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What is Amazon Private Label? is it profitable? (Pros & Cons)

March 11, 2022

What is Amazon FBA private label? Private label sellers place their own brand on an existing product. They buy this product in bulk from a manufacturer. The manufacturer ships the goods to an Amazon warehouse. Consumers buy the product, and Amazon FBA fulfills the order for the seller.

To set up a private label business, you will need to:

  • Conduct product research and competition research
  • Identify a quality and trustworthy supplier
  • Create a unique and effective brand
  • Optimize product listings with professional photos and sales copy
  • Use both SEO and Amazon PPC

Private Label is just one out of the 10 Amazon FBA business models.

What Takes Up the Private Label Seller’s Time & Money?

At first, sellers spend most of their time finding the right product and vetting suppliers. This process takes around 4-6 weeks. 

It will take another 4-6 weeks for the supplier to make and ship the product. During that waiting period, sellers work on preparing their listings or registering their brand.

During this 2 to 3 month period, the seller works on the brand and product launch.

Creating a brand with a great logo and a listing with more attractive photos than your competition is key with Private Label. You want to create the perception that your product is of higher quality than other known brands.

tent professional Amazon product listing photos

After launch, sellers continuously work on marketing, managing inventory, optimizing listings, and providing customer service. According to JungleScout, 39% of Amazon FBA sellers spend less than 10 hours a week doing this.

ppc

With private label, you're a selling a new brand no one has heard of. So you have to do all the marketing. Testing different marketing campaigns will take a considerable amount of time & money but this makes all the difference. You need to spend money on PPC ads to get reviews, otherwise you will not rank.

amazon seo reviews conversions rankings

Without getting your product listing ranked on page 1. You don't have a business. Their algorithm is pretty simple. To get rankings, you need to invest in outstanding photos and great copywriting to maximize conversions. And then spend as much as necessary in PPC to get enough reviews.

But all of this effort will be futile if your product quality is not exceptional and the negative reviews show up. So again, you cannot rush the supplier selection phase and ordering samples and testing the quality rigorously. 

Also study the negative reviews of competitors and contact suppliers to see if they can improve those issues. This will lead to happier customers and easier time getting 5 star reviews.

What are the Benefits of Selling Private Label Products?

  • You can make a high income. Profit margins for private label products can get up to 40%, while other business models reach 10%-20%.
  • Because you own your brand, there are no restrictions on what you can and cannot do. If you don’t own your own brand, (like with wholesale), you’re selling the same product as the other guys. Price is the only differentiating factor. Other wholesalers can set the price and having the lowest price isn’t always a good thing, and your profit margins will suffer. With private label, you can can create your own unique value and set your own price. Other wholesalers can't come in and under price you out of the buy box. With private label, you have your own buy box because that's your own brand.
  • Low inventory per-unit cost means the seller can determine their own profit margins. For example, these tumblers are $0.05-$1.78 per piece. A seller could turn these around for $15-$20 dollars, creating a gross profit of $19.90… and insane margins.
  • The business is scalable. You will design a legitimate business, selling products you own. And, when you’re successful enough, you can sell your brand. These deals  often go for 3-5x annual revenue.
  • If you registered your brand on Amazon, you can use A+ Content, or A+ Premium Content, in your listings. (A+ Premium is invite-only. It costs $250K-$500K per product.)

When you sell other brands as a wholesaler, you're always competing for the buy box. Whoever has the best price usually wins. 

When you have a private label brand, you have your own buy box because no one else is selling your brand. This is one major advantage of private label. You have more control over your prices.

What are the Disadvantages of Selling Amazon FBA Private Label?

  • An expensive bulk purchase might flop, costing you thousands of dollars. Sometimes, low sales don’t even cause this. For instance, this seller was $6871.93 in the hole… all because Amazon won’t approve the product she bought.
  • This is not a way to make quick cash. You will need to put up a large initial investment, often around $5,000. You’ll wait about 3 months before you bring in any sales at all. Even then, it might take months to make any profit.
  • Amazon restricts some products. There are brand restrictions (Nike, Hasbro), category and subcategory restrictions (these change on Amazon’s whim), and ASIN restrictions (placed on certain product identifier numbers). Amazon requires more of an application process to approve these products.
  • Finding a supplier you trust that can create a quality product within your budget is an arduous process.
  • Shipments from overseas suppliers can be delayed.
  • Amazon PPC is expensive. The price can range from $0.02 to $3.00. But unlike wholesale where you're selling brands that people are already searching & buying. With a private label, you have to spend money on marketing because no one knows of your brand.
  • Amazon FBA fees take at least 15% of your sales, regardless of returns. Then, FBA shipping and handling fees also take away from your profits. The specific amount is determined by the weight and size of your product.

What is the Difference Between Wholesale and Private Label?

Category

Private Label

Wholesale

Brand

Sellers must expand the brand and raise awareness in the establishment of their new brand

By using an established brand, customers already know and trust the product.

Product Price

The product price is low because it has no associated brand. Potential for bigger margins when you can market & brand the product right.

The purchase price might be high, depending on the brand you choose. Smaller margins.

Buy Box

Since the product is unique, you own your own buy box.

There is a lot of competition to win the Buy Box.

Sales Price

The seller has more control over sales price.

The prices of your competitors highly influence sales price.

Investment

Sellers need to invest in more aspects of their business, like getting a professional label, paying more for marketing, and product images.

The seller’s investments mainly involve buying and distributing goods.

Liability

The seller has legal responsibility for their brand and is responsible for dangerous product defects.

Liability lies with the manufacturer.

Product Listing

The seller can use SEO in product descriptions to boost organic traffic.

If your product is already being sold on Amazon, you can’t control anything about the product page. Your product is assigned to the existing listing.

Amazon PPC

PPC is high because you will need to invest more to boost your new brand.

PPC isn’t too high, as your product may already have an Amazon sales rank.

Profit Margins

Since you can change the price, you may unlock higher profit margins.

Smaller profit margins mean you need to sell more product.

What is the Difference Between White Label and Private Label?

The term “white label” refers to a generic product. “Private label” refers to a brand. 

A white label product can be sold under many brands. The product remains the same, but the packaging and logo will be different. 

A private label brand sells a unique product, with variations from competitors’ products. The seller might look at a white label product, see a way to improve it, and use that to design their private label product.

For example, if you want to sell a white label water bottle, you might purchase some in bulk and place your logo on the side. To make this a private label product, change the product in a more distinct way from competitors. You might order a BPA-free variation, add color options, or upgrade the lid.

5  Essential Factors to Your Private Label Launch (Read Before Starting!)

Do You Need to Form a Company to Do Private Labeling?

No, you don’t need to form an LLC to sell private label products on Amazon, but it helps. LLCs are fairly cheap (around $100-$200) and add a layer of protection between you as the seller and the operations of the business.

If You Create a Private Label, Do You Need to Worry About Registering a Trademark or Logo?

Registering your trademark is not a requirement to sell on Amazon. However, it will help fight off copy cats and keep the demand for your product coming back to you only. 

Also, you will need trademark registration to enroll in Amazon Brand Registry. The Amazon Brand Registry helps protect your trademark and also unlocks invaluable features like A+ Content. As a registered brand, you can:

  • Control listing description of products

  • File complaints against counterfeits

  • Unlock better customer service than non-registered sellers

  • Faster removal of counterfeits

Getting your trademark costs $250-$1000.

What Products Can I Private Label?

You can private label basically any product. But, Amazon might require different documentation depending on the product’s category. This is different for every product.

For example, children’s products require documentation that proves they were tested according to the standards and regulations required. For grocery and gourmet foods, there are specific policies for quality, branding, and consumer safety.

How Do You Ship the Products From Your Supplier to Get Them to Amazon?

First, your listing needs to be ready with a barcode. Once this is prepared, you will set up a shipping plan on Amazon Seller Central. This shipping plan will tell you exactly where to send products.

Sometimes you will send your entire shipment to a single Amazon Fulfillment Center. Or, you may need to send portions to different Amazon distribution centers. 

How Much Does It Cost to Start an Amazon Private Label Business?

Most likely, you will need around $5000 to $15000.

Some expenses you need to expect are:

  • Amazon Professional Sellers account: $39.99/month
  • Product samples: $150-$300
  • First bulk order: ranges, depending on product cost. At minimum $3000.
  • Logo and packaging design cost: varies, but should be around $200-$500 for something quality
  • Getting your trademark: $250-$1000
  • Barcodes: $5-$250
  • Shipping goods to Amazon: Around $0.30 per pound
  • Advertising on PPC: $0.02 - $3.00

For a full breakdown, you can check out our article Amazon FBA startup costs

Is Amazon Private Label Profitable?

Yes, Private Label is profitable and if done correctly, this model has the biggest potential for massive exit and higher profit margins. But this model is definitely not the easiest FBA model. Unlike wholesale, you market your own brand. There are more variables that can go wrong.

If you can create a great product based on studying the user feedback, particularly the negative ones. And you continue to put attention and care behind your product and improve it. You can create outstanding products and build your brand reputation.

And then you add other related products to your brand. They all benefit from the brand, and each product is also helping your brand. You essentially have to master the e-commerce game and be great at product development, branding & marketing. 

You make the big money when you can show 2-3 years of profit and another company wants to buy your brand for 2-5 years worth of annual revenue.

Bottom Line: So Can You Make Money as a Private Label Seller on Amazon FBA?

Yes. Some sellers have become millionaires by following this method. Others make $1000-$2000 a month. 

Statistics tell us, Amazon FBA success rate is roughly 25% make $1250 to $6250 per month in net profit & 20% produced lifetime profit of $100,000 or more. 

The biggest issue with people jumping into Amazon FBA private label is treating it like a get-rich quick which means at first signs of adversity, people are quick to throw in the towel.

Most people have no prior business experience. So they're not mentally equipped to handle the common Amazon FBA mistakes.

You may put a lot of effort into product research and feel like you found the perfect product. But even if you do everything right, your product might not sell. There's always a risk of the unknown like your suppliers or competitors. But when you can understand that it will be a grind and you have the mindset that even if you fail, you will learn from it and keep trying... Most top sellers will say that if one keeps that level of commitment for 2-3 years that seller should see success by then.

Most people that try private label just aren't willing to stick it out for that long.

But if you're able to. Out of all the other Amazon models, private Label has the biggest upside because you're building your own brand, that you might sell later down the line.

money
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