With the explosion of sales on Amazon, the term “private label” has become a huge trend. But what exactly is private label?
Are you interested in starting a private label business on Amazon? Or do you just want to learn more about what a private label business really is?
In this post, I will discuss what a private label business is, how to start a private label business, and share some of my experiences.
What is Private Labeling?
With the explosion in popularity of selling on Amazon (and eBay before that), the term “private label” has become a huge trend. But what exactly is a private label?
Private labeling is essentially buying cheap, off-the-shelf products from China and branding them under your company. These products are already produced by the supplier; in other words, you are not inventing the product. You are buying a pre-existing product, usually with a change in packaging or a slight alteration to the product. Take a look at the search results for garlic press on Amazon. You can see that almost four of these five products shown here are nearly identical, except for one thing: their brand names.
Several examples of different private label products that are almost identical.
In the case of an e-commerce business, a private label business is best contrasted with a reseller business. In a reselling business, you buy someone else’s product and resell it (you never brand it under your company). In a private label business, you actually own the inventory. The downside of this model is that it requires more capital and more product development work. The upside is that there are higher profit margins and less competition.
The term private label has many synonyms: white label, off-the-shelf, original design manufacturing (ODM), etc. Whenever you hear someone use these terms, they almost always mean the same thing.
How Do You Make Money With Private Labeling?
The vast majority of people in the private label business are making money selling products through Amazon FBA. In the war between eBay and Amazon, Amazon is now the clear winner. Many people still ignore the fact that Amazon is now as much a marketplace as eBay, and third-party sellers now account for more than 50% of all Amazon revenue.
Amazon is now clearly THE leader in ecommerce
As I showed in the above example with garlic presses though, there can often be extreme competition for essentially the same products. So how do entrepreneurs compete and be profitable? They do so in a few different ways:
- Find new products that do not yet have a lot of competition
- Lightly improve the product either physically or through better packaging
- Improve the marketing such as better photography, descriptions, advertising etc.
To succeed in private labeling the formula is basically to find products with low competition, improve the packaging and/or product, and market them better. The real key is to find the perfect product(s) to develop and we address that in our guide to finding the perfect product to import and sell on Amazon.
How Do You Start a Private Labeling Business?
This is one of the reasons why Private Labeling has become so popular. To import products from China into America you need very little. Amazon FBA has made this even easier (long gone are the days of having to physically ship items yourself). Many people think you need some big fancy import-export license to import products. You don’t! In the case of America, you normally only either need an EIN or a non-resident importing ID . This is something any customs broker can set you up with very quickly and easily.
Top 10 product categories on Amazon 2020
Choosing a category to sell in the market will depend on the results of your product research, the competiveness of the category, and the demand for the product. Take a look to the most popular categories third-party sellers sell in:
Home & Kitchen (office chair, office desk and blender)
Sports and outdoors (yoga mat, camping and hammock)
Toys & Games (puzzles and lego)
Health & Personal Care (medical masks, hand sanitizer and wipes)
Electronics (iphone case, webcam and headphones)
Beauty (nail polish and make up
Clothing, Shoes & Jewellery (bandana)
Baby (baby gift)
Garden & Outdoor (bbq and patio furniture)
Tools & Home Improvement (portable air conditioner)
Also we included some of the trending products that are winning most clicks and conversions on strategic search terms in 2020.
In general, the process to start your business would look something like as follows:
- Find a product to import from China (see Finding the Perfect Product to Import from China and Sell on Amazon)
- Import it from China (see our Mega Guide to Importing from China)
- Open an Amazon Seller Central account and send your inventory there
In general, y the minimum amount of money you need to start a private labeling business is $2500-5000. I realize this is going to be a deal breaker for many people. If you’re in a situation where cash is a tight, a drop shipping business may be better for you which has much lower capital requirements.
What are Some of the Negatives about This Type of Business?
Private labeling isn’t all roses. There’s some crappy parts about this type of business too (although I of course think the pros outweigh the cons. Big time). Here’s the drawbacks:
- It requires money to invest in inventory
- You have to hold inventory
- The upfront efforts are high
The biggest downside to this type of business, as I mentioned before, is the money required to purchase inventory. Not everyone is in the position to be able to spend $2500+ in inventory. Inventory also becomes a major pain to deal with over time. And lastly, there is a very high upfront time cost to developing products. You will spend a ton of time, in the beginning, find products, finding suppliers, developing those products, and getting them listed for sale. Thankfully, after that, the time requirements are far lower.
We are the best pillow manufacturer in China to help importers import from China to usa with the most competitive price, 40% of our clients are Amazon sellers. So if you want to imports from China start the Amazon store, please do not hesitate to contact us.
Do you have any other questions about how to start a business private labeling? If so, please comment below.