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 labeling. 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 Private Label?
Private Label is the next level of 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 White Label: How to Choose?
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.
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.
Choose Private Label
Private Label 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
Don’t let the terms ‘generic’ or ‘competition’ dissuade you from trying White Label. 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.
We hope that this article helps you understand the key differences in these 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.