7 Reasons Why Private Label Is Better Than Wholesale
Why Build A Private Label Brand On Amazon
Thanks to the power of the Amazon marketplace, we have a massive amount of ways to make money online! So many ways, in fact, that most of us have to choose how we want to best dedicate our time and resources. In this episode of The Amazon Seller Podcast, we give 7 reasons why we prefer selling private label products over any other selling method.
1) Increased Margins
There are certainly going to be exceptions to this, but on average, we find that private label seller realize higher margins than wholesale sellers.Why is this? The main reason is that the wholesale supply chain usually has more ‘touch points’ than private label. A wholesale supply chain may have the manufacturer, then a distributor, then regional wholesalers, then you (as the Amazon wholesale seller), then reach the customer. Money needs to be made at each ‘touch point’ in this process, and so the margins typically go down or the end-price for the customer goes up.
However with private label, you can cut out the distributor and/or regional wholesalers. With private label, you have the manufacturer, then you as the brand owner that sells directly to the customer through the Amazon sales channel.
So, at this point most people want to know what the average private label margins are and the average wholesale margins. Well, again, this is difficult to answer because there are always exceptions. That being said, we tend to see most wholesalers on Amazon operating with 10% – 25% margins on average. When selling your own private label products, it isn’t unreasonable to aim for 25% – 40%+ margins. Again, these numbers can vary widely depending on many factors.
2) Control The Supply Chain & The Product
When you sell your own branded products, you get to make the decisions! Sometimes when you are selling other brands products, they will have limitations on how you can receive inventory. They may only produce a limited quantity of products for a season, or only provide a regional wholesaler with a limited supply. However, when you own the brand, you can work directly with the manufacturer to decide how many units you want produced, when to start producing them and whether or not you are going to make changes for the next order.
3) Can Be Agile When Big Brands Are Slow
One of the things that we love about being a “small” brand owner is that you can out-maneuver big brands. We actually have private label brands that are selling better on Amazon then big-brands that are sold all over the country in national retail stores. How do we do it? One of the ways is that we listen to what the customer wants. We read Amazon reviews and pay extra close attention to the negative reviews to see what customers are looking for. While big brands are unable to make changes quickly to a product that is being sold all over the country, we can work with a manufacturer to do it relatively quickly. If you wholesale other brands, you do not have much control over things like this.
4) You Control The Price & Don’t Have To Worry About MAP.
If you are selling other brands products on Amazon, it can be frustrating if you do not have control over the price. Many times wholesale suppliers will have a MAP (minimum advertised price) that sellers are supposed to follow. The problem is that many times a seller on Amazon will break MAP and sell at a lower price. And when that happens, you may have to choose whether you want to also break MAP (and possibly damage the relationship with your supplier) in order to compete for the Buy-Box, or wait out the other seller. If they have a large amount of units in stock, waiting them out can be painful. This is especially frustrating if the MAP breaker is just looking to clear out their stock and doesn’t care if they won’t be able to re-order this product again in the future (and so your supplier may not be able to influence them).
When you sell your own private label products, you make the decisions. So if you want to lower your prices for a “flash sale”, you can. If you want to run lightning deals; no problem. Made a bad buy and just want to sell through your units at break-even? You can do that too. You can also choose to sell your products for a higher price than you originally intended. This is especially effective because you are the only seller on the listing. Which leads us to point number 5…
5) You Are The Only Seller On The Listing
There are few things more frustrating than ‘The Race To The Bottom”. The race to the bottom occurs when several sellers get into a price war on a listing trying to earn the Buy Box. They may keep dropping prices by a few dollars (or pennies even) in an attempt to get a larger portion of sales.
When you are selling other branded products, you might find a good product with minimal sellers on the listing (or none!). But inevitably, other sellers tend to start coming in on the listings as well unless you have an exclusive relationship with a supplier.
When you sell your own private label products, you are the only seller on the listing. That’s because nobody else can produce your branded products without your permission (not legally at least). If you do get a hijacker, or an unauthorized seller, on your listing, you can take steps to get them removed. This means that you don’t have to consistently be worrying about owning the Buy-Box – because you own it 100% of the time!
6) You Can Wholesale Your Products To Other Sellers
Another benefit of selling your own branded private label products is that you have the option to wholesale to other sellers! There is one question we always get when we talk about wholesaling your own brand to other sellers.
“Why would you wholesale your private label products to other sellers if you could just sell it yourself and make more money?”
There is one main reason why: cash flow. When you are building private label brands, launching new products and importing containers, cash flow can get tight. And cash flow is king! Well, when you wholesale your products to another seller(s), you shift the capital restraint from yourself to your buyer. They pay you upfront for the units, of which you would get a mark-up profit, and then they would ideally be able to sell them for a profit on Amazon. However, they have to actually wait to sell through their inventory to recoup their investment and realize their profits.
There are many considerations and potential issues you will want to consider before wholesaling your products, but it is a valuable option you have when you create your own brand.
7) Build A Brand That You Can Sell!
One of the most valuable aspects of building your own brand is that it is your brand! That may sound redundant, but it is something that can be easily overlooked. When you sell other brands’ products, you are not typically helping your own brand grow, you are helping theirs. But when you build your own private label brand, you have a brand that you can sell on or off the Amazon marketplace.
There are Amazon private label brands selling every singly day for 2 – 4+ times their annual profits. We personally know some sellers who have sold their brand for 7 figures. Some of them go on to repeat the process, creating new brands that they go on to sell again. Even if you do not plan to sell your private label brand, it is nice to have that option available!