Private Label
Private labeling is a business model in which the buyer asks an overseas sourcing factory to produce the items labeled with the buyer’s brand name. It has got lots of fun recently and businesses customize a generic product labeled with their own brand. The reason it got popular is that businesses want to sell their own branded product rather than someone else’s. They can customize the product and have some control over the product and its price. Private label products are famous on Amazon.
Private labeling advantages
It is a must to be fair when we discuss a business model. Like any other business model private labeling also has its advantages and disadvantages. Taking this principle into consideration we explain the advantages of private labeling. One of the important aspects and advantages of private labeling is the fact that the buyer has control of the product. This is why it is preferred by some businesses. However, there are many disadvantages to private labeling.
Private labeling disadvantages
There are many problems in private labeling that makes it very hard to do. Most of the time businesses that follow this strategy fail before experiencing any success.
The idea of private labeling is about finding the perfect product that has a good sale on Amazon. This strategy is like gambling and businesses with long-term goals do not gamble. Since there is a very tense competition around those products that have good sale products on Amazon. There are people with months and years of sales history competing with you on the product. Obviously, they have got already a good ranking on Amazon sales and search results.
Private labelers sell a “me too” product at a 5% to 8% percent lower price which is not a big competitive advantage. On the other hand, lowering more than 8% will lead to cutting profit margin.
Private labelers most of the time import products from overseas. If they want lower shipment and logistics costs they had to import through sea freight since air freight would cost 8 to 10 times more than sea freight. But to import by sea freight you have to order large quantities.
There is also the risk of quality issues. You don’t control and watch the process of producing and quality of products. This can cost a lot for SMEs.
Concentrate on suppliers and make a broad category
If you want to make good revenue and want to grow your business it is necessary to have a big number of categories listed. When you are a small size enterprise it is better to make your purchase local. Since the logistics and shipping of goods will cost you a lot when you order a small MOQ. In addition, when you order from overseas suppliers to have a lower cost per item you need to order large quantities otherwise, those suppliers don’t like small MOQs. They treat small orders as a one-time business also, the price they will offer you is high.
You can get better offers from local manufacturers. There are numerous advantages if you buy from a domestic manufacturer. You can order small quantities. You avoid logistics and shipment costs. You can be sure about the reliability of the supplier and the quality of the product. And last but not least you may get better payment terms. Only a few people look to the opportunities in dealing with domestic manufacturers.
In case you order from an overseas manufacturer, they might ask you for a $4k worth of order of a product worth of $10. Instead, you can buy small quantities of several products that some might have a good ranking on Amazon from a local manufacturer. Thus, you can diversify the risks too and you can grow inexpensively.
Meanwhile, suppliers will be happy when you order different categories and not only best-sellers. They also lead customers to those retailers that buy more categories of manufacturers’ products rather than the one who buys only one or two products and for the rest, he goes to manufacturers’ competitors.
Manufacturers don’t have any issue with their bestseller products since everybody buys them. In contrast, what they are eager to sell you is their other products that don’t have the best sales. They might take a little time to be sold but you sell them and you make money through those sales too. You are going to buy more of best-selling products and less of less-seller. This makes your supplier also happy since you are not only buying their best-selling. You gave a chance also for their other products to be sold. This will be a win-win relationship between you and your supplier.
Another advantage of working with a domestic supplier is their warranty services. When you become a good customer of local suppliers they will help you also with warranty services. Your growth won’t be an issue for them. In contrast, this will make them happy since your purchase orders will get bigger and besides the lower prices, they offer you lots of other services. Your relationship will a lot different when you become one of their top 10 customers.
Finding suppliers
Usually, Amazon sellers first search for products and then suppliers. But what you are supposed to do is finding suppliers first and then products. Because when you work in an industry you are supposed to know what products have good sales and finding them will not a big challenge for you.
Once you find a good and reliable supplier then you should figure out how to sell their products on Amazon. In this way, you know the strengths and weaknesses of suppliers and which categories of their products are not well exposed to Amazon. This is where opportunities are waiting for you. Since for such products, there are no established competitors who have already built a good ranking.
What to hunt
Whatever business you are into you know what products have good sales. You also know which products are popular. Meanwhile, you know which brands are good but hard to afford them so people find an alternative brand with lower prices? And when you go to international suppliers you know the generic products branded products. And you are aware which products don’t have good sales and don’t have market back at home.
If you hunt suppliers domestically, look for those who you get more attractive to them eventually. You shouldn’t choose a huge company as a supplier rather a small established one who has good distribution. Meanwhile, they shouldn’t be very well-known brands and they shouldn’t be generic products too.
Supposing that we indicate it through size, it shouldn't have more than two sales representatives in the entire country and you could deal with one of them. They should be a direct sale representative of the manufacturer, not a wholesaler neither a distributor. And you should have the possibility to contact directly the owner or someone else close to a directory level in the company.
You should also take two more things into consideration:
- If you decide to choose dropship, the company should be an established drop shipper.
- If you decide to choose fulfillment by Amazon you should try to get one with the lowest price.
It can be a good opportunity if they are established brands. Maybe you find good reviews about them with good sale opportunities but they might be ignored by others. This can the best opportunity and raise your sales up high if you get good prices.
How to approach suppliers
Approaching the number one brand in any industry is not easy and they will not accept you easily if you go to them and say you want to become a distributor. Eventually, they send you to some else. On the other hand, if you go to some small brands and talk to them and make an order of $3K they will accept you happily and they will be ready to start working with you.
If you approach such small brands that have around $4 to $10 million dollars of sales per year their salesperson never rejects your $3k order. In case you buy $300k worth of product per year you can become one of their top customers and they will offer you several services accompanied by lower prices. It will be you who they will talk about their new products and the products that have discounts at first.
Concentrate on products that you know about and you have sales experience with. No matter even if your knowledge about the product is not a lot. The time you want to contact them try to inform them that you know enough about their company, their market, the quality of their product, and you know their competitors in the market. They appreciate it. Thus, they will know that you are a well-informed customer and will not waste their time in explaining all stuff and they will not receive too much customer service call from this client.
Just after you got an established product you can contact other brands to buy and resell their products too. You can tell them that currently, you are selling A, B, and C brands and you are eager to sell their brands' products too. This will give you confidence and trust towards the new brand and they will accept your proposal. Since you sell other brands’ products this is proof for the new brand and ensures them that you have customers and a good sales strategy. They know that they are not only selling their product, in addition, but they also want to ensure their presence in the playground where their competitors are playing.
Even if you have got your own private labeled brands you can get in touch with other brands and tell them about your own private and your plan that you want to sell their related products too. This is another opportunity and sale stream for them to sell their products through. Having private labeled products can sometimes give you trust and confidence before other brands.
If you place a $3k order to an established brand but the top one, they will sell you willingly. That’s not so hard to get the first brand as some might think. Some find it difficult to sell products from a legitimate and established brand and then even exaggerate in that. If you have your own private labeled products and you find a local supplier and sell their products, that’s also a good business model but, selling only your own private labeled products is not a good idea.
Sell the whole product range
There are suppliers that have a big range of products. You might find some of those products on Amazon and some others not. You can use the fulfillment by Amazon service for the bestseller products of the supplier. And for the rest of the products that don’t exist on Amazon, you can use fulfilled by merchant (FBM) service. Thus, you will be the only seller of those products in the marketplace without being annoyed by established competitors in those listings.
If those new listings on Amazon get successful, your growth with that supplier will boost and your business will get bigger and bigger. As a result, you will get logistic advantages and as your orders get bigger the price of products decrease. This is a strategy that leads to a best-seller for a product that hasn’t been on the best-selling list already. You will not have any competition for the first few first weeks and months. However even if your competitors rushed to the product and want also listed the product, you are already an established seller and you have got your top ranking in the search result of Amazon.
Your main sales will be through those brands that have best-sale on Amazon. But those products that are not listed yet on Amazon are the new opportunities that you should take since others ignored them and you will have a chance to try.
Dropshipping can be a good strategy for slow-selling products. For drop shipping, you might pay a small processing fee to the supplier and you should consider that in the price of the product. Most dropships and fulfillment by merchant (FBM) products can have a large margin compared to fulfillment by Amazon (FBA). Since in FBM, there isn’t much competition and sometimes you might be the only person selling it on Amazon, sometimes even on the internet.
Selling the products
Sellers on Amazon don’t need to work on the best pictures and editing and using the best fonts for their products. They can use the same text for the entire line if they are selling a well-known brand.
Private label sellers work hard on their listing to appear perfect on the search result and rank well among the competitors. But if you are selling an established brand on Amazon you shouldn’t worry a lot about how its appearance. Since people know the brand and they know what they are looking for when they search on Amazon. The only thing that you search for is finding a supplier that provides you the branded product at a lower price. Amazon customers going to buy the branded product they are looking for regardless of the pictures and the font style. Simply if the price you offer be lower than your competitors.
That’s something that most sellers on Amazon don’t understand. People who search on Amazon have already made their decision. They are determined which brand to buy. What they look for is a fair deal and a good time delivery, the quicker the better. Spend most of your precious time on sourcing and working with suppliers and less of the time on making the images and fonts of the items. It’s better to work on the images, content, font, and ... that create value when you are selling a private label brand. When you sell an established branded product, you don’t need to work on adding value because the value already exists.
What potential buyers need to know when they are looking for a branded product it’s simply that you ensure them they are getting the right and correct product. You should include technical information and details. Because they are the criteria for buyers when they check if your product is the right one. And when they compare your product with products from your competitors from the same brand.
The images also should be clear and show which product you are selling. The same goes for the model of the product and its properties and this is 97% of the job. Other modifications might increase your sales but the main value is the value of the brand itself that you are selling its products.
Establishing the relationship with suppliers
When you develop your relationship with your supplier you can go forward up to reach the exclusivity level. When you become an exclusive dealer for a brand/s that empowers your positing when you negotiate with other suppliers to sell their products on Amazon. You can tell them that you are an exclusive seller of certain brands on Amazon and you are willing to sell the new supplier/brand products if they give you kind of exclusive or better price.
There are many brands out there that are not on Amazon. If you go to them and explain your skills and experience as an Amazon seller they might gladly accept to sell you their products on Amazon through you. You can be a good potential agent for them on Amazon. Since, if they work with you they won’t need to find and train employees to sell their products through a new sale channel which is Amazon.
While you found an industry and you know about it and there are suppliers that aren’t on Amazon you can contact them. Sometimes it can be a good opportunity and you might perform extremely well. There is also another opportunity that you can get. Go to Upwor.com, have a search for the keyword Amazon, and search for people who are looking for someone who manages their Amazon account. Contact them and tell them that you are good at Amazon and you are already an Amazon seller for some brand and that you can sell their products too. You can tell them that they don’t need to hire or pay someone to manage their Amazon account instead; they can sell you their product and you can buy, stock and sell them on Amazon.
That can be also interesting to brands who don’t like to deal with or sell their products on Amazon directly. For some, it might sound intimidating but in final it’s just an email that you send and then you carry on with your work. People might look for what you do and if you don’t communicate with them and tell them who you are, they might never know about you. This can have a mutual benefit for both sides you and the brand. The most important thing in your business on Amazon is its sales and growth and not if you have got a pretty listing on Amazon.
Management and Optimization
Once you are done with the first step which is establishing your business, the next step is bringing good management and optimization in your business. The key step in management is the management of capital and inventory. At first, you will have a small amount of capital that you will use for expanding your business. This can be with your old suppliers and brands or maybe with new ones. You should be careful not to make a big dead inventory and be careful about the products you stock and the products you dropship.
Amazon inventory management
Obviously, most of Amazon seller's goals are having a higher ranking, better sales, and good profits. To reach these goals, your inventory management strategy plays a big role. Failing to manage your inventory well, can have stock out, dead and slow-moving products, and waste consequences. If you want to avoid them you have to take your inventory replenishment seriously.
The right inventory management is having the right amount of inventory, at the right time and in the right place. One as an Amazon seller should try not to gather dead stock neither run out of stock especially for your best-selling products. Because if you run out of stock you will lose your ranking on Amazon. And losing the ranking for an Amazon seller is catastrophic. I know I exaggerate but, it’s not easy to get a good ranking in Amazon so, once you got the high ranking try not to lose it.
You can manage your inventory with special software. In the early stages, you can use replenishment reports through seller central. But there is a problem with the seller central. They are not enough complex and they are not great at breaking down the data. But don't worry there you have RestockPro and feedbackfive programs to do that for you.
You can use RestokPro to track your inbound shipments, replenish your stock at the exact time, and manage your suppliers well. You can set alerts based on your sales in the last year, last month, or three days ago and whatever you want. They are very good software for managing your orders.
Pricing
On Amazon, pricing a product is not simple because it’s not only about having the lowest price. However, there are programs that can help you better in pricing since they use algorithms for repricing. We recommend Amazon sellers to use the Feedvisor program. It’s expensive but it worth it. It uses algorithmic pricing rather than just bringing the price to the lowest.
Pricing and repricing are very important when you have multiple competitors. As we mentioned in the previous paragraph, it’s not the best pricing strategy to have the lowest price, you can have the top-selling even with a higher price than your competitor when you use algorithmic pricing.
However, in case you don’t have many competitors then, you don’t need to use the Feedvisor program for repricing. Since you can sell your products at a fair price that suits both sides you and the customers.
If you follow the strategy we mentioned about dropshipping then you wouldn’t have competitors. And those customers that come and buy your products are Amazon loyal customers and they make their purchases only on Amazon. Or maybe they couldn’t find the product you have elsewhere on the internet.
Cash flow
Both cash flow and revenue are important for a business that wants to stay in the long-term. Profits are not enough if they don’t generate cash flow. A business needs cash flow for its operating and non-operating expenses.
What is cash flow?
Cash flow is the cash and its equivalents inflow and outflow from a business. Having a positive cash flow is very essential for businesses since it covers operating expenses, taxes, rents, employees’ salaries, and dividends.
Operating expenses
Operating expenses include all expenses that a business incurs for its normal and daily operations. Expenses like the building and related rents, office and its related equipment, replenishment costs, marketing cost, employee’s payrolls, and research and development costs are included in the operating expenses. Managers should try to have a balance between the quality of the daily operation and the operating expenses.
Businesses try to lower the operating expenses as much as possible to be able to compete in the market. However, reducing operating expenses can have bad effects on the quality of the daily operating activities.
Non-operating expenses
Non-operating expenses are those expenses that are not related to daily operational activities. The main non-operating expense is financing and the interest charges on the money that a company borrows.
When you managed your business well and your sales are good and decided to go from dropshipping to stocking, there are three important things that you have to be careful about. The three important things are Capital, inventory, and price structure and you have to always keep an eye on them.
Tips&advice
In addition to that, you should consider whether your supplier gives you a lower price if you order larger quantities? Does your supplier offer you better payment terms? And last but not least, how does that affect your margins?
Supposing that you don’t have a big capital when starting your business let’s say $12k and you want to work with a high price product. In case you are sure that can have a good margin don’t hesitate in finding extra capital and starting the business. You should take every opportunity that comes to you.
At the same time be careful not to invest all your money in slow-moving inventory and run out of cash to replenish your top-selling products. The cash is king and the cash flow is very important in your business. Even successful businesses bankrupted just because of not having the necessary cash flow.
Focus on Buying
When you have your supplier then your business is going to be more buying from your suppliers than selling on Amazon. There are lots of customers on Amazon and no need to worry about customers. Also, established brands already have their value, what rests is selling and the most important thing for you is how to sell better. and you will be able to sell better when you can buy better.
You can develop your relation and your buying terms with your suppliers since you have a direct relation with your suppliers, unlike the relation you have with your customers since there is an intermediary between you and your customers.
You have to build a systemized business, not a gambling one. This method which we propose is a systematic approach that is based on the studying of the market, prices, suppliers, and competitors. You are not trying your luck with the amount you invest. In contrast, you are planning your business with the prediction of the amount of interest that you will get from the investment.
Suppliers for Amazon seller
Finding a reliable supplier for Amazon sellers is vital and it’s a challenging task. Since the Amazon policy is to provide the best customer service and have customer’s satisfaction in terms of product quality, price, delivery, and return/refunding services. Your supplier is your business partner and the success of your business depends on how reliable and supportive supplier you have.
In order to be sure that your customers will have a positive experience, you need to have a supplier that you can work with closely comfortably. Your supplier can help you largely in terms of wait times for the products you order. And it has a great effect on seller rating.
Finding reliable and trustworthy suppliers may take time and energy but it worth it. Having a reliable supplier will assist you when you find flaws in the product and you need to return them back to the supplier. And as mentioned above you will not have a problem in receiving your products with late orders. Your supplier can also help you in having an exclusive price for the product as an Amazon seller also, in terms of financing and payments.
Types of Suppliers for Amazon sellers
There are four important kinds of suppliers for Amazon. Here we will talk about them in brief.
1- Wholesalers 2- Dropship Suppliers 3- Manufacturers 4- Liquidators
Wholesalers
Wholesalers are a good choice when you have a large quantity order. You can negotiate about the price and you can get lower and lower prices as the quantity of your orders gets large.
Another advantage of sourcing through wholesalers is its simplicity. Wholesalers can provide you a wide range of products and you don’t need to go to different suppliers for different products. These suppliers are more suitable for large businesses like Carrefour and Walmart that have large quantity orders.
As for small businesses, they can't afford the large quantity orders. On the other hand, wholesale suppliers don’t like MOQs and treat these orders as one-time business and they will not offer you lower prices. Besides the capital you need for large orders, you should also have big storage for the large quantities of your orders. This also can cost you a lot if you are a small business.
Dropship Suppliers
Dropship Suppliers are good for those businesses that are online stores that don’t have physical stores either inventories. Dropship suppliers provide shipping and inventory services for online stores and those who don’t have their own inventory place. When an online store receives an order it will direct it to its dropship suppliers, and then they will arrange sending and shipping the order to the buyer directly from the online store's behalf. The online store even doesn’t see the product because its dropship supplier sends the delivery directly to the online store’s customer.
Besides the advantage of avoiding inventory costs, drops shipping avoids overheads. You will not need to worry about products that don’t sell. Since you pay only for products that sell, in this way you will have less overhead and financial costs. However, there are disadvantages associated with drop shipping.
Disadvantages of dropshipping
When one does drop shipping he will have an intermediary between him and his customer and he will not have all the control over the selling process. The intermediary is your supplier. This can make a big issue when you don’t have a reliable supplier. Although even if you have got one this can’t avoid some mistakes in shipping and delivering the product.
On the other hand, you are not sure about having enough inventories, since you don’t have your own inventory. You are dependent on the inventory of your supplier, if he runs out of inventory you will be also in big trouble.
Last but not least, you don’t have the price competitive advantage. When one does drop shipping his/her price per item will be higher. You don’t pay for shipping neither you have got storage/ inventory costs so you will get higher prices for the products. This makes your position weaker among the competitors on the Amazon platform.
Manufacturers
A manufacturer supplier is the one who produces the product. The pros of having a manufacturer supplies are many. They can offer you a lower price than the other three suppliers mentioned above. Then can also help you in improving the product based on your customer’s feedback and their own experts. however, there are some cons also for having such kind of supplier. The biggest issue with manufacturers is their quantity order requirement. If you are a small business then it will be hard for you to afford the MQOs of manufacturers.
When you are a small business it’s better for you to place an order of $3k for example for several products in small quantities rather than placing it only on one product in a large quantity. In this way, you will diversify the risks. You will not end up with a large quantity of dead inventory even if the product sales’ season ended. Furthermore, some of the products are slow-moving so it will be good to have products diversified orders including orders that sell fast and ensures your cash inflow.
Liquidators
Liquidators also called asset recovery specialists, a more fashionable name. They buy large quantities of overstock, returns, clearance, and rejected products. As they are undesirable products they buy them at lower prices. However, sometimes they are products of good quality from businesses that relocation or go bankrupt. Liquidators buy such kinds of products and then resell them in different sizes and packages.
The advantage of buying from a liquidator is the price negotiation chance. Liquidators try to get rid of the products as soon as possible so they sell the products at a lower price. And you can negotiate and bargain for a lower price and get the products at a lower price even lower than their value.
Disadvantages of Liquidators
This type of supplier might not be the best option for Amazon sellers. Since the products liquidators sell contain products that might don’t have good sales and product which have got flaws. In the meantime liquidators are not reliable suppliers. Buying from liquidators is like gambling and it has a high risk.
Finding which supplier suits you best depends on your business model. However, there are general points that you have to take into consideration when choosing a supplier. The first point is the time of shipping a product. The second would be the means of shipping and the logistic company the supplier has. The third point to take into consideration is the package tracking possibility and their product return policy. The supplier customer’s feedback can help you find out about all points mentioned above.
