If you are researching the prospect of setting up a dropshipping business, you may have come across private labeling.
You might also be at the stage where you are unsure which direction to take in terms of your new business; should you simply drop-ship the products or look for private label opportunities and prioritize that?
In this article, we will look at the pros and cons of both dropshipping and private labeling, so that you can make an informed decision on the best approach for you.
First, though, let’s define what each of these business models is.
What Is Dropshipping?
You probably already have a good idea of what dropshipping entails.
The business model involves selling products that you do not have to physically deal with, during any part of the sales chain.
After you have made a sale, you inform the manufacturer and/or supplier (either automatically through dropshipping software, or manually via email) and they will ship the product directly to your customer.
You do not need to buy the inventory to make sales; however, because you are selling a supplier’s products via your sales channel, you have no means to customize the product in relation to your brand image.
Pros of the Dropship Business Model
Because you do not have to stock inventory, you do not risk buying lots of products that fail to sell. You can list new products very easily and switch your offerings in line with trends appropriate to your business.
Easy to get started
A dropship business can be launched with a simple Facebook page and links to a supplier via a monthly dropship plan with one of the many providers available. It doesn’t take very much technical knowledge, and most providers offer very good guidance to get started.
Because you do not need to buy the inventory to begin dropshipping, you save a lot of money in start-up costs.
Your budget will be directed towards customer acquisition most of all.
Lots of products
With a good, reputable supplier you have immediate access to thousands of products to sell. In fact, many providers will allow you to view their product inventories before you sign up, so you can research and find the best potential product/supplier relationship before you begin.
Easy to scale
Dropshipping allows you to scale upwards as your business grows. You can always add more products to sell, and the main supplier will be able to accommodate your demand as it increases.
The Cons of Drop Shipping
A lot of competition
Because the barrier of entry in terms of all the areas mentioned above is low (risk, cost, and technical knowledge); there is a lot of competition in the dropshipping area. Especially with popular, trending products.
If larger businesses are selling the same items as you but at cheaper prices, it can be difficult to undercut them and still make a profit.
Finding your audience
With so much “noise” out there in terms of competition, marketing your drop ship products can be difficult. It will often require pay-per-click Google advertising, and/or Facebook ads to find your customers.
Fortunately, these are relatively simple platforms to use, and once you know what you are doing, customer acquisition should be consistent.
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You cannot brand the product
This is probably the biggest disadvantage to normal dropshipping; if you are selling products from a supplier directly, they will be unbranded (or have the supplier’s brand image).
This means you cannot create your own brand image and reputation around the product. It will also be difficult to control pricing and other beneficial aspects that selling branded products provides.
That’s where private labeling comes in…
What Is Private Labeling?
The private label business model means you are selling products that have your own brand image attached; in other words, your “private labels”.
This differs from normal drop shipping in that you have control over the finished product in terms of its branding and how it looks upon delivery to the customer.
The good news is, some suppliers do offer private label opportunities, and will still drop ship your personally branded product, directly to the customer. In other words, they provide a combination of both models. This can mean the best of both worlds.
Let’s take a look at some of the pros and cons of the private label model.
Pros of Private Labeling
The biggest advantage is what we have covered already, you can create your own product brand.
With your business name and logo on the product and packaging, you can begin to build a loyal customer base and reputation far better than you can with standard dropshipping.
Expanding on the above, private labeling allows you to create a buzz around your identity, which helps increase customer loyalty and recognition.
Say, for example, you become known for excellent customer satisfaction or a personalized shopping experience via your sales channels.
To harness this success and to ensure customers recognize your company and products above others, you need them to be branded.
Selling a branded product makes it possible to set your own pricing. It can also help you stick out from a crowded marketplace, (assuming the product, price, and brand image are good).
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The Cons of Private labeling
More complicated than standard dropshipping
If you are beginning your journey in eCommerce, private labeling can seem like a big step due to the higher level of complexity compared to standard dropshipping.
You have to think about and essentially create your brand image. This can be difficult to start with.
You may have to employ a designer to help with the logo and packaging and other aspects of your brand creation. The learning curve can be steep.
Obviously, you will need more starting capital if you choose a private label approach. Extra funds will need to be allocated to the brand design, and then there is the packaging, etc to think about.
Getting started with a product can cost $1,000 or more. These costs do not exist with standard dropshipping.
As a private labeler, your supplier will need a minimum order made so that it is cost-effective for them to provide your branded labeling and packaging.
This means further upfront costs and eradicates one of the big benefits of dropshipping, namely no need to take on the risk of bloated inventory.
The risk here is paying for inventory that doesn’t get sold.
What’s the difference between Private Label and White Label Dropshipping?
When shopping around for dropshipping software providers and suppliers you will come across private label and white label packages.
They are similar in many ways, however, there are some differences you should be aware of.
For instance, both options will allow you to put your company branding onto products you choose to sell..
However, as a private label dropshipper, you retain an exclusive right to sell products from your supplier, with changes to the design, color, parts, or size of the items being sold.
This means that they can be differentiated from other products on the market.
White label products on the other hand are generic products that are simply rebranded (logos, packaging, etc) so that they can be sold as your own merchandise.
This means the exact same version of the product can be sold by a competitor (only with their branding attached).
It costs less to white label, however, that lack of customization can be problematic.
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Essentially, private label drop shipping allows you to have more control over both the design aspects of the product and the branding that goes alongside it.
It does cost more than standard dropshipping, however, over the long haul it is an investment worth making.