Private Label Products: Where To Start (Niche/Product Selection)
The other day I posted about private label manufacturing having very little competition in most areas.
Taking the example I found, (which led to that thread,) I decided to do some research and look into the margins and realities of creating the product.
Now, bear in mind that I’m not an expert at private labelling. I’m not even a success.
But I have a couple of failures to my name.
Side note: failure is inevitable but when you constantly level up your skills and experience, eventually you’ll succeed.
I’m undecided on trying this private label affair and in this article, I’ll talk you through the mental process I’ve gone through to get to where I am, and fill the article with thoughts from the past attempts.
(Edit: This is going to become a series of posts. Too much to talk about in one go.)
Basic Mathematics
Most people who want to start a business never get past the first stage: working out whether it’s at all viable.
When you go on a business course, often the research section they’ll teach you is beyond dumb.
SWOT analysis, market research surveys, ideal customer profiles – make no mistake, if you start with this, you are being stupid and need to save yourself immediately.
Instead, start with basic mathematics.
Cost of goods + shipping, handling and packaging = cost to produce the product.
The cost to produce the product needs to be lower than the amount of money you make from selling it.
It needs to be significantly lower for me to entertain it.
If you are going for a mass market product that will be sold all over the world in supermarkets, then you can afford lower margins.
If you are aiming to sell a smaller amount direct-to-customers, you need to have healthy margins.
You need to take out the cost of marketing, overheads and other boring business stuff issues.
So let’s look at the product I have been researching.
There are two major components. The cost to produce these is £5.20 per item if you buy them ready made and essentially stick them together. It can be a lot more if you’re more professional.
The packaging comes at £0.45 per item.
You’d have to assemble them by hand, so you would pay shipping each way plus storing it or pay for fulfilment by Amazon.
The items are small though so let’s just round this up nicely, say that shipping is £4.45 so my example carries on at an even £10.
The RRP of competing products is between £30 and £90. Those are the extremes. £40-70 is more common for reasonably high-end stuff.
Does It Add Up?
If you can’t do a simple calculation like the above, then you are going to be out of luck.
£10 RRP and a £50 price point. This is good, because it’s 5x on your gross profits.
That’s enough to cover marketing costs (we’ll use FB ads the same as we would with dropshipping.) It’s enough to cover most eventualities.
And if you got a low MOQ on each item, it’s enough to make your money back quickly.
If you could get 200 MOQ, you’d spend around £2000 on materials and shipping. Assuming you can run FB campaigns efficiently, you should be able to breakeven quickly enough.
And that brings me to the first real lesson here: If you haven’t done any online business before, obviously don’t start by throwing £3000 into some idea you have, trying to create your own product.
You’ll only know if these figures add up for your niche if a) you’ve ran campaigns before, b) you’ve tested the market and c) you know what you’re doing as far as setting up your sites/ads/copy goes.
So I recommend the following course as always: freelance and work for big companies. Start niche sites and content based business in your niche. Get your start with physical products via affiliate stuff, then dropshipping, and then move into your own lines.
If you start £3000 in the hole and you have no skills, experience or knowledge of the niche, you are going to fail. Or, you might not. But the “90% of businesses fail!” statistic is based on that.
Final Thoughts
There’s a lot more to setting up a private label store, but this is a good start. It’s the fundamental mathematics of selling stuff.
You need to make more in revenue than the cost of goods deliverable (plus a healthy margin.)
At first, you work out the cost of goods.
Then you add the packaging, shipping, etc.
Then you add the advertising costs (hopefully from data you’ve already accrued.)
If these figures don’t in any way line up, then the idea is bad and you need to move on to a better one. Don’t get in trouble before you even start. There are plenty of good ideas out there.