PRIVATE LABEL VS. WHOLESALE: WHICH IS RIGHT FOR YOU?
The choice to sell wholesale vs. private label comes down to your current investment options, resources available, and of course, your goals. Wholesaling can be a great way to get started, while Private Label offers the ability to create and scale your very own brand.
More recently, there has been a considerable boost in the wholesale world with the push of a wholesale course offered and sponsored by some of the biggest names in the Amazon space. We thought it would be an excellent opportunity to break down some of the pros and cons of wholesale vs. private label selling methods on Amazon.
In detail in our previous blogs, we’ve discussed what wholesale is and how you can effectively scale your wholesale business.
WHAT IS PRIVATE LABEL?
Private labeling refers to products that are manufactured by a third-party and sold under a brand name.
When you choose to create a private label brand, you are essentially manufacturing products under your specified brand name. More and more sellers focus their private label businesses on the creation and growth of brands instead of selling individual and unrelated branded products.
As an Amazon seller, performing extensive product research will help you figure out which products are selling on the platform.
Product research is one of the most critical components of the Private Label process. Without the right products, a seller can face a saturated market and end up losing thousands of dollars in inventory and start-up costs.
Private label sellers must think with innovation and creativity in order to find the best products to sell. Here at SmartScout, we offer the tools to do just that! With the most extensive catalog of products found in any software, SmartScout ensures success in finding winning products!
Once a product is selected, the general rule of thumb is product differentiation. This means you take the existing product, find gaps in the market, and make your product better than the competition. By doing so, opportunity can exist to dominate that specific niche and grow a fully functioning brand.
Using a water bottle as an example, we can see just how that’s done. Perhaps your product research showed a high demand for this product but with a unique identifier such as a spill-proof lid. You then choose to manufacture this unique water bottle and sell it under your newly formulated brand. (No, we do not suggest selling water bottles!)
Benefits of Private Label
Total control over the product and brand. You choose how to differentiate the product and have complete control of all branding elements.
High-profit margins if you can sell in an unsaturated niche and differentiate your products and brand accordingly.
Effective means to scale provided you have access to proper cash flow.
You own the Buybox and therefore have control over the listing to a certain extent.
It sounds like a great option, doesn’t it?
Private Labelling isn’t for the faint of heart, though, and here’s why:
Drawbacks to Private Label
Capital Required to Start - When you build a brand, all costs must be factored into your business plan. Product sourcing and inventory, branding, packaging, images, website, social platforms, and shipping are just a few areas you will need to consider to build your brand adequately. All of these factors combined can mean you need substantial capital to launch. (Several years ago, less money was indeed required to start. But, as the marketplace shifts to recognized brands, it’s safe to say having more capital to start is beneficial.)
Inventory Challenges - Especially in 2021, where Amazon has restricted inventory for many sellers, big and small, keeping your products in stock can have a direct impact on your bottom line, but also your ranking on Amazon.
Product Sourcing & Manufacturing Issues - Finding products that aren’t saturated can be challenging in and of itself. Notwithstanding that, working with reliable manufacturing facilities can be one of the biggest challenges private label sellers face.
Building Brand Awareness - Building a brand requires daily action to keep the momentum of your brand going. Considerations to off Amazon marketing, leveraging social platforms, and influencing are required as a brand scales on any platform.
TO RECAP WHAT IS WHOLESALING?
Wholesaling means buying products in bulk at wholesale pricing and selling those same products at retail prices.
Benefits of Wholesale
Retail Markups of 30-50% - Markups like this can lead to a sizeable profit outcome and sound business structure.
Existing Customer Base & Brand Awareness - Customers already have an existing awareness of already branded products, and therefore you won’t need to spend time developing brand trust or authority.
Existing Demand in the Market - As you’re selling existing brands, there should be considerable demand in the market for the brands you choose to sell.
Consistent Inventory - Distributors generally have access to a large amount of inventory, so running out of stock is less likely.
Fast Startup & Scalable - Without building a brand from scratch, the time from start to launch is less than private label.
Lower Assumed Risk - Since you are not the brand owner, you assume less risk.
Drawbacks to Wholesale
People who chose to sell in the wholesale model understand that one of the biggest challenges is finding brands and distributors to work with. As a newer wholesaler, this can be a determining factor for your business’s long-term success. Coupled with the cash flow required to scale, wholesale may not be for everyone.
Competition - Often, other wholesale sellers are selling similar products, and therefore the market can be saturated.
Amazon’s Grip on the Market - Amazon sells many of the same products and brands. Competing with Amazon isn’t an ideal situation for any seller.
Wholesale Account Access & Licensing - As mentioned, finding wholesale accounts to work with you can be challenging. In regular times, building face-to-face relationships with manufacturers and distributors could be managed through trade shows. However, in light of the global pandemic, more challenges for new wholesale sellers can arise without existing relationships in place. Licensing is also required in individual states, and obtaining such licenses can be challenging.
Inventory Quantities - Starting in wholesale may require large quantities of inventory to secure a wholesale contract. This may not be possible for certain people with lower capital investment.
WHICH IS THE PREFERRED METHOD OF SELLING ON AMAZON?
It comes down to personal preference. As you see from this article, there are benefits of both Wholesale and Private Label. If you’re looking to build a brand from scratch, then Private Label is the best route. That being said, if you have little to no experience in Amazon and would like a faster launch without the necessity of brand building, the wholesale model could suit you nicely!
Whichever route you choose, be sure to do your research and gain as much insight as possible before making your decision. It’s a good idea to perform market research, number-crunching, and focus attention on learning before you begin.
While there may be challenges selling on Amazon, as we have stated many times before, there is no better time than now to get started!
If you’re not new to wholesaling and you are looking for the best brands and products, let us help you! SmartScout offers the most extensiveAmazon brand and product finder ever made! Sign up here for your FREE 7-day trial!