What is Amazon Private Label? Definition, Tactics, & Startup Strategy

December 5, 2023

What is Amazon private label?

Amazon private label is a common business model sellers use on the Amazon marketplace. With Amazon private label, sellers put custom branding on an exclusive product from a third-party manufacturer and sell it as their own on Amazon. An Amazon private label product is an item that carries the logo of an Amazon seller's brand, but is actually produced by another company specifically for that Amazon seller. There are two types of private label products on Amazon: private label products by Amazon itself and private label products by third-party sellers.

What is Amazon private label by Amazon?

Amazon private label by Amazon is the Ecommerce company's own private label brands and products. Amazon owns and operates over 118 private label brands across many categories, according to CNBC. The company creates its private label brands by analyzing its own platform data to discover selling opportunities. According to Bloomberg, approximately 1% of Amazon’s Ecommerce sales, nearly $5 billion dollars, come from its private label brands. A private label Amazon example is Amazon Basics, Amazon Essentials, Amazon Collection, or Amazon Elements

What is third-party seller Amazon private label?

Third-party seller Amazon private label is any business that sells private label on Amazon besides Amazon itself. That includes all sellers of private label products, from small-scale businesses that make only a few sales each month to major corporations like Macy’s that generate millions in revenue. In fact, Amazon third-party sellers prefer private label over any other business model on Amazon. There are approximately 1,080,000 private label sellers on Amazon, considering that there are about 2 million active sellers on Amazon and 54% of them use private label according to JungleScout.

How does Amazon private label work?

Amazon private label works by creating a brand and finding a manufacturer to produce a unique product for the brand to sell on Amazon. A manufacturer can either produce a completely new product concept for the private label brand, or make a custom variation of a product they already produce. The manufacturer then labels and packages the product with the branding materials provided by the private label brand. The branded product is then posted on the Amazon marketplace so Amazon’s approximately 300 million active customers can view and purchase it. 

Pros of Amazon private label for third-party sellers

Higher profit margins

Private label has the highest profit margins of any Amazon business model. According to private label health and wellness product supplier Evora Worldwide, private label product margins can reach upwards of 40%! This is because products are bought in bulk to get a lower unit cost and product pricing isn’t constrained by the brand’s production costs and Amazon market price.

Customer loyalty

A private label brand allows you to build customer loyalty for your product. Loyal customers are likely to repeatedly purchase from your brand and can provide free marketing by recommending your private label products to others.

Control over Amazon product listing

As a private label brand, you have complete control over setting up and optimizing your Amazon product listing. You can choose the images and copy you think is best to sell the product. You can also engage in your own Amazon SEO strategy to boost your ranking in Amazon’s organic search. With other Amazon business models, you are forced to share the product listing with all the sellers of the product and you have little control over the contents of the listing.

No competing for the Amazon Buy Box

For sellers that share a product listing with other sellers, winning the Buy Box is the most important determining factor of success. In fact, 82% of all Amazon sales go through the Buy Box, according to Ecommerce platform Bigcommerce. Because private label sellers have an exclusive product listing, there is no competition for the Buy Box. 

The Amazon FBA program

One of the biggest benefits of selling a private label brand on Amazon is the Amazon FBA program. Amazon FBA, or Fulfillment by Amazon, is a program that lets you outsource a large portion of your business operations to Amazon. If you run your business through the Amazon FBA program, Amazon handles inventory storage, rapid order shipping, customer service, and even returns processing. Although there’s a cost, Amazon FBA alleviates much of the headaches that come with Ecommerce and makes running your business much easier.

Opportunity to sell the business

Unlike other Amazon business models that just provide income, a private label business can become a valuable asset that you can sell. According to Marketplace Pulse, Amazon private label businesses are getting acquired for 4x to 8x their adjusted annual earnings. If you grow tired of running your Amazon private label business or just want a large amount of cash, you can post your business for sale in an online business marketplace like Flippa.

Cons of Amazon private label for third-party sellers

High startup costs

Amazon private label cost is around $10,000 or more. This high cost is primarily because manufacturers require you to order a minimum amount of product, called a minimum order quantity (MOQ). Also, private label products are typically manufactured in China because of the country’s affordable and advanced manufacturing capabilities. However, the shipping costs to get your products from China to the United States can be substantial. These are just a few of the private label costs when selling on Amazon.

Amazon fees

If you sell on Amazon, especially if you use the FBA program, a considerable portion of your revenue goes to Amazon fees. In fact, Amazon takes a 50% cut on average from each seller's earnings, according to Entrepreneur. Even worse, Amazon has a tendency to increase its seller fees, so that number is expected to rise higher.

Extreme competition

With around 2 million sellers and upwards of 350 million products listed in Amazon’s product catalog, Amazon is a highly saturated marketplace. When selling on Amazon, you’re not just competing against other small scale third-party sellers. You go up against major players like wealthy companies, Chinese manufacturers, and Amazon itself.

Minimal control over sourcing and production practices

Another drawback of private labeling is the lack of control you have in the production process. Because you can’t directly oversee your manufacturer's operations, you can’t guarantee their sourcing practices fit your moral standards and legal obligations.

For example, Nike is technically a private label brand because it uses third-party manufacturers to produce all of its shoes. For years, this sourcing practice caused Nike to have a bad reputation because many of Nike’s suppliers were producing shoes in unethical sweatshops with poor working conditions in East Asia. 

Marketing expenses

When you sell your own Amazon private label brand, you need to put resources into marketing it if you want to make sales and grow your brand. Fortunately, Amazon offers an excellent on-platform advertising opportunity in Amazon PPC. Unfortunately, the high volume of sellers on Amazon have pushed Amazon PPC costs sky high.

According to JungleScout, Amazon PPC costs anywhere from $0.05/click for low competition keywords up to $10/click for keywords in popular niches with extreme competition. As a new private label brand looking to establish market share on Amazon, expect to put 10% to 30% of your revenue into your Amazon PPC budget. 

Stale inventory and Amazon FBA inventory constraints

Although sourcing products in bulk allows you to optimize your profit margins, it can also leave you thousands of dollars in the hole if your product doesn’t sell. If inventory sits around for too long without selling, it becomes stale inventory. You may have to lower the price or even try selling your products at a loss to recover some of your investment. If you use Amazon FBA, Amazon will even start charging your stale inventory additional long-term storage fees if kept in the Amazon warehouse for longer than 180 days. 

Amazon FBA private label sellers are also limited to the amount of products they can store in the Amazon fulfillment center. You may not even be able to store the entire MOQ your private label manufacturer requires you to produce, depending on your seller status and the size of your products.

How to start Amazon private label?

1. Create an Amazon private label business plan

An Amazon private label business plan guides your business operations and can help you avoid missing important steps. It also forces you to thoroughly think through every aspect of your business, so you start on the right footing with realistic expectations and your goals clearly in mind.

2. Do Amazon private label product research

As a third party seller in Amazon’s highly competitive marketplace, comprehensive product research is essential. To give yourself the best opportunity, leverage a product research tool like JungleScout or Viral Launch to discover a private label product idea. Product research tools enable you to efficiently analyze private label selling opportunities by aggregating data and showing you advanced insights. Use the product research tool to find a product idea that has lower competition on the Amazon marketplace but that has indications of high customer demand.

3. Find a private label manufacturer

Once you have a product idea, research and contact manufacturers who have a good reputation for producing similar products in your niche. You can find manufacturers in an online supplier marketplace like Alibaba or from in-person trade shows. When vetting manufacturers, collect any relevant information needed to make your decision, like the per unit price of each product for your intended order quantity, estimated dimensions and weight for the product and its packaging, and the production timeline. 

4. Create private label branding materials

In order to private label a product, you need a brand. The basic branding materials you need for a private label product include a logo, branding colors, and private label product packaging. Freelance websites like Fiverr and Upwork are great places to find talented marketing professionals to create your private label branding materials.

5. Order private label product samples

Before committing thousands of dollars to a bulk order of products, verify the manufacturer’s capabilities and product quality by ordering samples. Provide the manufacturer with the branding materials so you can see the final product your customer would receive, complete with your logo and packaging. If the product samples are acceptable, sign a private label agreement with the manufacturer and place your product order.

6. Set up the private label product listing

A good Amazon product listing provides potential customers important details about your private label product and convinces them to buy it. The contents of the product listing also helps Amazon’s algorithm to determine who should see the product listing and how visible to make your product on the Amazon marketplace. Therefore, it’s important to optimize your private label product listing in Amazon Seller Central with high-quality product images and copywriting. 

7. Choose your Amazon fulfillment method

While setting up your product listing in Seller Central, you’ll also need to decide on a fulfillment method. When selling on Amazon, you can either choose Fulfilled by Merchant (FBM) if you want to store and ship your own orders, or Fulfilled by Amazon (FBA) if you want Amazon to handle it for you. The majority 73% of Amazon sellers use Amazon FBA because of the platform and operational benefits it provides, according to SellerApp.

8. Run a marketing campaign for your Amazon private label product

If you want to make sales and get Amazon’s algorithm to move your product up in Amazon search rankings, you need to do marketing. There are many options for marketing your private label brand, like running a social media campaign on Instagram. However, many Amazon private label sellers find Amazon PPC is most effective for generating sales.

9. Gather Amazon customer reviews

Positive product reviews are one of the most important factors for Amazon private label success. You can manually “Request a Review” on each order in Amazon Seller Central or use product inserts to request reviews. Of course, you won’t get positive product reviews unless you provide a high-quality product that adds value to your customers' lives.

If you want to start your private label business on Amazon and you're willing to invest in a beginner's course for Amazon FBA private label, you can check my article review about Learn with Abby Savvy Seller FBA program.  

Why are fewer sellers doing Amazon private label now?

According the JungleScout’s State of the Amazon Seller series, the percent of private label sellers on Amazon has fallen from 67% in 2021 to 54% in 2023. Fewer sellers are doing Amazon private label now because:

  • Chinese manufacturers are cutting out the private label brand middleman and selling their products directly on Amazon themselves
  • Supply chain disruptions and volatile shipping costs as a result of Covid19 have made it more difficult to source products
  • There is less opportunity to differentiate products on Amazon than before

Amazon private label FAQs

Do you need an LLC for Amazon private label?

You do not need an LLC for Amazon private label. You can sell private label on Amazon without any formal business set up as a sole proprietor. However, running your business through an LLC or other legal business entity can improve your business operations. With an LLC, you:

  • Can open a business bank account to separate your personal and business finances
  • Appear more professional to manufacturers you’re looking to do business with

  • Protects you from personal liability if your business faces legal action

  • Take advantage of tax benefits like saving on self-employment taxes

Can you do private label on Amazon without brand registry?

Yes, you can do private label on Amazon without brand registry. To do so, you’ll need to contact Selling Partner Support for error code 5665. You need to explain to them that you require an exemption and then submit a selling application for catalog authorization, including images of the private label product with the brand name permanently affixed to it and its product packaging. 

However, most sellers will find it’s actually better to enroll in the Amazon Brand Registry because it allows you:

  • Complete control over your brand’s Amazon listing
  • Access to product listing enhancements in Amazon A content
  • Improved brand protections
  • The ability to set up an Amazon Store to showcase your brand's products
  • To run a special type of Amazon PPC ad in Amazon Brand Ads

Do you need a trademark to sell private label on Amazon?

You do not need a trademark to sell private label on Amazon. However, you do need a trademark to enroll in the Amazon Brand Registry. You can apply for your brand's trademark directly through the United States Patent and Trademark Office (USPTO) website

What is the difference between Amazon private label and other Ecommerce business models?

Amazon private label vs white label

An Amazon private label product is created exclusively for the Amazon brand selling it. No other seller can sell that exact variation of the product. In contrast, multiple businesses can sell the same white label product, with the only difference being the branding. Whereas a private label product is unique to a single Amazon brand, a white label product is a generic product available to many sellers.

Amazon private label vs wholesale

Both Amazon private label and Amazon wholesale products are obtained in bulk. However, Amazon private label sellers sell products with their own custom branding, while Amazon wholesalers sell products from popular brands like Dove and Nike. 

Amazon private label vs dropshipping

Amazon private label products are obtained ahead of selling. Therefore, private label sellers need to determine where and how to store the products until they sell. On the other hand, dropshipping entails listing generic products from suppliers on Amazon without actually owning them upfront. The dropshipper only buys the product from the supplier once it sells.

Amazon private label vs retail arbitrage 

An Amazon private label seller gets their products from a manufacturer, while retail arbitrage sellers find products to sell on Amazon from retail chains like Target and Home Depot. Private labelling is selling your own brand, while retail arbitrage is selling products from other companies that you find are selling at a discount in a retail store compared to the market price on Amazon.

How does Amazon private label compare to local lead generation?

Amazon private label and local lead generation are both online business models where you earn money by connecting businesses with customers through your own brand. In the case of Amazon private label, you connect customers with the product of your private label manufacturer through your brand. With local lead generation, you use a branded website to connect customers with businesses who can perform a service they need. 

However, Amazon private label is more competitive than local lead generation. Amazon already has so many private label sellers, and more continue to sign up on the platform every day. Getting market share on Amazon at this stage is incredibly difficult because nearly every product imaginable is already selling there. 

On the other hand, local lead generation is a service that is only going up in value in a relatively untapped market. A local lead generation agency uses local SEO to rank niche business websites for specific locations to attract customers for small and medium-size businesses (SMBs). Once a website ranks on Google, it attracts potential customers who are searching for the service the website targets. The local lead generation agency then sells those leads to a local business who makes money by performing that service for hundreds to thousands of dollars a month. 

With increasing data protection laws and costs, paid advertising is becoming more difficult. Therefore, free traffic like local lead generation relies on is becoming more valuable to the approximately 32 million SMBs in the United States. 

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