When you are new to ecommerce, dropshipping is often used as a catchall phrase to describe different business models that involve sourcing products from a wholesaler and reselling for a profit.
However, as you venture deeper, you realize that it’s not the be-all, end-all. A more refined business model is Private Labeling or White Labelling. We have even seen these two terms being used interchangeably sometimes, whereas they are different.
Close for sure, but not the same. Today, we are going to show you the differences, which will help you decide which one of these three are the best choice for you.
- What is Dropshipping
- What is Private Label
- What is White Label
- Private Label vs Dropshipping
- White Label vs Dropshipping
- Private Label vs White Label Dropshipping
- How to Choose the Right Model
What is Dropshipping?
Dropshipping is a business model where you source products and resell, but do not keep any inventory yourself.
You work with dropshipping suppliers to provide the products you sell on your website or social media. When someone buys an item, the supplier will ship it directly to your customer – hence “dropship”.
Dropshipping is the easiest of the three that we are discussing today. If you ask us as a newcomer, we’d recommend straight away that you start with dropshipping. That’s because there are many advantages, and some drawbacks too.
What is Private Label?
Private Label is similar to dropshipping, but there are some key differences that make it more profitable.
With Private Label, you directly source products from suppliers or manufacturers who will manufacture the product to the exact specifications as requested by you.
You then package the product under your own brand name and rebrand to sell it through various sales channels.
Let us make that simpler. The supplier generates profit by selling the product to you. You rebrand it under a new name, swanky packaging and resell it for a higher margin to the end consumer.
A prime example is Nike, who sources their products from a selected network of vendors. They then take up the mantle of quality control, consistency and warranties. Finally, they rebrand it with Nike logos, colors and materials.
With us so far? Let’s take a look at the final one of the three.
What is White Label?
White Label is also a product sourcing model that’s pretty similar to Private label. You source a product from a manufacturer or supplier and then rebrand it to sell through various sales channels.
That sounds exactly like Private Label, doesn’t it? Here’s the difference.
While Label does not give you exclusive sales rights. The manufacturer can sell the item to a hundred other retailers like you. In simple terms, you source a generic product from the market and rebrand it to sell.
Chances are that ten other dropshippers also discovered that this is a winning product and sourced it.
Private Label, on the other hand, gives you the ability to customize the product’s features, appearance , and even functions so you have a distinct advantage to stand out from the crowd and differentiate yourself or your business.
Private Label vs Dropshipping
When you are relatively new in the ecommerce industry, someone mentioning these terms can throw you off. You start to wonder, wait. Did they just mean Private Label or was it about White labeling?
Wait, what’s the difference? We are going to do a one-on-one comparison of all three so that you get a clearer understanding of the advantages and drawbacks of each one.
Private Labeling Pros
- The biggest advantage of Private Labelling is Brand creation. You are essentially creating your own brand, that you have complete control over. You either do the branding yourself, or you can hire a professional designer, or ask the manufacturer to do it for you. Regardless, you are not selling a generic, unlabeled product. It’s a brand.
- You have all the time in the world to tweak the product design, if needed and refine it until it becomes an exact copy of what you had envisioned. If you want to be creative on that front, there are no limitations on how you choose to do it!
- The product is a brand exclusive that you will register under your trademark. You don’t have to worry about someone stealing the design, or the manufacturer double crossing you by selling it to someone who’s willing to pay more for it. The agreement disallows this. Also, most manufacturers refrain from breaching contractual terms for short term profit.
- Since the product is an exclusive, you have complete control over the pricing. In other words, you have much higher profit margins.
However, there are some disadvantages too.
Private Labelling Cons
- Private labelling is an expensive startup venture. Right from product conceptualization to design and branding, the investments are sizable. If you are just starting off in ecommerce, then prudence suggests that you might be better off with a lower investment model, like dropshipping.
- Most manufacturers will demand a higher MOQ (minimum order quantity) to design and manufacture a custom product for you. This again, adds to the investment. But it also amplifies your risk. No matter how positive you are about the product, you cannot negate the possibility that it may fail to generate sales. In this scenario, you are stuck with a pile of inventory that you cannot use.
- Most manufacturers will also inflate their pricing when you ask them to design the product for you. After all they are taking on more work and time with customizing it to your liking. That said, skilled product sourcing agents can surely help you find a manufacturer who agrees to your pricing conditions.
- Dropshipping is a beginner-friendly, low-investment business model that is perfect for people just getting started in the ecommerce industry. The reason being, it allows you to run your business on a lean model. The entry barrier is so low, that even a rank newcomer can set up a running business in less than a day.
- There is no need to invest heavily upfront or worry about warehousing or inventory management. You source generic products from manufacturers and sell them online through sales models that you are familiar with.
- You are not shoehorned into choosing one product and trying to make it work. The dropshipping universe is enormous and there are literally millions of products to choose from. This allows you to select the product based on the inventory levels, favorable pricing and so on.
- One of the biggest advantages is the MOQ. As a dropshipper, you don’t have to order inventory in huge volume. This means that you have the leeway to try a product in smaller batches and see if it works. If it does, you can scale. If it doesn’t, you can switch to something else.
- No need to bother about order fulfillment, like shipping the bulk order to a 3PL fulfillment services warehouse. You can either work with a manufacturer who does the fulfillment for you, or find a reliable sourcing agent who can handle it.
- Stealing (or should we call it borrowing) a competitor’s winning product idea is how most dropshipping businesses thrive these days. So there’s a distinct possibility that someone else will also start to sell the same product in a span of a month or two, once they notice that you are raking it in. Why, there are services like ecomhunt who do exactly this for a small charge. Everything from the winning product to your winning advertisement creative can be copied.
- You are selling a generic product. There’s no branding and hence, there’s nothing to separate you from the competition.
- Dropshipping requires deep product research and marketing skills in order to make it succeed. Also, it’s not sustainable.
So, what’s the best solution if you want to private label, but with more favorable terms? The obvious choice is Private Label Dropshipping.
Private Label Dropshipping gives you the best of both worlds, provided you can find the most important cog in the wheel, a sourcing agent.
The best sourcing agent will help you find a manufacturer who will design the product for you, not charge you too much and accept your pricing terms. That’s not all. The agent will also stock/hold the inventory for you in a secure warehouse at a destination of your choosing.
They handle the order fulfillment bit. This takes away two huge challenges that you otherwise face while private labelling yourself.
- You are able to find manufacturers with desirable MOQ, lead times and pricing.
- You don’t have to stock inventory by yourself or deal with the hassles of fulfillment. The agent will do the heavy lifting.
You get the best aspects of dropshipping combined with the advantages of Private Labelling.
White Label vs Dropshipping
Let’s try to understand the advantages and disadvantages of White Labelling now, as compared to dropshipping.
White labelling Pros
- You can essentially white label any product sold in the ecommerce space. You are not designing or conceptualizing the product yourself. You just pick a generic product and brand it with your own label. That saves you time, hassles and money.
- White Labelling gives you reasonably good profit margins. You might not be offering an exclusive, mind you. But if you invest your time and effort towards customer care and after sales support, you can build a trustworthy brand.
- The MOQs for white label products are not generally as high as what Private Label products require. The manufacturers are free to sell it to other retailers too. So they are not concerned about being stuck with a chunk of inventory that’s unusable.
White Labelling Cons
- Just like dropshipping, White labelling is a very competitive business model. In fact, it’s more competitive than Private Labelling. You are no longer offering an exclusive product, which means that the competition is high.
- Your brand will remain generic unless you are willing to invest in good design. This is the only way your product can stand out from the rest of the crowd. And this investment is considerable, considering that white label products could already be available at a lower price point than what you would pay for it.
- You won’t have very high profit margins. There will always be someone looking to undercut you, especially after you do the hard work and establish a sizeable following for the product.
- Regardless of the design, it’s still a generic that you are selling.
Just like Private Label Dropshipping, White Label Dropshipping is the safer middle ground for entrepreneurs who wish to reduce their risks and hassles.
You need a reliable dropshipping agent who can pick the ideal supplier for you from their network of suppliers. One who offers a competitive advantage, not merely in price mind you.
But also in terms of lead times and MOQ. A dropshipping agent can also handle the fulfillment part, stocking the inventory for you, taking care of branding and packaging.
For instance, Printful is a dropshipping marketplace that will help you set up a successful White label dropshipping business in seconds. They have a catalog of over 300 clothing products.
You can generate custom designs and sell them online. When you generate a sale, they will handle the production and fulfillment for you. This is a great example of how White Label Dropshipping works.
You create a brand, albeit with lesser control over it.
Private Label vs White Label Dropshipping
These two business models are a lot closer to one another than what’s generally assumed.
However, there are some key differences that will turn out to be the deciding factor when you are looking to choose one of these two.
Here are some questions that we recommend that you ask yourself while trying to decide whether to private label, or white label.
1. Do you have a unique brand idea?
The biggest advantage of Private Labelling is exclusive ownership of a product that you have brought to market. You own it. You have designed it and you get complete control over everything right down to the tiniest detail.
This is possible to an extent with White Label Dropshipping too. But only to an extent. White labeling is more related to branding your store rather than the products being sold.
When you are white labeling, your control over the product is limited to your sourcing skills. If you can source a product that’s a close match to what you envisioned, you are good to go.
2. How much time and effort are you looking to invest into your business?
Private Labelling involves a lot of work before the product is even ready to be launched. You need to design, manufacture and market it yourself if you expect your products to make waves online. Subsequently, your monetary investments are much larger too.
You don’t need to invest this kind of time, money or effort when you white label. Work comes in only after the product has been produced and stocked by someone else. You can build your brand around it or run promotions right away.
3. Is the branding of the product important to you?
There are several benefits to branding your products. The fact that you have invested money in marketing and R&D, gives you an edge when it comes down to pricing your product after launch.
Brands build trust and credibility. You are no longer looking at a short term business. It’s the long run. More profitable for sure, but more demanding on all fronts.
With white labeling however, your branding is limited to advertising and marketing your store. You cannot make changes to the products as it will impact potential sales from that supplier’s network.
You cannot differentiate between a product you have white labeled and one produced by your competitors using this same manufacturer. The main difference is in the price tag, which anybody can manipulate to undercut you.
4. How much money can you invest upfront?
White labeling is a low cost, time and effort investment. You do not need to invest in stocking inventory or fulfilling orders. A small fee will be enough to cover this for you and open up a new revenue stream. Even inflated, your initial investment will be lesser than what you need to start Private Labelling.
Private Labelling is an expensive process right from the start. The costs involved here include designing, manufacturing, branding and marketing your product. From MOQs to packaging, everything is more expensive when you private label.
You need to select the right business model depending on what kind of cash you have for a startup.
5. How much experience do you have with ecommerce?
You need to have some understanding of the ecommerce business before you choose either one of these two business models to be honest.
If you are prepared for the learning curve, white labeling can be your lower risk option while building up that experience for a more ambitious private label project in the future.
With Private labelling, the risks are exponentially higher, as are the number of things that you need to get right.
Private Label vs Dropshipping vs White Label – Which Model is Right for You?
All things said and done, which of these three models will be the right choice for you?
We have tried to create common scenarios in which each one of these models are generally a good fit.
1. Choose Private Label dropshipping
Private Label dropshipping is the most profitable business model of all three. But with great profits come great responsibilities. (Did Spiderman say that?) Here’s a basic checklist before you dive head over heels into the private label dropshipping business.
- You are looking to create a unique brand.
- You seek higher profit margins and complete control over product pricing
- Calculate the necessary investment, not merely in terms of money, but also time and effort.
- Recommended only if you have some experience with ecommerce and dropshipping
- You have a reliable partner who can do the heavy lifting for you. Like Sourcingbro does for multiple clients who have set up successful private label brands with us.
- Be aware of the risks and have a plan in place to mitigate the risks in case things don’t go as expected.
Choose White Label Dropshipping
Don’t let the terms ‘generic’ or ‘competition’ dissuade you from trying White Label Dropshipping. It offers some great advantages that you do not get with regular dropshipping.
- You want to start a brand, but are not ready for the huge investments upfront.
- You have a way to deal with competitors who try to undercut you. In other words, you have a solid sales plan in place that’s not going to be affected by someone trying to sell the same product at a cheaper price.
- You have a sourcing agent who can source with low MOQs and handle fulfillment, allowing you to focus on the sales.
Choose White Labelling or Private Labelling (Not Dropshipping)
If you have set up successful ecommerce businesses before, then there’s nothing stopping you from selecting either one of these and adding another feather to your cap.
You don’t even need to work with a sourcing agent if that’s the case. (Although a sourcing agent will still make life simpler for you)
However, if this is the first or second ecommerce venture you are setting up, then we recommend that you dropship rather than taking up the entire business on your shoulders.
Both Private Labelling and White labelling are excellent business models. But they demand a sizable investment and astute understanding of design, inventory, warehousing, packaging, logistics, shipping and after sales support.
We hope that this article helps you understand the key differences in these three models.
Remember, no business model is explicitly good or bad. It’s all subjective. You need to pick the one that’s best suited for your skillset, expertise, vision and investments.
If you have made up your mind already, speak to us. We have helped several entrepreneurs set up private label dropshipping brands and hence boast of an unmatched ecommerce business experience.