February 25, 2022

What Is A Private Label Business And How To Start One

Private label brands are a line of products covering a range of industries. It offers a low-cost alternative to local and international markets. With the increase in online shopping, private label manufacturing is also on the rise.  

As per a study, In 2020, the market share of private label brands in the United States was 19.5 percent. Over that year, retail sales of consumer-packaged goods sold under store brands in the United States amounted to around 158.8 billion US dollars, increasing compared to the previous year.  

What is a Private Label Business?

A private label business is when a retailer gets its products manufactured by a third party but sells under its brand name. In this business, the retailer has control over everything regarding products. That includes the product's specs, packaging, and everything else.  

How to start a private label company?

If you intend to start your private label business or company, there are certain factors that you need to consider. Some of those factors are described below:  

1.      Set up your business structure

You need to set up your business structure properly. It will always save you from many headaches. As a private label brand, you can set up your business as a sole proprietor, LLC, and company.

There are three major reasons (besides tax purposes) that you require a robust business structure:

  • Most contract manufacturers prefer to do business with existing registered businesses.
  • You can protect yourself through a proper business structure. However, you never know when you will get into any litigation. So, it’s better to be prepared for any “what if” situation.
  • If you introduce a bad product or bacteria found in your product and a consumer gets a reaction, having product liability insurance, and the proper business structure will make your life easy and safe as a business entrepreneur.  

2.      Choose your product line

When you pick your product line, it's necessary to start with a HERO product. A HERO product is the main product that contains both demand and high margins. For example, a HERO product can be natural hair care product, an anti-aging serum, or a foundation.

3.      Work with a contract manufacturer

Choosing a contract manufacturer is a major significant than business registration. If you avoid selecting one that would be a good fit, you will waste a considerable amount of money and time in the process.

The following are several tips when you have to look for a contract manufacturer:

A. Expertise:  

You have to work with someone who produces the products in your product line. Why? Because they already know the inside out of the products' formulas and processes. For instance, if you have to sell an organic skincare line and pick a manufacturer who deals in organic lines, they will know how to work with the correct regulations, preservatives, and licensing. So, choose a manufacturer that is an expert in your area of interest.

B. Location:  

It matters a lot. It’s not an 'absolute must'; however, if you encounter problems and have to manufacture quickly, you can do it easily. “Same location” manufacturer saves shipping cost and money as well.  

C. Customer service:  

Arguably, manufacturers can cause problems regarding customer service. So, if you are choosing a manufacturer, make sure they have a good reputation related to customer service. It’s ideal if they reply to you within 24-36 hours of your complaint.  

4.      Choose a labeling designer

For a startup private label business, product labeling is a game-changer. With increased awareness in consumers regarding sustainable packaging, you need to keep a close eye on your labeling designer. Make sure your labeling and packaging are equally good in appearance and in compliance with the applicable regulations.  

5.      Look for relevant standards  

Regulatory compliance is a key issue for any business, especially private label businesses. So, if you have to enter and establish your brand as a private label business, you have to search first and then adhere to regulatory requirements such as FDA and ISO.  

6.      Set up a website

Online presence is crucial in today's corporate world to survive. By establishing a website, you grab the opportunity to make your products known to people within and outside your country. If you don't know how to create a website, you can either go for online e-commerce solutions such as Shopify or design your own website.  

7.      Launch your product line

After completing all the requirements mentioned above, all you need is to launch your product line. But before this, you need to keep in mind some crucial aspects, such as your target audience, your customers’ pain points, a clear marketing strategy, and last but not least, your promotional content.  

Wrap Up  

The private label business is a lucrative idea, and if you enter into it without preparation, you will struggle a lot. However, if you follow the steps mentioned above, you can establish and grow your private label business the way you want.

We're here to help new and growing brands.

Learn More