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What is Amazon Private Label? | Is It Really Profitable?

June 22, 2024

Amazon private label is a business model in Amazon FBA (Fulfillment by Amazon). Private label sellers source brandless products from manufacturers. They label and sell these goods as their own. The manufacturers ship the products directly to Amazon warehouses. Amazon FBA then handles the order fulfillment process on behalf of the sellers. According to Jungle Scout, 54% of sellers on Amazon use the Amazon Private Label business model. 

On Reddit, user AhadShafiq shares that private labeling can be ideal for sellers who “have a unique product or can improve upon an existing product.” He also adds that it’s important to set your products apart from competitors.

Meanwhile, Tim Sanders is a successful Amazon FBA seller and coach who makes 8 figures per year. On YouTube, he says private label business owners earn a higher profit margin than retail/online arbitrage and wholesale. In 2018, he founded Private Label Masters. To this day, Tim is an active Amazon seller who continues to introduce new products in the market. 

To set up your own 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

Of course, Amazon FBA private label selling is not a get-rich-quick scheme. In fact, competition can be a constant challenge. It also requires a significant amount as an initial investment. Plus you’ll have to find reliable suppliers to build your brand.

In comparison, local lead generation is less competitive and requires lower investment. The business model is also significantly easier since you won't have to look for buyers all the time. Instead, you'll be dealing with small business owners who'll pay you for the leads you deliver. Moreover, the business model can command profit margins of up to 90%.

Is Amazon Private Label Profitable?

Amazon Private Label is profitable if done correctly. This model has the biggest potential for massive exit and higher profit margins. Jungle Scout says many private label sellers report profit margins of over 25%.

In a YouTube video, Tim Sanders shares about earning a profit of $2,759 in 30 days from selling one private label product. His profits go way higher during peak season as he makes $44,279 within November and December. 

On the other hand, Cassondra Barney lost about $1,000 in her first attempt to do Amazon private label selling. Despite extensive research, she says she made significant mistakes along the way. For example, she sold spa gift baskets, which is a competitive niche in itself. Furthermore, she struggled with her overseas manufacturers. This left her with zero sales, even after investing heavily in Amazon PPC advertising.

Private label is definitely not the easiest FBA model on Amazon. Unlike wholesale, you’ll be marketing your own brand. You are basically starting from scratch. As such, there are more variables that can go wrong.

Creating a profitable private label product requires providing value. You want to solve people’s problems so they will buy your brand. As such, you also have to consider studying and addressing feedback from your customers. Improve your product as needed so you can increase profitability potential. You can then start introducing other related products in your Amazon marketplace. This strategy can help you increase customer lifetime value and brand loyalty.

What are the Benefits of Selling Private Label Products on Amazon?

  • High profit margin potential. You can earn a good income with Amazon private label. Profit margins for private label products can go as high as 40%. Other Amazon business models are at 10% to 20% on average. The low inventory per unit cost also means you can set your own margins. For example, a private label brand can sell tumblers that cost $0.05 to $1.78 per piece at $15 to $20. This can create a profit of up to $19.95.
  • You have full control of your products. Because you own your brand, there are no restrictions on what you can and cannot do. In other Amazon business models (such as wholesale or retail arbitrage), you’re selling the same products as thousands of other sellers. Price is the only differentiating factor. Of course, having the lowest price isn’t always a competitive advantage because your profit margins will suffer. With a private label, you can create your own unique value and set your own price.
  • A private label business is scalable. Once you’ve learned the business, you can sell more branded products to grow your earnings. When you’re successful enough, you can even consider selling your brand. These deals often go for 3x to 5x the annual revenue.
  • You can use A+ Content. If you registered your brand on Amazon, you can leverage A+ Content in your listings. This Amazon feature allows sellers to showcase their products and brand stories. With it, you can add images, videos, and customized text to tell people about your brand. To qualify, you’ll need to sign up your brand with the Amazon Brand Registry.

What are the Disadvantages of Selling Private Label Products on Amazon?

  • Private label products are 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.
  • An expensive bulk purchase might flop. As a result, you can lose thousands of dollars. Sometimes, low sales don’t even cause this. A Jungle Scout survey says 21% of Amazon sellers have experienced product failures. Reasons include Amazon restrictions and poor market fit.
  • 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). Navigating these restrictions can be a challenge. In fact, 34% of Amazon sellers have experienced difficulties with product restrictions and approvals.
  • Finding an affordable and reliable supplier may not be easy. As a private label business owner, you want to have quality products within your budget. Looking for the right suppliers can take time. Moreover, delayed shipments can be a concern if you’re using overseas suppliers. In fact, a survey by Helium 10 says 48% of sellers find sourcing suppliers as one of the most challenging business aspects.
  • Amazon PPC can be expensive. Investing money on marketing is a must because most buyers are unfamiliar with your brand. On average, PPC advertising can cost you anywhere from $0.02 to $3.00.
  • Amazon FBA fees can take at least 15% of your sales. FBA shipping and handling fees are usually determined by the product’s weight and size. On average, a standard-sized item may cost you $3.31 per unit. These costs can add up quickly with every product sold.

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

Private label sellers spend most of their time and money finding the right product and vetting suppliers. This process typically 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 and registering their brand. Generally, it takes around 90 days from product idea to having the item listed live on Amazon.

During this period, the seller works on the branding and product launch preparation. Creating a brand with a great logo is a must for private label business owners. Having attractive photos on your product listing can also help you sell more. You want to create the perception that your products are of higher quality than competing brands. In fact, professional images can increase conversion rates by up to 30%.

After launch, sellers continuously work on marketing, managing inventory, optimizing listings, and providing customer service. With a private label, you're selling a new brand unfamiliar to most buyers. So you have to do a lot of marketing to reach your target buyers. Testing different marketing campaigns will often take a considerable amount of time & money. You’ll definitely need to spend money on PPC ads to sell and get reviews.

What is the Difference Between Wholesale and Private Label?

Category

Private Label

Wholesale

Brand

Sellers must work on marketing to raise awareness about 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. There’s potential for bigger margins if 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 can have your own Featured Offer.

There is a lot of competition to win the Featured Offer.

Sales Price

The seller has more control over the sales price.

The prices of your competitors highly influence your pricing.

Investment

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

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

Liability

The seller has legal responsibility for their brand.

Liability mostly 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 expenses can be high because you will need to invest more to boost a 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 products.

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

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

You don’t need to form a company to do private labeling on Amazon. However, it can be for your advantage. LLCs are fairly cheap and only costs around $100 to $200. An LLC can add a layer of protection for you, the seller, and the operations of your business.

Do You Need to Register Your Trademark or Logo to Sell on Amazon?

Registering a trademark or logo is not a requirement to sell on Amazon. However, it will help fight off copy cats who may steal your idea. It can also be a way to boost brand recall among your buyers.

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 owner, 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 will cost you around $250 to $1000.

What Products Can I Sell on a Private Label?

You can basically sell any product on your private label business. However, Amazon might require documentation, depending on the product’s category. This requirement may be different for every product.

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

How Do You Ship Products From Your Supplier to Amazon?

To shop products from your supplier to Amazon, your product listing needs to have a barcode. Once this is ready, you will set up a shipping plan on Amazon Seller Central. This shipping plan will tell you exactly where to send products.

You may be asked to send your entire shipment to a single Amazon Fulfillment Center. In some cases, you may need to send portions to different Amazon distribution centers.

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

Starting an Amazon private label costs around $5,000 to $15,000. Some general expenses include:

  • Amazon Professional Sellers account: $39.99 per month
  • Product samples: $150 to $300
  • First bulk order: Depending on the product, this may cost you a minimum of $3,000.
  • Logo and packaging design: $200 to $500
  • Getting your trademark: $250 to $1,000
  • Barcodes: $5 to $250
  • Shipping goods to Amazon: Around $0.30 per pound
  • Advertising on PPC: $0.02 to $3.00

Some new private label sellers find it helpful to invest in a course. Most of these courses provide coaching and community, making it a must for beginners who want to learn more about the business model. Also, Helium10 says 67% of successful Amazon sellers credit their success to taking comprehensive training.

Is Amazon Private Label Dead in 2024?

Amazon private label is not dead in 2024. In fact, it continues to be a popular business model on Amazon. However, many sellers believe that it has become much more difficult than it was years ago.

For example, Amazon's own private label brands now dominate the platform. This captures a substantial market share from smaller private label brands. Additionally, the rise of Chinese sellers has grown the competition. In fact, around 63% of third-party sellers are from the country. These sellers have the advantage of local sourcing, better communication, and the ability to undercut prices. Increasing manufacturing costs and rising Amazon fees aren’t helping either.

These combined factors create a challenging environment. As such, it has led some to believe that the Amazon private label business model is no longer as profitable as it once was.

Is Local Lead Generation A Better Business Model Than Amazon Private Label Selling?

While it’s still possible to make money from Amazon private label selling, it may not be a perfect fit for some. Others may find local lead generation as a more appealing business model. First off, it’s not as expensive to start as an Amazon store. You can start a lead gen business with a few hundred dollars instead of spending $5,000 to $15,000. Moreover, lead gen is also not as complicated.

With lead gen, you are building keyword and area specific business niche websites. Next, you’ll work on ranking your sites so they start attracting traffic. Once you reach the top Google spot, you can rent out your sites to small business owners that need leads for their brands.

You won’t have to deal with any international suppliers. You also won’t have to spend much thought on brand building, logistics, and other private label requirements. As long as you can deliver leads, your customers will be more than happy to pay for your services.    

conclusion-amazon-fba

You won’t have to deal with any international suppliers. You also won’t have to spend much thought on brand building, logistics, and other private label requirements. As long as you can deliver leads, your customers will be more than happy to pay for your services.    

Scaling up a local lead generation business is even pretty simple. You can build multiple sites to grow your earnings per month. Case in point, I make $500 to $3,000 for each site I own. In total, I make a monthly income of up to $52,000. I also teach a coaching program for those who want to learn our effective 3-step lead gen process.

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Ippei Kanehara
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