Last Updated on May 27, 2020
Dropshipping versus a private label – this is a comparison which is made or desired by many people. For your company, which is better? Well Exactly I can’t say to you.
The advantages & disadvantages of both these strategies can determine the best work for your scenario. It’s therefore best for you to tell yourself to decide for yourself.
I come here to give both of you my personal experience and to discuss what they have both brought for my ecommerce company to the table.
What Are Dropshipping & Private Labeling?
Dropshipping is a method of retail compliance when a shop does not stock the products it sells. Instead, when a store sells a product, it buys the item from a third party and has it sent to the customer directly. The merchant never sees the product or manages it.
The greatest difference from the standard retail model is that the seller does not inventory themselves or the stock. The trader instead buys inventory from a third party – generally a wholesaler or fabricator – to carry out orders.
A private label product is produced and sold under a brand name of a retailer by a contractual or a third party manufacturer. As a retailer, you specify all the products-what they contain, what the label looks like, and what it pays to have it manufactured in your shop and delivered. This contrasts with the purchase of products with their brands from other companies.
Shop brands are specific private label brands that are managed by a retailer exclusively for sale in a specific chain of stores. To build upon the relationship between products and the customer base of the shop, the retailer designs the production, packaging and marketing of goods. Market products are usually cheaper than domestic marquees since the retailer can optimize production in order to satisfy consumption demand and reduce the cost of advertising. Goods sold under a brand name shall be subjected to the same regulatory monitoring as goods sold under a brand name.
My Experience on Dropshipping while I have started
It’s been 2 years since, I have been put up in this dropshipping business, and I started this without big awareness and knowledge.
I lost money a few months before I really started understanding the business model, understanding my niche, and understanding my market.
I’m talking about hundreds of dollars and weeks of testing after a lot of testing and money spent, I finally found a good sub – niche to hone in on, as a good product to sell.
I made a few sales of this product, began digging myself out of the money hole into which I had crept and worked to make things better.
I tested new products, tested new marketing strategies and understood the market where I was.
Now remember, I’ve been dropshipping all this time, meaning I’ve never stored the product myself.
This right here is one of the reasons I like to go and why I think it is a great way to introduce anyone to e-commerce.
Advantages of Dropshipping Stores:
Due to the fact that I had to worry about the inventory, I was able to test a ton of various products without any risk.
I could make an entire product advertising campaign, and if I found it didn’t sell after a week or two, I could scrap it out without hundreds of stock units left.
A business model of such low risk and commitment was absolutely crucial to my success, because something that worked took me months to find. It would have taken so much time and money to stock up my product if I had zero income.
This is how I actually did my first 200 orders–dropshipping completely. That’s how I’d advise everyone to start.
There were some significant drawbacks to this, however.
Major drawbacks of Dropshipping stores:
As products are primarily shipped from China, the delivery times are slow. Slow with pain. A decent number of clients have not even received their orders.
The slow shipping times are not an enormous problem as long as you have your products, but my customers didn’t really want to come back and buy from me.
Next, it was awful packaging. The deception of a Customer waiting for a package for 3 weeks and coming in a minute yellow Chinese envelope is incomprehensible.
Well at the beginning, but when you try to build a strong brand with returning customers, you won’t. It doesn’t give your product a premium experience and it looks bad.
There is also no quality control. It was a problem I realized that a significant number of customers would contact me to make a misunderstanding of their product.
The goods were now cheap, so I just sent another one free of charge to them, but it still cost me my customers ‘ money and trust.
And finally, a big one, not such a big profit. When I get into fine detail in this article I’ll show you how important that is. However, it was clear to me that by ordering one-offs on AliExpress, I lost many profits.
I had to analyze the state of affairs at this point. I’ve got two main products that sell me well. For weeks they had been sold regularly and soon showed no signs of slowdown.
Following the consideration of the issues I discussed in the last section, I decided to label the winning products privately.
Notice how I have said these, and not all the products. I had other products on my website, but I didn’t always sell enough to warrant that I bought them in bulk, so I kept dropping them.
This mix of self-fulfillment and dropping off of your best-selling products is the strategic approach I have used in all of my dropping companies. If you weigh costs and advantages it makes sense.
So I went to Alibaba once I decided to go to a private label. For my first order I ordered my goods in bulk, about 200 units each, and got them at a very cheap price.
Again, a little later in this article I’m covering details. I went to Amazon and ordered some small bubble-mailers because my jewelry-like products were and I ordered a few small bottles of velvet in addition.
I finally went to Vistaprint for 500 business cards, which cost the customer about 10 dollars and provided him with a discount code for purchases that would follow in the future.
I just started fulfilling my products, after I had all the elements, and the advantages were quite immediate.
Advantages of Private Label Brands for Retailers:
Private labeling enables retailers to offer their customers something separate. It’s a great way to get rid of your competitors. You can build your own picture and marketing identity with private branding. This can help increase customer loyalty and customer recognition. Besides, you’ll benefit from the only source of your customer if you can well market and create a market demand for your brand.
Customer loyalty is an important factor in making a company succeeding. And private label brands are a way for people who like the products of your business to build customer loyalty. With high quality products that are limited to an extensive customer base, a retailer can gain loyalty from its core customers. It attaches to these customers and gives them the sense that they are among the few selected who owns their brand.
Another benefit of branding with a personal label is that retailers can make them a wholesaler of their brand. As a wholesaler, you can offer a limited number of other retailers who are prepared to pay premium costs for the right to sell your brand. This generates more profit and also makes your brand more exposed to a wider market.
As stated, private label branding allows you to create your unique image, which promotes a stronger recognition of customers. Manufacturers who propose branding on private labels must be able to customize the packaging and label as specified by the owner. The product name, description, company logo and contact information are included. This can personalize the shopping experience of a customer and lead to greater customer loyalty. This is also possible.
A successful brand for a private label will also provide retailers with better selling opportunities. Last but not least, private label brands have higher profit margins than resales products because it is usually a much lower cost base for producing your product. And the lower your production costs, the greater your profits are.
Supermarkets, for instance, routinely use private labels to achieve high profit margins that offset minimum profits on top industry brands.
Major drawbacks of Private label Products:
- In terms of quality and production, you rely heavily on your manufacturer.
- Private products labelled are sold at a lower price that in its initial stage leaves a lower profit margin in view of all your private labeling expenditure.
- Private label products are more like branded replicas, leaving very little room for a singular identity.
- It can be difficult, risky and costly to design your own logo and packaging.
- The brand name and brand awareness will require some time, probably months or years.
- It takes a lot of time to see the results.
- Private labeled products have less consumer confidence than national popular brands.
Core Benefits of Private labeling:
In the time frame of my transition to private labeling, I will look at things. I received 15 or 20 orders a day during that time.
The main product I was shipping was $6.50 to my customer from China, and I charged $20 for my website. The margin of profit per product is $13.50. Not bad. I know Shopify’s fees and other things, side note.
I’m denying it because for both scenarios this is about the same difference. These transportation wasn’t very good now. On average, they arrived in 2.5 weeks.
The package was very tiny and the product was not well presented. A good number of products were also lost or broken. I would say that at least 5 percent of my products were damaged or lost one product a day. It was $202 profit on a day when I made 15 orders.
I am around $196, minus the costs of a substitute product. It’s not awful, but it could be improved. Also remember, I didn’t get repeated customers during this time, because my purchasing experience was so poor.
I was trapped by one-time clients, which is what many so-called drop-outs like to tell you. That’s awful. We wish to maintain our customers as customer acquisition costs are so high. We need them more than once to buy from us, and when their shopping experience is poor, they will not. I make $196 profit a day, getting customers only once, but saving time away from my day. Not bad, but it is easy to improve. Consider the same situation as private labelling and self-realization.
My experience with private labeling:
I could buy a bulk order of $ 1.50 per unit for 200 of my product.
This leads me to a profit point of 18.50 dollars per product. But what about all the extra things you purchased, Zach?!
And the I did not forget that. I did not forget. Let us calculate that. Let us calculate that. For $ 7, I can get a $ 50 bubble mailing pack.
The bubble mailer is $ .14. For $ 17, I could get an 80 velvet bag pack. This is a bag of $ .21.
For $ 10, I can get a box of 500 cards. That’s a card of $ .02. Then I can send this envelope for $ 1 everywhere in the US. I’m not joking.
I’m not joking. This is my shipment price because it is under an ounce. It costs more for larger goods, so you research your product’s shipping prices before you jump into it.
With all of this in mind, we now have our original $ 18.50 profit margin, less $ 1.37. After all, I am still at $ 17.13 per unit sold for a whopping profit. That’s an additional $ 3.63 PER UNIT SOLD. It’s $ 54.45 for extra income I missed when I sell 15 units a day.
Not to mention that I now have repeated customers purchasing 2, 3, or even 4, because my service is so fast and high quality. This links to the dilemma of time we had previously.
I would spend a day spending an hour doing this most. It means I get $ 54.45 per hour for an hour of work. That’s the wages of a pharmacist and computer scientist. Tell me it’s not worth your time again, even at half this rate.
Yes, I still simplify things, while this article has been long and complete in detail.
The situation of everybody is different, and you must make the best judgment and the best decision on how to use the information presented in this video.
However, I hope you will be more open to eCommerce possibilities after my story and the number behind it.
Private labelling and compliance has a number of advantages that really bring your business to the next level once you’re at the moment, when combined with other things like strong back – end marketing.
Briefly, until you have confidence in a product, the private label and the scale of that product. Or at least take it into account.
I did this, this is what my own dad does, and it really can work for you, too. It has the capacity.