Introduction
When you’re in the e-commerce industry or entrepreneurship space, buzzwords like “drop shipping” and “Amazon FBA” just roll off your tongue. These two e-commerce business models have really taken off in the past decade, helped no doubt by the resurgence of China as the world’s manufacturing hub, the app economy and the convenience of an always-on mobile web.
Private label products have been around for a long time, way before Amazon started as an online bookshop in someone’s garage. They’ve come into their own in the past decade when Amazon started “Fulfilled by Amazon” back in 2006. Suddenly, small and medium-sized businesses had access to Amazon’s superior technology, customer experience and order fulfilment for a fee.
Here, I’ll cover private label products first and how you should go about sourcing for suppliers. Then I’ll explain how the Amazon FBA business works with your newfound private label products, highlighting tips and pitfalls along the way.
Best of all, rather than bore you with a dry report and statistics on creating private label products for Amazon FBA, I will weave everything around a completely fictitious example, which might very well work for you in real life!
Case Study: Magnolia Sea
Catherine was fed up with her day job. Punishing deadlines, budget cuts and unwanted advances made her journalism career a dim reality from what she pictured when she graduated from a prestigious school of journalism.
She wanted to quit, get some much-needed sun outside of Minnesota’s long winter and then reassess her career goals and objectives. To do this she needed to travel alone and find her true self on one of the islands in the Andaman Sea. She tendered her resignation through Twitter, announced her new life at Instagram and then packed her laptop and check-in luggage that very same night.
Just over 24 hours later, she checked into her beach cabin found through Airbnb. It would be her home in the coming months. She’ll just take things one quarter at a time. A small village was nearby for groceries and just about anything that she needed. There was ample WiFi from a freshly laid fibre optic cable.
As Catherine stared at the Apple bootup logo, a wave of reality and realisation swept over her. She could easily be in Brooklyn, Bahamas or Bangkok and she could still do what she enjoyed most about her work: conduct interviews and write sharp articles for various publications.
Sipping on a coconut, she immediately registered for accounts at UpWork and Fiverr. She was going to do part-time work to pay for the rent. This worked well for her. Bouts of feverish writing and Skype calls were punctuated by dips in the sea and Thai language lessons at the local market.
What Next?
Catherine made a decent amount of money to pay for her rent and a bit more. It was half of her last drawn salary but she was free from her corporate cubicle and happy with a bronze glow. Plus she got into fit fighting shape with free Muay Thai boxing lessons and healthy, fresh Thai salads. No more UberEats, gym memberships or fast food for her.
As she watched the sunset over the Andaman Sea, she knew something was missing. It wasn’t the coffee scene or the nightclubs. What was missing was a sense of purpose. She could do a lot more than just write and swim in the coming months. Plus the annual monsoon season was a bummer. It meant staying indoors to wait out the lashing rain and typhoons.
Catherine remembered struggling with her heavy check-in luggage. She eventually threw away most of her clothes as they were far too thick for Thailand’s sunny and humid weather. She packed far too much rubbish and, to add insult to the injury, she was charged hefty fees by the airline for checking in her overweight piece of luggage.
“If only there was a clothing line for frequent travellers and digital nomads like her,” she muttered before falling asleep in the swaying hammock.
Pro Tip #1: Start by Addressing a Pain Point
You might have read about the Great Dot-Com Bubble of the Nineties or knew someone who worked in startups in that era. It was a time where it was thought that websites would sell themselves no matter the business model, service or product.
So long it had a “dot com” in its name, it would be funded by investors and chased by Wall Street. It didn’t matter that it was making losses or that there was no clear path to profitability. You needed a first-mover advantage for market growth, growth, growth. It worked for some companies.
The same fundamental business rules apply whether you’re contemplating a new business, an app or an online e-commerce store. You need a business plan that details a reasonably clear path to profitability. Don’t bluff. And it will help a great deal if you have some domain experience in the area, or if it’s something that addresses a pain point of yours.
If you can’t drink caffeinated products there’s little sense in starting a small-batch coffee roaster that sources sustainable green coffee beans. Likewise, recyclable pet beds for dogs and cats should be avoided if you’re allergic to animal hair.
Start with something that you know best and that needs fixing. Alternatively, start with something painful that’s close to you and that needs to be fixed fast.
So, if you know someone who has a gluten allergy and is a diabetic, consider coming up with recipes for cakes and cookies that address that. Make treats and desserts that they can enjoy again and forget their health worries.
The best of original business ideas can come at the most unexpected moments and in the most unlikeliest places.
As you can tell, this is the hardest phase in your private label business. Your website and Amazon FBA are just tools for your business. These tools work for everyone the same way regardless of what products you’re selling. So get the product right first and the rest of your business will follow.
Get your value proposition wrong, and your business will quickly unravel and fail.
An “Ah-ha” Moment
Catherine awoke from her afternoon siesta with a start. A little puppy from the village was tugging away at her sarong, wanting his usual afternoon play. At that moment she knew what kind of product she was going to start selling.
She gathered her sarong and looked at it. “Travellers like her would surely appreciate a multi-purpose item?” she wondered. She hated the scratchy airline blankets and she was sorely lacking a neck pillow during the 19-hour flight.
Holding it up, Catherine knew that this simple sarong could serve many purposes for frequent travellers and digital nomads like her. Aside from being a simple blanket, it could also be rolled and used as a neck pillow in a cinch.
Drape it on your shoulders or cover your legs, and you can enter holy places of worship in Europe and Asia. For backpackers, it could also double up as a towel or pillow in campsites where neither are provided.
And when the going gets tough, it could also function as a hardworking Japanese tenugui: worn as headwear to absorb sweat, tightened around the waist as a belt, or even double-up as a simple wrap bag. The possibilities were endless!
Catherine gazed out at the Andaman Sea again and thought of a business name. She decided to call it Magnolia Sea in homage to the cream coloured sand and azure blue sea that was now seeing.
Pro Tip #2: Source Your Product Sensibly
Once you’ve identified your dream product to sell, it’s time to start finding suppliers. You see what I mean about this part onwards being cookie-cutter in scope? No matter what your product, you’re going to need to find it in quantity, quality and variety.
For all purposes, the best place to find stuff is in China. It’s not the world’s manufacturing hub for a reason. You might want to check out other regional manufacturing hubs if you’re doing clothing (Bangladesh and Vietnam) or leather goods and shoes (Vietnam).
We’ve written a comprehensive guide, Five Tips on Sourcing Products From China, and the same tips apply here. You’ll want to attend the relevant phase of The Canton Fair in double-quick time, printing business cards along the way.
Also, you’ll want to meet manufacturers. Do remember that not all fair attendees are suppliers, some are trading companies or middlemen. You can usually tell if their company names have “Import & Export” or “Trading” appended to them. Otherwise, don’t be afraid to ask what their company actually does. If they act cagey, just move on to the next one.
Going to the Source
Catherine bought her sarong from the local village. It was woven by local women who also spun and dyed the threads themselves with organic minerals in the pure spring water. She knew she wasn’t going to get large quantities for wholesale purposes as they were made in hand in limited quantities.
Just then a strong gust of wind blew the travel magazine she was reading to the ground. She strained down to picked it up. It had fallen to a spread about seeking solace and peace in the mountains of Guangzhou.
“That’s where I’m going next,” she thought as she opened a new Chrome tab to start booking the next available budget flight to Guangzhou, China.
Catherine had only spent 3 hours at The Canton Fair before she was overwhelmed by it all. There must have been hundreds of suppliers who could supply sarong-like products in any fabric, pattern or colour of her choice.
Taking a breather at a cafe in the Guangzhou Pazhou Complex, she made mental notes as she went over her business model again and again. There was no way she could stand out if she sold generic products like these at her Magnolia Sea e-commerce store.
Her budget was already stretched thin with her new nomadic lifestyle and she couldn’t bear to ask her parents for money. Also, she didn’t have the time, talent and funds to build an e-commerce store nor to subscribe to one. She decided to turn Magnolia Sea into a lifestyle brand and sell her wares at Amazon.
Back to the Drawing Board
Furiously drawing a matrix on a paper napkin, she identified some core features of her travel-focus products:
1. Start with a simple product first, the sarong.
2. Must be lightweight and quick drying for those quick washes whenever a basin can be found.
3. Colours should be muted so they can be mixed and matched with whatever clothing you might have on. Think neutral blacks, greys and browns.
4. Should come with a travel pouch that turns it into a pillow or support cushion.
5. Shipping should be free and fulfilled by Amazon for last-minute travellers.
With these five points literally in hand, she went back to the masses of people to seek out suppliers who could make sarongs in quick-drying synthetic materials. Better still, she would seek out manufacturers with a documented supply chain; it would sit nicely with her sustainable living Magnolia Sea brand.
Pro Tip #3: Keep Control with a Private Label
Have you ever bought a house brand cereal or bottle of wine from a supermarket? You know, they’re sold under the supermarket’s label but they’re always priced lower than established brands in the market.
This is a private label at work. The supermarket need not start or own a winery business but they can buy directly from established winemakers, and then bottle them under their own label according to strict specifications and a budget.
The supermarket remains in complete control from the sourcing of the product to pricing, marketing, sales and distribution. And the supermarket’s private label cannot be found anywhere else except at — you guessed it — the supermarket.
Best of all, the profit margin on such house brands is much higher as they are generally far cheaper to produce in bulk, plus they enjoy the instant brand recognition and marketing of the private label owner.
Why Private Labels?
So going the private label route is the best when:
1. You don’t have or don’t want to spend serious capital to start a manufacturing business
2. You want to work directly with suppliers of your choice
3. You have a strong brand identity that you want to project onto your products
4. You’re a control freak
However, don’t just jump in yet with a private label. Since your brand is likely to be new in the market, you will need to work hard on brand recognition and reputation against more established players. Having a lower price is one way to sway customers to your brand for a start.
So you need to make sure that you have a strong brand image and voice first. Does the name roll off the tongue easily or is it hard to pronounce and spell? Difficult sounding names are doomed to fail. Do you have a hip logo and image? It needs to match your target market.
Also, consumers, in general, feel that private labels are of lesser quality than brand names. This might be true to an extent but it can also work the other way as well. AmazonBasics, for example, has garnered a loyal following for its low-cost, high quality, no-nonsense work products such as monitor stands and bags. And they’re only available from Amazon.
Finding Suppliers
Catherine shortlisted 3 suppliers who could supply quick-drying travel sarongs according to her specifications and budget. First, she had to buy some samples. “Not a problem,” she thought. She was going to extend her stay in Guangzhou anyway until she signed a purchase agreement.
Reams of material swatches later in the week, she settled on one supplier. She knew it wasn’t the business maxim to depend on one sole supplier but she had the other two suppliers just in case. And she made it known to the supplier that she would switch at the earliest signs of quality control or shipment issues.
Catherine signed a purchase agreement and issued a purchase order. The first shipment was due to at Amazon’s warehouse in the States in a 3 weeks time. Now it was time to head back to Phuket and wait for the shipment.
Pro Tip #4: Use the Cheapest Shipping Method
When you’re shipping products directly from a Chinese manufacturer to Amazon’s warehouses, sea shipping by far is the cheapest and most cost-effective option. Remember that landed costs — custom duties, insurance and freight — add to the total cost of your products and thus affect your profit margin. Minimise your landed costs, thus maximise your profits.
However, you’ll need to allow about 16 days for shipping alone between Shanghai and Seattle, for example. And you need to add the supplier’s production schedule. These two factors will affect your time to replenish stock. In the peak summer season for sarong buyers, for example, you must have adequate stocks in your Amazon warehouses as any replenishment time will mean lost sales.
Another risk with shipping products directly from a supplier to a warehouse is that quality control isn’t done along the way. Amazon will simply replenish your inventory and not perform QC checks. Getting a third-party in China or the States to unpack and check your shipments is going to cost you.
Unfortunately, quality control issues only show up when your returns and exchanges spike. In this case, since your products tend to be low-cost, high volume items, it’s best to have a flexible “no questions asked” return policy and window. It’s far better to absorb the cost of returns than to face the wrath of 1-star reviews at Amazon.
Selling is Hard
Catherine leaned back into her beach chair in Thailand. She was browsing Amazon’s listings and she was impressed by how seamlessly FBA and Amazon products were presented to buyers. Consumers were less interested in the brand and more into best sellers, value for money and ratings from other buyers.
If she wanted to promote her multi-purpose travel sarongs, she needed to make her products stand out with favourable reviews and thus more sales, and the cycle goes on. Since she maxed out her credit cards to purchase the first shipment of sarongs, she decided to use social media for maximum impact and low cost.
The first step that afternoon was to contact social media influencers on Instagram and those with travel accessories blogs. Then she would shortlist prominent Amazon Vine reviewers. All of these people would receive her products for free in exchange for an honest opinion while putting a disclaimer at the same time. Honesty counts in business.
Pro Tip #5: You Still Need to Do Marketing
It’s great that Amazon will take care of fulfilment and logistics, but you still need to promote your brand and products yourself. Sure, they’re listed in Amazon’s inventory but they’re not going to be discovered if you don’t ramp up your marketing efforts.
One fine morning Catherine received an email from her supplier. They were selling their manufacturing business to a competitor and retiring to the countryside to run a bed and breakfast inn. She was crestfallen despite looking at the frangipani flowers bobbing against the azure blue sea.
Any unfulfilled orders will be shipped but they weren’t taking any new orders at the moment because of the sale. And production will be disrupted during the handover process as the new owners reassess headcount and machinery. Most importantly, she will have to renegotiate a new purchase agreement.
Pro Tip #6: Always Have Contingency Suppliers
Going the Amazon FBA route means that your entire business model is dependent on your supplier. Sticking with one supplier could mean a great relationship with lower prices and lower MOQ in exchange for larger and more regular orders. But it also means that your business is at the mercy of that one supplier.
If your manufacturer knows that they’re the sole supplier, the balance of power is likely to swing in their favour. They could possibly dictate prices, MOQ and payment terms if they know you’re completely dependent on them.
Also, what happens if your sole supplier goes bust or their factory goes up in flames? Or if their factory closes for annual festivities or the Golden Week of holidays? These are very real risks that will impact your business. You’ll be left with unfulfilled orders and very angry 1-star reviews on Amazon.
So do keep up cordial relations with at least one or two other suppliers. Make sure they have your specifications ready and that they have supplied you with samples which you have approved. They will then be ready to step in when required at short notice.
Conclusion
If you’ve reached this part so far, give yourself a pat on the back! As you can see, creating private label products for sale on Amazon’s Fulfilled by Amazon programme is really no different from starting any business, whether online or offline.
You need to get your startup fundamentals right. What really is your value proposition to potential customers and buyers? Will you be yet another seller of travel bags or are you going to design and offer that one cool bag that will get frequent carry-on travellers quivering in delight?
Once you have your business plan, the rest relies on business acumen while Amazon and your suppliers take care of the heavy lifting and logistics. Remember, these e-commerce services will not do the selling for you, they are merely tools for launch your business faster and let you concentrate on the things that matter: your brand and value proposition in the market.
