The Exciting Advantages of Private Label Selling on Amazon Marketplace
Amazon Marketplace offers sellers a choice between two business models: reselling branded products or selling private label products under the seller’s own brand. Both of these models have the potential for huge success as all kinds of third-party sellers on Amazon continue to see increased revenue every year.
We will go over reselling, particularly wholesale and online arbitrage, in future blog posts. Today, we will focus on private label selling, or creating branded products to sell on Amazon Marketplace.
Private label selling requires more upfront investment, but it is skewed towards higher average profit margins. Building a brand also results in added valuation if you decide to sell your store. At Optimyze Digital, we consistently help our clients sell their private label stores for four times their annualized profit.
But what does private label selling involve? Below, we’ll take a look at the pros and cons, go over the process, and share our own approach.
The Pros of Private Label Selling
Private label selling consists of sourcing a white-label product produced by another company and offering it on Amazon under your own brand. It involves purchasing stock, creating a logo and other branding materials, conducting marketing to build the brand’s reputation, storing the products in a warehouse or fulfillment center, and ultimately delivering them to customers.
This business model provides many advantages over other options available to Amazon sellers.
Higher profit margins. Private label selling tends to have higher profit margins than reselling, because purchasing generic or white-label products from manufacturers is much cheaper than purchasing wholesale products from an established brand.
Profit margins are especially high with small, lightweight, high-quality items priced between $15 and $50. You will pay much less for a supplier to produce these types of items than if you bought them from a brand, and you will be able to sell them at a competitive price.
Greater control over pricing. Private label selling allows you to control your product prices and offer lower prices as well as a range of price points. Whereas reselling branded products involves meeting a minimum price requirement set by the brand, private label selling puts you in charge.
You can sell your products at a lower price point at first to generate more sales, reviews, and brand awareness. As your brand recognition grows, you can increase the price of your products and your profit margins. You can also offer higher or lower-cost versions of your products to suit a variety of budgets.
Fewer brand restrictions. Amazon, as well as brands that allow reselling of their products, closely control aspects of the reselling process such as stock, branding, and product information. Private label selling frees you of many of these restrictions.
Private label stores can feature what Amazon calls A+ content in their product descriptions, which involves multimedia content such as pictures and videos. A+ content boosts search ranks and creates a more rewarding shopping experience. A customized landing page can also help create brand awareness and customer loyalty.
Private label brands are also able to respond to customer feedback and changing trends by modifying their products. Whether by switching suppliers, adding new features to their products, or updating their product descriptions, private label sellers have much more control over customer experience—and customer satisfaction.
Less competition and more customer loyalty. Private label selling allows you to offer unique products with customized branding that ensures yours is the only Amazon store selling a specific item. Instead of competing with other resellers to offer the lowest price, you can focus on marketing your brand and your products.
With a long-term investment in building customer loyalty, your brand will become your most valuable asset. If customers enjoy your products and shopping experience, they will return to your store over and over.
The Cons of Private Label Selling
While there are many pros of operating a private label revenue model on Amazon, no business comes without its downsides.
Slower scaling. Because of the extensive research required and the greater importance of marketing your unknown brand, private label selling takes a longer time to scale. Diversifying your revenue by also participating in online arbitrage and wholesale selling through Amazon can ensure you have money coming in even as you work on scaling your private label brand.
Higher upfront cost. Along with the slower scaling of this business model, private label selling involves more upfront investment. You will need significant working capital to cover market research, purchasing stock and paying for storage in a warehouse or fulfillment center, marketing and paid advertising, and selling at a lower price point and participating in giveaways to generate reviews and brand awareness.
Unless you are highly experienced in market research, e-commerce, and marketing, you will need to pay experts to do these tasks for you. Optimyze Digital offers competitive pricing, a 24-month money-back guarantee, and a team of seasoned experts working to give your private label business the best possible chance of success. At the same time, you will need to make a significant investment for these services.
More risk. Branded products from established businesses have a built-in customer base, brand awareness, and a high chance of selling well as long as they are competitively priced. While private label selling offers the possibility of much better profit margins down the road, it represents a higher risk for the seller. Even with extensive research done, there is never a guarantee that a product will sell well into the market. Again, diversifying your revenue can help mitigate this risk.
The Private Label Brand Process
If you want to embark on the journey of building a brand on Amazon Marketplace, you will have to undergo an extensive and sometimes costly process, but one that has the potential for significant revenue in the future.
Private label selling begins with product selection. You must do a good deal of market research to find products that have high demand but low competition. Products that sell throughout the year are preferable, especially at first, since they avoid off-season slumps. Small, lightweight items will allow you to save on shipping and storage costs.
Next, you must find a supplier to produce white label or generic products that can be branded and sold on Amazon Marketplace. Many suppliers specialize in these products, designed specifically for private label selling. Not all suppliers permit private labeling or Fulfillment by Amazon (FBA), so you need to verify they can meet your needs. You must also conduct quality control to ensure your customers are receiving products that will reflect well on your brand.
Now you can begin to build your private label brand. A compelling value proposition that engages emotionally with customers through marketing materials, product descriptions, and landing pages goes a long way toward building a loyal customer base. You must create a unique logo and image to be featured on your products and product pages. Marketing, particularly paid advertising, is essential, especially during the early stages of building a private label brand.
Warehousing and distribution present unique challenges to private label sellers. Unlike models such as online arbitrage or dropshipping, private label selling requires you to have a stock of your products on hand. FBA is an excellent resource to facilitate this ongoing part of the process, as they provide warehousing, packing, and shipping as well as customer service.
Private Label Selling Through Optimyze
Private label selling can be a costly, time-consuming, and risky proposition if you do it all yourself. Optimize digital provides Done-For-You (DFY) services to automate the process. Our designated research team is constantly vetting products for our clients. We conduct supplier outreach, product research and development, and extensive marketing to give your brand the highest possible chance to reach profitability within one to two years.
We require our clients to participate in our wholesale model for at least two months before beginning the private label process, given that private label is a riskier undertaking.
Once we begin the private label process, it takes approximately 40 to 50 days for us to research a product, choose a manufacturer, and receive the products and our warehouses. We recommend an initial purchase of 500 units, which will take approximately a month and a half to two months to get through.
At the start, we spend $10 to $15 a day on advertising using pay per click (PPC) to get sales on the product right away and get on the first page of Amazon results. Our proprietary software tells us exactly how many units we have to sell in an eight-day period in order to get on the front page and generate reviews.
Lower price points as well as giveaways allow us to boost the number of reviews at the launch of new products. The more reviews your product receives, the higher we raise the price, until we reach the optimal price point for highest profit margins and healthy sales metrics.
Is Private Label Right For You?
Private label selling is not for everyone. Newcomers to the world of eCommerce and entrepreneurs who are just getting started would do better with wholesale or online arbitrage models. These lower-risk businesses are a great way to get the ball rolling on your Amazon Marketplace seller account.
If you have enough starting capital and the marketing, market research, and networking skills required to launch a private label brand—or you’re willing to pay a team of experts to do it for you—you may be able to see huge profit margins down the line, with the potential to either sell your store or continue generating income in a year or two.