Why you should sell private label products on Amazon

Private Label Selling on Amazon

If you're ready for a dive straight into the world of Amazon sales, Amazon Private Label selling is a great place to start. Read on to learn all about Amazon Private Label Selling and whether it is right for you.

1. Introduction to Private Label Products on Amazon

When it comes to selling on Amazon, you will likely spend a significant amount of time identifying which products that have all the metrics you want: high sales velocity, low Cost of Goods Sold (CoGS), keywords that aren't very competitive, and an overall low barrier to entry. Many people prefer private label selling in order to skip all of these steps.

In private label selling, someone else has already taken the initial risk of putting the product out there - and has found success - so there’s less exploration risk. Your job as a private label seller is to take something that's already working and make it better by making it your own. Research and development aren't needed.

The bulk of your work lies in marketing, sales, creativity, and outlining why your version of a successful product is better and should command your market's attention.

Creating a private label product takes comparatively more effort than retail arbitrage or wholesaling products that you can buy from retailers at bargain prices. You do need to have a strong understanding of sales, marketing, and pricing fundamentals.

Still, you don't have to be a master at research and identifying brand new opportunities like you do when you're building an Amazon business from scratch.

Like anything else, however, selling your own unique private label products on Amazon isn't all sunshine and daffodils. Some very real and concrete challenges prevent plenty of people from making the jump. 

First, let's take a quick look at the numbers and statistics that drive so many people to begin using Amazon private label selling.

2. How Well Are Private Label Products Performing on Amazon?

Private Label Product Sales on Amazon

There's undoubtedly a massive market for private label products on Amazon. According to the Private Label Marketing Association (PLMA), private label sales totaled $158.8 billion in 2020, up 11.6% from $142.3 billion in 2019. 

According to this study, the COVID pandemic had little effect on the volume of products sold. But, as we all know, 2020 was a banner year for online sales - especially on platforms like Walmart and Amazon - even though it was a nightmare for traditional brick-and-mortar retail.

Part of the over 11% increase in sales can be attributed to "shopper panic" during the early months of COVID, as we all navigated an uncertain and murky landscape. As a result, people were buying bulk, non-perishable products in much greater quantities, preparing for an entirely unclear future, and predicting that the supply chain would be unpredictable at best. However, this panic buying tempered somewhat as we entered a more stable phase during the summer and fall of 2020. Read more about tailoring your product listings for seasonal events here, as well.

Now, people's purchase behaviors are much different. We're buying to prepare ourselves for activities which were put on pause by COVID. This shift in mindset and purchase behavior is causing a new "mini gold rush" for white label products of all shapes, sizes, and flavors.

In general, items that land within the “Top 100 best sellers” for their category on Amazon will perform well as privately labeled products under your brand. 

The trick here is to ensure that you're not trying to take on an Amazon Basics or Amazon privately labeled product head-on. 

When analyzing trends, Amazon appears to give preference to its own privately labeled products in search results these days over their competition.

Being successful in selling private label products on Amazon is about creativity, ingenuity, fearlessness, and timing. You need some combination of all of the above to build a successful white label business. 

Before we dive into discussing the best practices for successful selling in private labeling, let's check out some of the main advantages of selling private labels versus trying to establish your products from scratch.

3. What Are the Advantages of Selling Private Label Products on Amazon? 

Private Label Selling on Amazon

There are plenty of advantages to selling private label products on Amazon, but we'll focus on the five most impactful:

1. Ability to maintain lower prices more easily and control profit margins

2. It opens up the ability to work with more suppliers

3. Ability to adapt to trends with ease and with fewer roadblocks

4. There's no need to make a store on another platform, and

5. The ability to constantly modify, tweak and improve your product offerings

As a private label seller, it's easier to keep your prices lower because many of your costs are lower as well. In addition, you do not have to keep up as much from a branding perspective. Packaging isn't necessarily as important, and your brand isn't about flash as much as it's about utility. 

The utility allows you to set a lower price and still drive demand from customers who want your products, especially if you've taken the time to improve an existing product to make it more attractive while maintaining the low price point. Suppliers that produce private label products have seen a great deal of success in recent years because they have been made successful by entrepreneurs. The better you are at selling the higher the number of suppliers who will want to work with you. You can also learn more about how to reduce your ad spend here.

If you can show how you're going to compete in your niche and what makes you different, there will always be a supplier that's willing to listen. In reality, there are many suppliers from whom you can work with. Because of this, it's much easier to work from a position of leverage and control costs, contractual agreements and ensure how production runs and logistics operations are in your favor and not in favor of the supplier.

If you’ve committed to certain items in your product mix that are a part of a brand that you've carefully molded over time, it's much more difficult to jump onto unrelated trends quickly. However, when you're monitoring trends and you think you have the ability to white label a slightly improved version of the product that's trending in your niche, you should go for it. You can move quickly, purchasing the stock you need so you can dig in quickly and make your tweaks before hitting the market with the new version to capitalize on the trend. 

Alternatives to private label selling, such as using third-party platforms like BigCommerce or Shopify can be time-consuming, and in some cases, overwhelming. There's a substantial learning curve, especially if it's something you've never done before. When you build an online storefront; it needs to be professional if it’s to be successful.

Private Label Products on Amazon

First impressions are everything, and cultivating positive first impressions on these kinds of platforms can be very expensive. Every service provider, such as a front-end designer to design a nice page, will charge a premium. With private label selling, you don't have to worry about building a professional storefront and can instead leverage the existing platforms, and therefore you can move much more quickly with less startup capital needed.

When you work with private label products, your ability to do what you want with those products is endless. There's always the option to tweak, improve, and make things more attractive as you go along.

This ability is limited when you're working under a brand umbrella that you build, tied to a marketplace. Whether you intend it or not, brands outside of private label selling have self-imposed limitations and structures that make iteration and evolution impossible. Conversely, private labeling is a premier playground for development. It's one of the primary reasons private label sellers are so successful.

To make sure you’re taking full advantage of the opportunity to sell private labels on Amazon in 2021, we’ll discuss some of the best practices to follow.

4. How to Be Successful Selling Private Label Products in 2021 and Beyond

Private Label Selling on Amazon

Because of the branding and logistical control private label products provide Amazon sellers, the market is starting to become saturated. Depending on your perspective, this can either be a blessing or a curse. With the right tactics put in place, it’s absolutely a blessing. Of course, you have to be intentional about how you approach your business, but as long as you’re tactical and deliberate about your place in the market and how that place supports your growth, you’ll be successful.

Here are five best practices to consider according to Forbes.com

  1. Identify a clear market opportunity
  2. Develop an air-tight unique value proposition (UVP)
  3. Put the majority of your effort into visual identity and messaging
  4. Find reliable, dependable suppliers, and
  5. Make sure guidelines for everyone involved are crystal clear

Identifying the Market Opportunity

Before you do anything else, you must take a deep dive into your target market to ensure there’s a clear opportunity for your product. You can use a tool, such as DataHawk's Market Reseach solution to help. This research has to be as granular as possible. If you’ve already done a little bit of testing on outlets other than Amazon to see if there’s some demand for your product, this phase is a little easier than it would be otherwise. If that’s possible, it’s advised.

Regardless of whether you’ve had that opportunity, there’s one big question to ask yourself about your product: What is the gap in the market my product fills? There should be a clear gap here. Either in price, utility, longevity, durability, or something else. That gap is what you’ll use to build your air-tight UVP, which will be the backbone for your marketing messaging and visual identity.

Your Unique Value Proposition

Private Label Selling

Your Unique Value Proposition, or UVP, is the north star around which all of your marketing, promotional, and sales activity is built. Without a UVP, your chances of success are comparatively slim. Why? Because you can rest assured your competitors have thought theirs through already. A clear, defined need is the core of your UVP. It’s even better if that core and the defined need is felt by a market with whom has plenty of purchasing power. This isn’t to say that your product has to be a luxury product, but there needs to be something about it appealing to people with expendable income. 

Once you understand your target market’s defined needs and where they’re hanging out, the next thing to check out is what your competition is doing. Is there something about their product(s) that is missing? Are they doing a poor job of marketing? Is there an element of the defined need that they aren’t addressing? If so, that’s the gap you should focus on in your marketing and visual identity to separate yourself from that competition.

The Importance of Visual Identity and Cohesive Messaging

First impressions are everything. It’s true when we meet someone for the first time, and it’s true the first time someone sees your product. Your product’s visual identity tells the product’s story before anyone reads one word of your copywriting or marketing message.

What is the story that your visual identity is telling potential customers? Is it the story you intend to convey? Does the visual story align well with the tone of your marketing? If not, why not?

These are all essential questions to ask yourself to ensure you’re telling the right story to people who could be interested in buying your product. The most obvious place to do this is on your website. 

You must capture a website visitor’s attention in the first 5-8 seconds of their visit. Our attention spans are short, and this is your opportunity. If you don’t grab attention in that window, your chance to do so is likely lost.

This identity also crosses over to your social media accounts. For more info on using social media to promote your listings, read this article about how Instagram can be a great tool for Amazon sellers and boost brand awareness for your product. The story you tell on social media should align directly with the story you tell on your website. There’s one primary opportunity here: to close the gap between perception and reality. Many people assume privately labeled products are simply knock-offs of something else already established, and that the quality is poor. 

With the right visual identity and messaging, that mental gap is closed, and potential customers are one step closer to becoming loyal customers.

Finding Reliable and Dependable Suppliers

Your supplier relationships will tell the story between short-term success and long-term success. They need to provide the products you need, but more importantly, communicate how you expect to share. 

The easiest way to see if this will be true is to try out some products with a potential supplier. What is the quality of the product? How easy/hard was it for you to get the product promptly? What was the communication like throughout the sampling process? If there were any red flags here, make sure to trust your instincts. On the other hand, lock in your supplier and get to work if it is smooth sailing.

It’s also important to think about the amount of “finishing” work you’re going to want to do on the backside of the transaction. For example, some suppliers focus on product manufacturing and don’t do any initial work for visual identity. They also may not do any dropshipping work. If so, that’s no problem, as you can contract with a 3PL to take care of those tasks if you’re going the dropshipping route.

They may send you products in blank boxes and leave the rest up to you. Are you ok with that? Do you want more prep work done? This decision will be different for everyone but make sure you’re aligned with your supplier, so there aren’t any last-minute surprises.

Ensure That Guidelines are Crystal Clear

The more people involved in the product manufacturing, branding, and marketing process, the more potential for miscommunication that leads to issues. To make sure everyone stays in the loop and the process moves smoothly, guidelines surrounding each piece of the pipeline must be crystal-clear. 

Arguably the most important people in the process are those handling visual identity. Because there won’t be much, if any, room for product customization once the supplier gets the product to you because packaging and labeling pack the visual punch. If you’re going to spend money on a hire, this is where the money should be spent. Your brand guidelines have to be air-tight, so there’s no room for misinterpretation of the story you’re looking to tell.

Regardless of their role in the process, your suppliers, branding specialists, and 3PLs should all have a clear picture of what’s expected, their role in upholding those expectations, and the consequences if they don’t keep their end of the bargain.

Success is right around the corner if you’re following these best practices and have the right advertising program in place.

5. Advertising Private Label Products on Amazon

Private Label Products on Amazon

Advertising on Amazon for private label products is about visibility, not conversion. When setting up advertising campaigns, your central goal should be to get as many eyeballs on your product pages as possible within the budget you have to spend. Conversion will come if your visual storytelling, copywriting, and brand messaging align with what people expect from the ads you present on Amazon to your target market.

There’s a defined path to follow here that helps you mitigate risk and get the best possible return on your investment. Everything begins with running some automated sponsored campaigns. You can read more about sponsored ad campaigns here!

Automated Sponsored Campaigns

Amazon automated sponsored campaigns require the lightest lift of any type of advertising for new products. It’s the most hands-off and leans the heaviest on Amazon’s first-class machine learning capabilities to position your products in a way that they’re most visible to your target audience.

With automated sponsored campaigns, Amazon chooses what keywords to bid on for you. Ads are automated and run in the background. This type of advertising is invaluable early on when you’re promoting a new white label product because of the data it provides. You’re able to see what keywords are performing well and not as well. When you take greater control of campaigns in later stages, this data makes decisions on what to chase and not chase data-driven, and that’s essential to help you from overspending.

Your budget for automated sponsored campaigns can be small. However, starting with $15-$20 a day will give you plenty of data to work from going forward.

Data Analysis

Once you’ve allowed this initial ad set to run for a few weeks, you’ll have enough data available to make some calculated decisions about the next steps. Taking a high-level look at which keywords performed well during the campaign and which didn’t perform as well helps you to strategize how you want to approach your next campaign.

Some may have performed so poorly that even though they’re contextually relevant to your product and target market, spending any money to chase them in future campaigns could be a wasted effort. And, conversely, others may have performed so well that you’ll want to immediately double-down in future campaigns and make chasing those keywords a core element of your strategy. 

Using Advertising Cost of Sales (ACoS), you can determine what performed well. ACoS equals the amount you spent on advertising divided by the amount of sales that resulted from that advertising. Since most analytics platforms break spend down at the keyword level, it’s relatively easy to determine an ACoS by keyword to make your evaluations easier. 

A good benchmark is a 20% or lower ACoS for a keyword. If you’ve achieved that in your automated campaigns, that keyword is a keeper for future campaigns.

Now Run Some Manual Campaigns

After doing the data analysis work from automated campaigns and armed with the insights you took from that analysis, you’re ready to run some manual campaigns to validate further your assumptions on the keywords that are worth chasing.

In these campaigns, you want to use the “exact match” option to ensure you’re only bidding for keywords that match exactly your high performers. Since you have some data to back your assumptions, feel comfortable ratcheting up how much you’re willing to bid on your winners. A good rule of thumb is to increase a manual bid price up to 20% over what you bid during the automated cycle. Doing so should make you instantly competitive in most niches unless the keyword you’re chasing has an abnormally high level of competition. You can read more about how to master sponsored product ads here.

Also, add the keywords you used in the automated campaigns into the Campaign Manager’s “negative keywords” section so you don’t crossover yourself!

Now you sit back and wait. Let your manual campaigns run for a while. A couple of weeks is preferable if you have the budget for it. Then tweak, adjust and make changes as necessary to ensure you’re getting the desired ROI for your campaigns and that sales results aren’t too expensive for your bottom line ACoS.

6. In Conclusion

Private label selling on Amazon can be very lucrative with the right approach. But, of course, it takes some work to determine your unique value proposition, target market, and how your visual identity and messaging will align to tell your brand story. But that legwork is worth it.

You have so much greater control over the finished product when you work as a private label seller, and if you’re creative, you could build a unique, powerful brand that dominates a niche.

DataHawk is here to help you on the private label journey. Check out our extensive Amazon Amazon Analytics Software Suite and Solutions to help you tackle data and derive insights to make the journey much easier!

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