For anyone interested in making money online, Amazon has created a great way to sell products and gain an extra income or even passive income by setting up a Amazon FBA private label business. FBA stands for ‘Fulfilled By Amazon’ and is different from a standard seller account in that you don’t have to worry about postage, packing and warehousing, Amazon takes care of all that for you. People are already aware of what the product is. Manufacturers already know how to produce it. You are simply choosing a profitable product and tweaking things to make it better, to make price margins a little thicker with some clever marketing and creativity. This is where you have to spend money to make money.
What’s a private label
Private labeling is the art of getting a manufacturer to make your product and putting you brand name on it. It is a growing business and the biggest global retailers are all participants in the industry – Amazon, Tesco, Sears, Walgreen, Carrefour, Groupe Casino, Kroger etc. Practically all discount and retail outlets will carry a mix of national brands and private labels. A national brand is the more widely known brands distributed in many retail outlets. A private label product is one made by the manufacturer for a specific retailer. It is a product not manufactured by the retailer but with the selling rights being given to the retailer.
It has to be said that the differences between white and private label are relatively slight. Most do use the term interchangeably. Some believe that the term “white” refers to services while private label refers to products. The clearest definition is that white products are for many retailers and private label is for one retailer. White label is often used to refer to services performed online, but even so there are many grey areas. A freelancer who ghostwrites a book is private labeling the book/product to a particular client. He or she cannot go and sell the book to another client. It would break the agreement, and this goes for many services completed, as they cannot really be resold. Smaller banks may also outsource certain services such as credit cards or check processing to bigger financial centers. The cards and checks can then be branded as the property of the smaller banks.
The hallmark of private labels is that they are truly unique
Private label products are the same as white products except they are made for one retailer. The hallmark of private labels is that they are truly unique. Apple’s design and branding is unique, for example. If the branding and style of Apple products were found in other commercial locations then it would be taken up by Apple as a matter of legal concern.
Large stores are now heavily utilizing private labels. Store brands such as Tesco Finest are nearly always private label. This distinguishes the brand name which is now associated with Tesco. This concept is known as store branding, as it helps to create a brand for the store that is selling the product.
Why $5000 for Amazon FBA private label business
Setting up your product as a private label will allow you greater freedom than going with the standard business model. This is a guideline amount for how much money you may need to spend upfront, bearing in mind this is roughly the amount that the most successful Amazon FBA private label sellers spent, many of them making back that amount within the first few month of their product going live. Let’s break down the costs.
- The most successful products sold via Amazon FBA tend to sell for around $10 – $50 and ideally you want to sell a product with a landed cost of around $2.5 – $12.5 per unit, which is 25% or less of the actual sell price. By that we mean the cost of manufacturing the product, packaging it and shipping it to Amazon warehouses.
- A good way to start is to purchase around 500 units of the product as a small test order and when you first make it go live, try giving away around 50 units as a promotional tool. If you plan on ordering 100 or 200 units, you need to prepare that you are more likely to be rejected or pushed to the “back burner” or the final product quality may not be of what you have expected unless you have a strong relationship with some reliable private label manufacturers.
- There are extra costs of designing product packaging, creating a logo, purchasing sponsored ads, holding promotion campaigns and using software to help sell products like hot cake, all of which can be nicely done for as little as $1000.
If it’s still 500 units at $8 each will come to $4,000 with $1,000 as extra cost
500 x $8 + $1,000 = $5,000
There are plenty of online guides about what and how to spend when setting up a Amazon FBA private label business, but this gives you a rough idea of the areas in which you will need to invest money before you start to see the cash come rolling in.
Find a profitable niche product
So what’s the first thing you need to do? Well, arguably the most important thing is to do your product research. Is your ideal market viable? There are different questions you’ll need to ask in order to decide your product’s potential for selling in the business model of Amazon FBA private label.
- You want to sell a product for which there is no national name brand item dominating the market.
- The average sales prices for your product, if they fall between $10 and $50, you may be onto a good thing. This price range allows for impulse buying. This is because the customer doesn’t need to carry out extensive research to decide on a specific product as compared to larger purchases.
- The most successful Amazon FBA private label products in the past have been small enough to fit in a shoebox and light enough (ideally less than 2.5kg) to ship by air.
- Check the sales rank by looking at the product’s listings on Amazon. Is it under 10,000 for each of the top three items of your product?
- Do each of those first three have less than 400 reviews?
- Does the very top item of that product have less than 100 reviews?
- How is the competition doing in terms of advertising? Have they got lots of key words, are their pay per click ads being used?
- Search for the product on Google and make sure there’s no product video for it, otherwise most customers will go with that provider.
- Check the keywords. What are the stats on how many searches they get? You want to aim for something with a minimum monthly search volume of 100,000 either on the main product keyword or a combination of different keyword sets. Just type in keywords that customers will be using to find your niche product at MerchantWords then view the results.
- Jungle Scout is a powerful tool, giving you not only the estimated monthly sales volume of a product but also important metrics such as the BSR, number of reviews and revenue. Before settling on a niche product, ensure that the Best Seller Ranking (BSR) of 2-3 similar products is 5,000 or less.
Add values to your Amazon FBA private label product
Now the big question is, can you add value to the product with your own brand and marketing? Add a feature or functionality that is sought after: one that no other seller offers. It could be a different color, an extra feature or an add-on to the original product. Check out the negative product reviews of your competitors on Amazon for a hint. Take time to create a logo and name that you are happy with. It doesn’t have to cost a lot – low cost and free logo makers, like Fiverr, can help you design the perfect simple logo for your brand. However, simply adding a new logo does not make your product any different from all the other products out there. Add personality and dream big to make a product that sells. Can you make it stand out with better packaging? Customers generally hate having to use instruction manuals so make sure the product is simple to use. You also want customers to reorder and purchase it as a gift. Try and sell something that can’t easily be purchased at a big store, this gives you an air of exclusivity.
Find private label manufacturers
If your product scores highly in most, even not all those areas then you’re onto a good thing. So then it’s time to sample the product and make sure it actually does the things it should do. You’ll want to talk to several manufacturers to see where you can get the best rates on purchasing items to sell, when you’ve found one you trust, make the purchase.
There are three ways to go when it comes to finding overseas or local private label manufacturers.
- Do it yourself using a sourcing platform or private label manufacturer directory like PLMA, Store brands buyer guide, net, Alibaba, Yiwubuy.com, Made-in-china.com
- Work with a middleman, a sourcing agent
- Directly deal with the sourcing divisions or buying offices of the leading worldwide retailers
Prepare marketing material
I’ve already mentioned the importance of a promotional giveaway to helping your product get off the ground. It’s not essential, but it does help get the product out there and into people’s homes. Take out some sponsored ads for your Amazon FBA private label business and if you’ve got a little money to spare, perhaps purchase some luxury items that will come with the product (e.g. buy this and you get THIS!). Make sure the product photos are as appealing as possible, this may be another area in which you need to spend money. Not a lot of suppliers have professional in house photographers so if you have a limited budget, you can teach yourself with Youtube videos.
Amazon FBA private label business is a great way to make money online, and by setting up a private label, you are able to build your own brand with full control over the price, sales, marketing and distribution of your products. There is lots more information online and you can even take short courses in how to make money through Amazon FBA private label business model, so don’t worry if it all seems a bit overwhelming. Just do your research, invest in your product and go for it and you will succeed.