(Not So) Private Labeling – How I Chose My First Product

One of the best perks of being a college professor is getting my summers off.  Every year I get two and a half months to do whatever I’d like.  While I’d like to be off jet-setting around the Continent with my family, or binge-watching Netflix, my summers tend to get devoted to even more work.  But rather than laboring away grading papers and prepping lectures, I get to spend some focused effort on my entrepreneurial endeavors.

Last summer (2015) I realized I needed to double down on one path and give it a few months of consistent effort, uninterrupted by teaching.  While GetChemistryHelp.com had been quietly chugging along making me a little ad revenue every month on 2+ year old content, I decided that it would be difficult to make it large enough to support my family and our crazy dreams.  I still want to build it out as a secondary stream of income, but not my primary.  Instead, I decided to focus on creating our own private label product.

What Is Private Labeling?

Let me define private labeling for those who might be unfamiliar with the term: Private labeling is taking an existing product created by a manufacturer and putting your company’s name (label) on it, often with only minimal modifications.  For example, taking a toaster already being produced in China, branding it with your company’s name, and then selling it through Amazon.  The potential for a relatively passive business is there because you order the product from China, have it shipped to Amazon, and they do all of the warehousing, order fulfillment, shipping, payment processing, returns, etc. and you get paid every 14 days.  Sounds easy, right?  Well, while finding products to private label is easy through sites like Alibaba.com, discovering one that has a shot at being successful is much more difficult.

Product Criteria

When I began, I didn’t really have any particular type of product in mind.  I just knew it needed to have the following qualities:

1. Lightweight – It needed to weigh under a pound to qualify for cheap shipping from China.
2. Small – It should fit in a shoebox, again for cheap shipping from China.
3. Simple/few moving parts – The product shouldn’t be easily broken as to minimize returns.
4. Not electronic – Way too many potential issues that can lead to returns.
5. No liability issues – Avoid items that are sharp, explosive, potential allergens, etc.
6. Not seasonal – I wanted something that would sell well year-around, at least for my first product or two.

Amazon Criteria

It also needed to meet a set of criteria to have a shot of being successful on Amazon.  I stole these from an outstanding interview Greg Mercer did with Scott Voelker on The Amazing Seller podcast.

1. Market depth – The top 10 sellers for a search term needed to be moving at least 3,000 units combined.  For example, if you search for “silicone spatula”, the first page of results should be selling a combined 3,000 units per month.  The thought being that if you can take even a small 10% of the top 10 sellers sales then you’ll be selling 300 units per month, or roughly 10 units per day.
2. Price point between $20-60 – Too low and it’s hard to make much after product costs, Amazon fees, shipping, advertising, etc.  Too high and it stops becoming an impulse purchase, thereby reducing your sales volume.
3. Low competition – Sales among the top 10 sellers should be relatively spread out.  In other words, the top two or three sellers shouldn’t be dominating while the rest are just getting scraps.
4. No name brand domination – Competing against name brands is fine so long as one isn’t dominating.  For example, if Apple or Black & Decker has 8 of the top 10 listings, then that’s not a niche you want to enter.
5. Low reviews – The #1 product should have less than 500 reviews, the #2 should have less than 300 reviews, and the rest should be even lower.  If every product has hundreds or thousands of reviews then it will be difficult to make your product stand out and compete.
6. Potential for related products – You want to build a brand of multiple products, not a one-off.

This is a lot of data to mine, but fortunately the aforementioned Greg Mercer developed a tool called Jungle Scout that makes it easy.  It’s a Chrome extension that allows you to simply click a button and get all of the data for the product results of a search term.  For example, I can go to Amazon, search for “silicone spatula”, wait for the results to come up, then click the Jungle Scout button.  I then get a table that looks like this:

Est. Sales are the estimated number of units sold per month.  Est. Revenue is the estimated revenue per month (basically just Price x Est. Sale).

Reviewing the Data

Let’s go through the criteria for this product.

1. Market depth – TONS of sales volume among the top 10.  Combined they’re selling over 24,700 units per month!
2. Price point between $20-60 – There are a few near at or over $20, but the average sale price is only $12.27.
3. Low competition – No one seller is dominating.  Sales are distributed among the top 10.
4. No name brand domination – A brand called called “di Oro Living” has spots 5, 6, and 8, but there are plenty of other brands doing well against them.
5. Low reviews – Definitely not!  Nearly every seller has hundreds of reviews and a few have over a thousand.  It would be very hard to get enough reviews to be competitive, especially as the competitions’ will also be increasing over time.
6. Potential for related products – There are numerous related kitchen gadgets and gizmos that could be added to this product line.

This product is definitely a loser as a potential private label product, but hopefully it illustrates the process I went through.  And I didn’t just go through it once or twice or or even fifty times.  No sir, I spent weeks going through hundreds upon hundreds of products in a variety of categories.  I looked at water bottles, reflective jogging vests, and passport wallets.  I looked at hydration backpacks, money belts, and dog food dishes.  I got desperate and began to violate my own rules by looking at shower caddies (too big), knives (too dangerous), and sun hats (too seasonal).  After weeks of this it began to get a bit discouraging.  I’m sure I was being too picky and I probably should have just chosen the best case and gone with it.  If nothing else, at least I would have learned numerous lessons along the way that no doubt would have made the second product more successful.

Lesson Learned

But I didn’t.  Instead, I kept looking and looking. Then I looked some more.  After that, I looked a little bit more.  If I hadn’t been so clear on the potential of a winning product, I would have given up much sooner.  After a couple of months of pounding my head against the wall without a clear lead, one day I began to think about the possibility of a consumable product – something that has to be purchased again and again, unlike a toaster or a silicone spatula.  Even if the price point was under $20 and the profit was $5 instead of $10, in theory the repeat buys should make up for it.  The problem with most consumables, whether it’s food, beauty products, or health & personal care items are that you generally don’t want to source them from China due to concerns over quality and contamination.  Sourcing more locally, like the US and Canada, does help with shipping costs but it also means the base cost of the unit will be much higher.

Eureka!

Without giving away my product and creating an army of competition, suffice it to say that I did finally hit upon a product I thought might work!  It was as simple as realizing there was need for a product that my family had been unable to find for ourselves.  I began by googling “private label xxxx manufacturer” and contacting dozens all over the US and Canada.  I told them what I was interested in and began to get quotes.  After interviewing a half-dozen or so, I settled on one who happened to be less than two hours away!  I sent him my criteria, he sent me some ideas, and we began to brainstorm.  It seemed like we were on the right track so I put down a $1,500 deposit to begin the prototype phase.  Summer came and went.  But after six months and over a dozen prototypes, we finally had our product!  I ordered 1,000 units to start with and our manufacturer recommended some companies to work with on packaging and design while our product waited its turn in the production queue.

In some ways, manufacturing the product is the easy part.  It’s selling it that is hard!

While all of that took nearly a year and countless hours of work, it was really only the beginning of the story!  In some ways, manufacturing the product is the easy part.  It’s selling it that is hard!  But more on that in my next post.

Hopefully you’ve learned something from my mistakes that will save you time, effort, and money!  If so, take a second to subscribe to my mailing list below.  No spam, just more free information on how I’m creating passive income in my own life.  🙂