What is Private Labeling?
The whole business of private labeling has been exploding in recent years. Things have changed vastly from when I got started in the early 2000s when Private Labeling was simply called Importing, hence the name ChineseImporting.com and not ChinesePrivateLabeling.com!
Private Labeling, is essentially buying inexpensive products from China
Importing, ahem, Private Labeling, is essentially buying inexpensive products from China and selling them for a huge markup. These products are already being manufactured by Suppliers, in other words, you’re not inventing products.
I’m not sure how or why the phrase ‘private labeling’ caught on when it comes to importing from China. In the past, it was more commonly referred to as “buying off the shelf from China”, “buying wholesale from China”, or simply “importing from China”. In my experience, private labeling always meant cheaping out and buying the “generic private label” brand ketchup from Safeway and it never had anything to do with China.
So How Does “Private Labeling” Work?
Private Labeling is simple to understand. China has a large and (mostly) highly skilled and educated population who are very good at producing products cheaply. The fact China produces a lot of cheap things probably isn’t news to you though.
A lot of people are under the impression you need to have a great idea for a new product and then outsource manufacturing to China. This isn’t the case. There are thousands of factories in China with pre-made products just waiting for you to buy them and sell them in your own market. You know that little retailer Walmart? Well, this is essentially their business model. They buy millions of pre-made products from China for cheap and sell them for higher prices. They don’t invent anything. And you don’t need to invent anything either.
Many entrepreneurs elect to put their own logo and brand name their product, which is arguably where the name ‘Private Labeling’ comes from. But this is all marketing you can call the product anything you want or use the Supplier’s brand name. It’s up to you.
In the past, to buy these products required that you go to China, traveling around city to city and talking with factories and importing a vast quantity of products. But then two things happened: China opened its doors to international trade in the late 70’s and the internet emerged making communicating with these factories all of a sudden much easier. Sites like Alibaba all of a sudden made it possible for the proverbial teenager sitting in his parent’s basement able to find Chinese Suppliers, order a small number of products, and sell them for a huge profit. I know – because I was once one of them.
How Much Money Can I Make Private Labeling from China?
So how much money can you make? Well, probably more than you think while at the same time, less than you think. Below are the cost and prices for three of my top selling products.
|Cost in China
||My Selling Price
In most cases, I aim to sell products for 3x more than what I purchase them for. Sounds great doesn’t it? Buying something for $20 and selling it for $60 is a great return. Well, it is great. BUT, remember, all businesses have expenses. And without getting into the exact details (shameless plug: you’ll need to purchase my course for that), my net margins are much smaller than 67%.
What Do You Need to Start My Private Labeling Business?
This is one of the reasons why Private Labeling has become so popular. To import products from China, you need very little. People think you need some big fancy import export license to import products. You don’t! In most cases, you simply need some type of generic business number (in the U.S. typically an EIN, in Canada, typically a Business Number) which are normally very easy to obtain. Sometimes you can even get away without a business number. Generally though, to get started, you need the following:
- Some type of Business number
- An email account
- Some way to send money, either a credit card, PayPal account, or the ability to send wire transfers
Now lets be clear: you can open up a beverage company with some Lemons and your mom’s drinking glasses. This doesn’t make you Coca Cola. As your business grows and becomes more sophisticated, you need more resources and capital but to get your business started you need very little.
What are Some of the Negatives about This Type of Business?
Private labeling isn’t all roses. There’s some crappy parts about this type of business too (although I of course think the pros outweigh the cons. Big time). Here’s the drawbacks:
- It requires money to invest in inventory
- You have to hold inventory
- You have to deal with a strange and foreign culture
To get a more thorough overview of these drawbacks, see the article Five Dirty Secrets About Importing from China.
How Do I Sell My Products?
Part of the other reason Private Labeling has become some popular is because of the advent of online selling platforms, first eBay and more recently Amazon FBA. But there are so many places to sell your products. Here’s a list of the most common places people are selling their Private Label products:
- Amazon/Amazon FBA
- Their own Website
- Locally, advertised through Craigslist/Kijiji
- Their own brick and mortar stores
Given the current state of retailing, online channels are definitely the most accessible way to sell your products, but avenues exist outside of cyber space.
Hopefully this gives a good summary of what exactly Private Labeling is. The Internet and globalization have made Private Labeling more en vogue, but keep in mind, this business has existed in some shape or form for thousands of years (remember a famous international trader named Marco Polo?)
Do you have any other questions about how to start a business private labeling? If so, please comment below.
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