 

Then, all that’s left for you to do is market your private-label brand. This could include a white-label website. Ask about any help your vendor offers in terms of onboarding sales, marketing, product, and operations insights. Some private-label partners want to further your long-term success by helping you promote the product, which gives them a recurring revenue stream.

 

Avoid the unknowns and get to market more quickly with white labeling. Enhance your customer relationships with private-label brands that improve the experience of your business. Let your customers know about the additions with a professional website too.