Private Label Sales

Inventors of just one product typically won’t have a lot of luckselling that product to mass merchants, because mass merchantsdon’t want to buy from small, unknown companies that could beunreliable suppliers. But rather than accept defeat, inventorsoften turn to private labeling. They find another company that doessell to mass merchants and offer their product to that company tosell under its name.

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

Private-label marketing gets you shelf space, but that doesn’tmean the product will be supported by an advertising campaign. Yourproduct needs to “sell itself” on the store shelf to do well in aprivate-label program. You need a product that will sell at five tosix times its manufacturing cost to have room for the extradiscounts required. Most ideal private-label products are easy toproduce in volume and inexpensive to manufacture.

As long as your manufacturing costs leave you enough profit roomto hire a contract manufacturer, one advantage of a private-labelagreement is that you might be able to get a big order or acommitment before you actually have to produce a product. Thiscould allow you to borrow money or possibly get extended terms fromthe manufacturer that will make your product. Another big benefitis that operating costs are low. You can make and ship all yourproducts to one customer.

The major appeal of private labeling to private-label buyers isthat they can generate a little extra profit without a lot of extrawork. And if sales don’t work out, the private-label buyer juststops buying your product.

You can form successful relationships with private-label buyersby:

• Making things easy. Ask the buyer for apurchase order, and state that you’ll supply the product in thebuyer’s package, or that you’ll modify your package to the buyer’sspecifications. If necessary, you can also offer training to thebuyer’s salespeople, and you can even offer to maintain a websitefor the product. If you are selling to a retailer, you might wantto offer a display, and you could even show a diagram of whatcomplementary products yours should be displayed next to.
• Providing top-notch service. Providemarketing support, such as attending trade shows, doing publicityreleases, actively working a web page, or offering layouts for adsor brochures. You can also offer to provide customer service forhandling product problems, to take care of product returns, and tosuggest product improvements.
• Paying attention to your product’spackaging. Your private-label buyer is probably not going toinvest any money in marketing. So potential buyers need to see yourproduct and immediately realize its benefit. If you have a consumerproduct, take time to package your product so it sells itself. Thepackaging and design of a product are important if yourprivate-label agreement is with a retailer.
• Understanding the competition. Companiestake on private-label products primarily for competitive reasons.To sell the concept effectively, you need to know your targetcompany’s competitors and how your product improves the company’sposition in relation to them. Being familiar with the competitionis also important if retailers are the final stop in the targeteddistribution channel.

To find potential private-label partners, do an internet searchfor “private label,” and you’ll find hundreds of companies thatmarket private-label products in dozens of ways. Also check out thePrivate LabelManufacturers Association, which hosts trade shows and offersinformation for potential private-label manufacturers.

Before you approach a company for a private-label contract, makesure you’ve taken these five steps:

1. Protection. Companies buying private-label productsusually aren’t overly concerned about your patent status. But youdo run the risk that the company might decide to make the productor that a competitor might quickly introduce the same product. Ifyou have enough money, you can apply for a utility patent beforeapproaching the company. If your funds are limited, apply for aprovisional patent, which gives you a one-year leeway until youhave to apply for a utility patent.

2. Prototypes. Inventors need a “looks like, works like”prototype before landing a private-label agreement. A company wantsto not only see, but also to test your product before deciding togo ahead. If you can’t make the prototype, you can get a contractmanufacturer to make it for you at a low cost-provided you sign anagreement to give them the business if you get the sale.

3. Research. When you approach a company with aprivate-label proposal, show them that their target customers likeand need your product. This can be shown by having surveys ofpotential customers, or interviews or supporting letters frominfluential users.

4. Manufacturing. You’re responsible for providing theproduct in a private-label agreement, either by making the productyourself or by having a contract manufacturer make it. No matterhow low your margin is, start with a contract manufacturer toensure the agreement gets off to a good start. You can switch toyour own manufacturing operation once sales are secure.

5. Key Contacts. Key contacts who can get you in the doorof your target customers include salespeople, marketing personnel,regional sales managers or top executives. You can meet thesecontacts by attending industry trade shows or associationmeetings.

Private-label marketing can help you generate quick sales, butit does so at a price. First, the extra discounts cut into yourprofits. Second, you have your product promoted under someoneelse’s name. Third, your agreement probably restricts thedistribution outlets you can sell through. All these factors workagainst you in launching your own larger business. One of thereasons most private-label products are accessories orcomplementary products is that it’s hard to build a powerfulcompany out of those types of products. If your goal is to create abase on which to build, use private-label agreements sparingly.Often, inventors sell the product themselves in their major marketsand 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 andrunning. In your plan, you should include sales promotions, salesmaterials, visits to customer locations, required training, newproduct development, attending trade shows, market research for newproducts, an ongoing system of customer feedback, and quarterlyreviews of sales status. Your goals in the first year are to besure the sales and marketing effort for your product isfirst-class, and to network with both company contacts andinfluential end users. The success and staying power of youragreement will increase as you become better known to peopleinvolved with the product.