“Private label” refers to the concept of taking an existing product and marketing it under a different brand. When referring to Amazon FBA private label businesses, this is typically a scenario where an individual or company hires a factory to produce a (typically standardized) product with their brand either on the product itself and/or the packaging. The product is then sold to customers under this brand name.
1. Choosing the Product(s)
A typical first step in starting an Amazon FBA private label business is to choose a product or group of products.
Generally speaking, its preferable to find a product where you can earn a good profit margin after accounting for all expenses. When selling online, shipping to the customer is often a major expense – so very large and heavy items are often difficult to pencil out when it comes to ecommerce.
Its also essential to choose products that are at least reasonably in demand in the marketplace. This means products that people are currently searching for an purchasing. If you create a highly-unique, original product that customers don’t know about then you have to spend a great deal of time and money educating the market and building awareness. A truly revolutionary product does have unlimited upside and is perhaps the better opportunity to turn into a billion dollar brand… but its also much more likely to flop and generate few or no sales. For 99% of people, choosing an existing product and simply tweaking the features to improve it a bit (or adjust it for a particular market) is the better option.
2. Creating the Brand
A “private label brand” is not really different than any other brand. The “private label” part refers more to the manufacturing aspect of the business. So in this regard, creating a great brand isn’t terribly different for a private label company than for one who manufactures their own products.
To the extent that you are selling your products on Amazon, then one of the main benefits Amazon brings is traffic – lots of buyers who trust the Amazon platform and are looking to buy their products through Amazon’s marketplace. So its not necessarily essential that your brand has widespread awareness outside of Amazon. In fact most successful Amazon FBA private label brands do very little or no advertising outside of the Amazon ecosystem.
Chose a name that fits with the products you are selling, and also is a name that you can trademark with the USPTO as your brand name. Your brand itself is more than a name though, its everything that you stand for and its what your customer seeks or aspires to. It should resonate with your target market, and speak to their needs and desires. That said, its important to recognize that in some markets (health supplements for example) your brand is crucial, while in other markets its okay not to overthink this. If you are selling paperclips then while we certainly want customers to trust the brand, they don’t need to necessarily identify every fiber of their being with the brand. In the latter case, clear and simple might be best.
3. Manufacturing the Private Label Products (& Packaging)
Its often the case that the product produced by the factory is fairly standardized and might in turn be produced for multiple different brands. In this case, the product that the factory produces might be thought of as “white label” whereby only the brand markings or packaging is different.
This is not necessarily the case with all private label brands though. Often a brand will request customizations to the product – maybe changing the color, the size, thickness, material, or other features or functions. At some point we can no longer call this a standardized white label product. This is custom contract manufacturing – and its basically how most large brands in the western world produce their products. Most well-known name brands don’t actually own the factory in China or Vietnam. They simply have a contract with the factory to produce the goods to their specifications.
So the line between white labeling, private labeling and typical contract manufacturing can actually be much more blurry than it might seem, with plenty of gray area.
Most Amazon FBA private label brands get their products manufactured in lower cost of production countries like China, India, Vietnam or Indonesia. In many cases though cost is not the only factor. For my own products, I have always tried to source them in the USA and on a few occasions we have found US-based factories. But the truth of the matter is that there simply aren’t as many existing factories for as wide a range of products in the US as there are in China. So in many cases its not even a cost consideration between a US factory and a Chinese factory – there just aren’t any US factories that produce xyz type of widgets. Sometimes custom manufacturing is an option but typically at great expense associated with additional tooling and high minimum order quantities (MOQs).
Somewhere in the initial manufacturing negotiations its important to discuss packaging. For most products, the packaging is a relatively small percentage of the total cost. But the packaging is key when it comes to your branding and the impression that your product makes on your customers. We recommend fully branding your packaging and doing whatever is necessary to help ensure your customers know how to use the products – be it simple instructions on the packaging, an insert with examples, etc.
Finally, as we’re about to get into logistics its important to know that Amazon requires a special FNSKU barcode to be placed on each product so that Amazon can scan this barcode when they receive your inventory in to their fulfillment centers. You can put this on as a sticker, or just build the barcode right into the packaging itself.
4. Logistics
Once your products have been produced, you need to get them into the Amazon fulfillment centers (warehouses) so that they are available for sale as part of the FBA program. There are generally two ways to do this.
The first is to have your factory ship the products to you, or to a third-party logistics company (3PL) that you hire. You can then store the inventory there, and ship some of it to Amazon. Over time, you can replenish the inventory at Amazon’s fulfillment centers from your 3PL. And then restock your 3PL with new purchase order shipments from your factory.
It typically takes 30 to 60 days for most manufacturers in China to produce orders. And then the shipping can take anywhere from 5 days by air (expensive but fast) to 45 days or longer by sea (slower but cheaper).
The other way to handle logistics is to ship your inventory directly from your factory to the Amazon warehouses. This means shipping it only once instead of twice so this is typically more economical. However it also means you (or your 3PL) won’t have the chance to inspect the inventory after shipment or to break up the inventory into smaller allotments. If you carry too much inventory at Amazon’s warehouses then you’ll incur higher storage fees. For this reason, we typically advise against this method.
5. Selling Products on Amazon (Marketing)
By this point you have chosen a product to target, created a brand, gotten the products manufactured and now have inventory available for sale at the Amazon fulfillment centers. You are ready to sell!
The first step is creating your product listing and filling it out. You likely will have already started this process though earlier as creating a listing is necessary to get the FNSKU barcode for your product – this is the Amazon barcode label you need to add to the product. But at this point you’ll want to complete this job and ensure your product listing is thoroughly filled out. Put in all of the various specifications of your product – dimensions, materials, etc. You’ll also want to spend some significant time on the two most important parts of your Amazon product listing – the photography and copy.
For photography, you should absolutely hire a professional photographer to take high-quality photos of your products. Your main image needs to be just the product against a white background. And then additional images can and should communicate how the product is used, who its for (target market), any special features or key selling points, etc. After the first main image, you are indeed allowed to create charts and graphics too to communicate this information.
Likewise, its important to dedicate some time to your copy. On your Amazon listing this means a description field and the bullet points. Between those two, the bullet points get much more visibility so spend your time there.
Once your product is live its possible to start making sales with no additional marketing. That said, this was more commonly the case back circa 2015 when the Amazon FBA private label business model was relatively new. Today its quite competitive so its tough to get sales on a new product without any additional marketing. Especially as Amazon is now giving a lot more screen real estate to their paid advertising programs.
For a new product and new brand, we would now recommend enrolling in the Brand Registry program which opens up a number of promotional programs to your brand. One of which is called Amazon Vine. Basically this is a program where you can give away up to 30 units of your product to Amazon-approved reviewers who will order your product at no cost and then leave a review. The review is not guaranteed to be a good one though! But if you participate in this program you will get some initial reviews coming in. This is essential as few customers want to purchase a product with no reviews.
After you have some initial reviews, its then time to dive into Amazon Sponsored Products – Amazon’s pay-per-click advertising program. This is where you can pay to have your product show up in the search results and/or on other product pages. It can be very costly, but its a guaranteed way to drive eyeballs to your listing. Our recommendation is to advertise initially without much concern for cost and efficiency and then refine your advertising campaigns over time. Within a short period you’ll likely make some sales and be able to see which keywords or what ads drove sales efficiently and which did not. Its then time to optimize accordingly.
A newly-launched product will likely not be profitable right away. In general, our experience suggests that if the execution on all stages above is good then most products should become profitable (i.e. better than breakeven) within roughly three months of launching. As your product gathers more reviews, as you refine your PPC optimization, and tweak your pricing it is possible to improve profits gradually over the next year or more.
6. Repeat!
The first five steps above are basically the model here. Once you are live on Amazon and successfully selling products its now time to start planning your next order. Its important to avoid running out of stock on Amazon as this will kill your sales momentum, which then negatively impacts how well your products rank on Amazon searches organically. Its best to order more inventory than you think you might need, and to do so earlier than you think is necessary. That said, of course this recommendation ties up more cash and presents the risk of having too much inventory that you can’t sell. Such is the risk associated with an inventory business! If you’ve gotten to this point, then its time to read our post about profit vs. cash flow for an FBA business.
Okay hopefully you now have a good idea about what its like to sell private label products on Amazon with their FBA program.
This can be a great business model if the execution is spot-on. But its very definitely not a passive income type of business. Selling on Amazon is very active and requires work and maintenance. The bulk of the work is the initial setup and launch for each new product. Once a product is well-established, it does then require much less work and management over time. But its never set-it-and-forget-it.
If you are looking for help managing your Amazon account and growing your sales on Amazon then please consider our full-service Amazon management services that we offer here at Vocational Media Group.
