What Is a Private Label and How Private Labeling Works

From startup costs to marketing, to building a website and hiring employees—running your own business is hard. There's no two ways about it. If it all seems a bit too much, the private label business model could be for you.

With online marketplaces booming and the ease of setting up an online store more straightforward than ever, it's time you learned about private label brands and how they're becoming the next big thing.

So, whether you already have an ecommerce store, or you're just thinking about getting started—this article is for you.

Let's jump right in!

What is private label?

Private label goods refers to a product that is manufactured by a third-party company but then sold under another company’s name.

This ability to outsource what is usually the most time-consuming and stressful part of the job is what makes this business model so appealing to many entrepreneurs.

Private label products can be found across various industries such as food, coffee, technology, cosmetics, and even pet products.

Retailers often use private labeling to offer products that carry their own branding, allowing them to differentiate themselves from competitors and sell at a lower price point compared to big-name, national brands.

By working with third-party manufacturers, you can still have control over the product's packaging, design, and branding, while the manufacturing process remains outsourced.

How does private labeling work?

Private labeling allows companies to outsource manufacturing, sourcing, and shipping to another company. The private label business model involves two types of companies: a private label retailer and a private label manufacturer.

The private label manufacturers will work with businesses to create products based on specifications given to them. The private label retailer is then responsible for selling and marketing the products under their own brand name.

Private labeling can be a good option for companies considering selling products under their name or adding new products to their current lineup. It's also a great option if you're looking to sell a specific product but have no prior experience, such as products within the beauty industry.

The benefits of private labeling

• Customized pricing control and customized marketing control;
• Offers control over product labels giving you a better chance for your products to stand out;
• Someone else (potentially) handles storing, shipping, and packaging;
• You'll have more time to focus on other important aspects of business, like your marketing strategy;
• Less competition;
• Cost-effective way to offer high-quality products to customers;
• Increased adaptability means you can easily adjust product offerings depending on market trends and customer demands.

Potential drawbacks

• By placing your dependence on third-party manufacturers, quality control can be tricky. You have to choose a partner that has the same quality standards as you do;
• Many manufacturers will have a minimum order requirement (MOQ), which could pose a financial risk if the products don't sell as well as you hoped;
• The market perception of private label brands most often is that they are of lesser quality and generic;
• Less opportunities for innovation;
• It can be difficult going up against store brands who have a loyal following.

In a nutshell, private labeling is your secret weapon if starting a business from scratch feels overwhelming. You get to focus on the fun stuff—branding, marketing, and growing your store—while a third-party handles the complicated bits like production and shipping.

It’s flexible, cost-effective, and perfect for creating a unique product without reinventing the wheel. Just keep in mind that you’ll need the right manufacturing partner, and be ready to stand out in a competitive market.

Examples of private label products

Private label products can be found in various industries, such as consumer goods, food and beverage, and cosmetics.

Private label coffee

Private label coffee has seen a surge in popularity. If you're a coffee fanatic, selling your own brand of coffee is a great private label product to sell online.

You can partner with coffee roasters or manufacturers to produce the type of coffee you want to sell, this could include varieties like Arabica, Robusta, organic, or fair trade options, as well as various roasting styles.

You might be thinking "Why bother when there are so many coffee brands already on the market?" Around 73% of Americans drink coffee every day, that's a lot of mouths to feed.

‍There's space for one more coffee brand!

Private label skincare

Breaking into the skincare market solo can be tough, which is why launching a private label skincare brand is a smart entry strategy.

By partnering with an on-demand service, you can skip large inventory orders and reduce risk. Look for low-minimum orders to test your products and scale smartly.

Private label pet products

Pet products are thriving as pets have become family members. Offering private label pet food, accessories and even pet grooming products is a popular path, especially online.

Make sure to work with suppliers that understand pet care quality and trends. For success, focus on customization and brand differentiation, catering to the growing demand for premium pet products.

Private label clothing

Many online retailers quietly rely on private label manufacturers to create custom clothing lines, from shirts to handbags, to niche apparel like fishing gear . This model is especially attractive to startups with limited resources.

Private labeling allows small brands to create exclusive collections without heavy investments in production, keeping them flexible and responsive to trends.

Examples of successful private label brands

Harrods

Harrods have released their own private label products, but unlike other companies that use it as a means to lower consumer prices, the luxury UK department store has used its brand to offer higher-end, premium goods.

Harrods’ own brand supplies a wide range of products, from food and beverages, to high-end fashion, stationery, and homeware.

They're well-known for their selection of teas which are sourced from all over the world. They're beautifully packaged in distinctive Harrods branded tins and sold exclusively. Their private label product lines have become an established brand of its own.

Kirkland Signature

Kirkland Signature is Costco's private label store brand, and since its launch in 1995, they have become a staple for Costco members, often rivaling or even exceeding the quality of national brands while being sold at a lower cost.

It includes a wide range of products produced by various national manufacturers, and is known for offering very competitive pricing.

Kirkland has earned its stripes and grown to national status. In 2023, sales of Kirkland products generated an impressive $56 billion in revenue for Costco.

Is private labeling for you?

If you’re looking to start your own brand without the massive upfront costs, private labeling could be the perfect fit for you. It lets you create unique products without needing to manage production, which means less risk and more flexibility.

Whether you're diving into skincare, pet products, or fashion, private labeling allows you to test and grow your business at your own pace. Just keep in mind that success will come down to smart supplier partnerships, effective branding, and staying in tune with your customers’ needs.