What Is a Private Label? How Private Labeling Works

private label

Starting a company is hard work, from opening an office and hiring workers to setting up a production line to make products for your brand. But what if you could contract out this last step to a company that already has a production line? This is where a private label line can help. If you decide to be a private label seller, you can offer products unique to your business but made by a third-party manufacturer. This also can free you up to focus on selling, marketing, and finding the right people to help your new business thrive.

What is a private label?

A private label refers to a product manufactured by one company but sold under the brand name of another company. Retailers often use private labeling to offer exclusive products, differentiate themselves from competitors, and control pricing, branding, and marketing.

A private label offering can be similar to its competitors, but the exact manufacturing formula must be different. If you see a private label business offering a particular type of chocolate chip cookie, you can assume the exact recipe won’t be found under any other label. The same would be true for private brands selling electronics, jewelry, clothing, pet foods, beverages, etc.

How does private labeling work?

The private label business involves two types of companies: private label manufacturers, which make a product, and private label sellers, which brand and sell private label products to retail customers. A reliable private label manufacturer will ensure product quality and keep production costs under control. A savvy private label seller will build strong brand equity with consumers, effectively advertise, and set up a profitable pricing model.

Private label goods should not be confused with white label goods. White labeling also involves a third-party manufacturer making a product on behalf of a retailer. However, white label products are not custom designed for one particular seller. A white label manufacturer makes large amounts of a generic product and then sells to individual retailers, each of which sells to consumers under their own brand name. This means that any number of companies can sell the same white label product under different names.

What are the benefits of private labeling?

The private label business model offers advantages to both manufacturers and retailers. These benefits involve everything from profit margins to quality control.

  • A unique value proposition. Private labelers get to design and sell products that are distinct from established brands, store brands, or other private label brands. This means that you, as a private label entrepreneur, can pursue novel product ideas without regard to what the rest of the market is doing.
  • Customized quality control. By establishing a direct relationship with their manufacturer, private label owners get an open line of communication and the ability to demand premium quality.
  • Customized pricing control. Private label sellers and producers can tweak manufacturing costs and price points on their various product lines. They can experiment with different price formulas to maximize profit margins.
  • Customized marketing control.strong> As a private label retailer, you get to choose the exact marketing campaigns used to promote your branded products. You don’t have to adhere to the sometimes stiff, outdated campaigns run by national brands.
  • Nimble changes. It can take months or years for an established brand to change its product formula, pricing, or marketing strategy. Private label sellers can pivot a lot faster. They can quickly respond to negative reviews or low sales and adjust to make the best product for the best price.

Examples of private label manufacturers

You may not realize just how many consumer products are made by private label manufacturers. In fact, the private label model pervades many product categories, both in online and brick-and-mortar stores.

  • Coffee. Private label coffee has exploded on the internet. Many of these coffee brands use coffee dropshippers that send out batches to customers as soon as they’re ordered.
  • Pet food. Many pet stores, particularly online pet stores, sell private label food made by big manufacturers that serve many clients.
  • LED lights. Online marketplaces are filled with private label LED lights, each with a slightly different design but mostly coming from a small number of manufacturers.
  • Phone accessories. Chances are the third-party accessories you buy for your phone—chargers, cases, and the like—were made by a private label manufacturer and sold under another company’s brand name.
  • Apparel. Many online clothing retailers use private label garment manufacturers for their shirts, dresses, skirts, shoes, handbags, and more. These clothing manufacturers can print custom designs on apparel. They can also offer custom tailoring and leatherworking.
  • Smart backpacks. Smart backpacks have enjoyed growing popularity in the ecommerce marketplace. These portable pouches can charge electronic devices such as laptops and phones. Some can play music through a built-in loudspeaker. You can partner with a private label manufacturer to create a customized smart backpack for your customer base.
  • Personal care products. Lots of personal care products, from mouthwash to makeup, come from manufacturers that serve private label sellers. The formulas for these products will be customized for specific clients, but they come off the same assembly lines.

Private label FAQ

What does private label mean?

A private label is a branding arrangement where one company manufactures a product and a different company brands, markets, and sells that product. The private label seller designs, markets, and prices the product, but it’s the manufacturer that actually makes it and ensures quality control.

What is the difference between private label vs. branded products?

A traditional branded product is one in which a company manufactures the products it sells. These companies often spend years cultivating a strong brand identity, and their products must meet their established standards. By contrast, the private label business model involves one company making a product and a different company branding and selling it. These products may not inspire the same brand identity and loyalty.

Why would a store have a private label?

Many stores turn to private labels because they want to focus on retailing and branding while avoiding the complexities of manufacturing. For example, many of the most profitable products grocery stores sell are private label goods, from pasta to jelly to eggs, all under the same store brand. The store isn’t burdened with operating its own wheat refinery, jelly factory, and henhouse. Rather, different suppliers provide the goods while the retailer concentrates on sales and marketing, with the goal of generating bigger profit margins.

How do you start your own private label?

Starting a private label begins with brainstorming private label product ideas. This requires a combination of personal inspiration and astute product research. Once you’ve found a promising product category, you’ll need to research private label manufacturers in that sector. You’ll then need to contact manufacturers directly, learn about their pricing and manufacturing processes, and determine whether you’ve found a fit. You’ll handle branding and marketing separately, either on your own or with the help of a professional who specializes in this aspect of the private label economy. With your manufacturing and branding teams in place, you’re ready to launch your private label. Shopify can be a great platform for entrepreneurs selling private label merchandise because it provides everything from an online storefront to checkout to inventory management.