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Private Matters

Can't get big merchants to notice you? Private-label sales may be a good way to get your invention on store shelves.
September 1, 2004
URL: http://www.entrepreneur.com/article/72320

Inventors of just one product typically won't have a lot of luck selling it to mass merchants, because mass merchants don't want to buy from small, unknown companies that could be unreliable suppliers. But rather than accept defeat, inventors often turn to private labeling. They find another company that does sell to mass merchants and offer their product to that company to sell under its name.

Perfect Products

Products that are natural extensions of other product lines are ideal private-label products. For example, your product might be a rack that allows people to bake four sheets of cookies at a time instead of just two sheets. This product may not have enough appeal to get mass merchants to carry it from a separate company. But the product is an ideal complement for a company that sells other, similar baking products.

Private-label marketing gets you shelf space, but that doesn't mean the product will be supported by an advertising campaign. Your product needs to "sell itself" on the store shelf to do well in a private-label program.

You need a product that will sell at five to six times its manufacturing cost to have room for the extra discounts required. Most ideal private-label products are easy to produce in volume and inexpensive to manufacture.

As long as your manufacturing costs leave you enough profit room to hire a contract manufacturer, one advantage of a private-label agreement is that you might be able to get a big order or a commitment before you actually have to produce a product. This could allow you to borrow money or possibly get extended terms from the manufacturer that will make your product. Another big benefit is that operating costs are low. You can make and ship all your products to one customer.

Keys to Success

The major appeal of private labeling to private-label buyers is that they can generate a little extra profit without a lot of extra work. And if sales don't work out, the private-label buyer just stops buying your product.

You can form successful relationships with private-label buyers by:

To find potential private-label partners, do an Internet search for "private label," and you'll find hundreds of companies that market private-label products in dozens of ways. Also check out the Private Label Manufacturers Association, which hosts trade shows and offers information for potential private-label manufacturers.

What You'll Need

Before you approach a company for a private-label contract, make sure you've taken these five steps:

Up, Up and Away

Private-label marketing can help you generate quick sales, but it does so at a price. First, the extra discounts cut into your profits. Second, you have your product promoted under someone else's name. Third, your agreement probably restricts the distribution outlets you can sell through. All these factors work against you in launching your own larger business. One of the reasons most private-label products are accessories or complementary products is that it's hard to build a powerful company out of those types of products. If your goal is to create a base on which to build, use private-label agreements sparingly. Often, inventors sell the product themselves in their major markets and use private-label sales in smaller markets.

You can't afford to rest on your laurels after signing a deal. You need to write a first-year plan to get your product up and running. In your plan, you should include sales promotions, sales materials, visits to customer locations, required training, new product development, attending trade shows, market research for new products, an ongoing system of customer feedback, and quarterly reviews of sales status. Your goals in the first year are to be sure the sales and marketing effort for your product is first-class, and to network with both company contacts and influential end users. The success and staying power of your agreement will increase as you become better known to people involved with the product.


Don Debelak is author of Entrepreneur's Start-Up Guide #1813, Bringing Your Product to Market(www.smallbizbooks.com), and host of the inventor-help website www.dondebelak.com.