One of the most frequent dilemmas facing a business in the personal care products industry is Private Label versus Contract Manufacturer. Especially with newer businesses or those wanting to expand beyond an initial product set, the differences in approach, margins, and often, level of control, will make private label or contract manufacturer a better choice for your new product.
What does each consist of and how do you choose?
Let’s start with a contract manufacturer. If your business is already using a formula and you want to either take your production beyond your current capacity or move from your own in-house production to off-site manufacturing, then you want a contract manufacturer.
If you have an established brand and wish to enter into a new product category, such as skin care or hair care, contract manufacturers are your best choice. They will partner with you to develop unique products for your brand whose formulation you can actually own and patent.
Alternatively, you may be interested in building your brand and business, but for a product that you don’t have an already existing formula. You can either go through the process of developing a new formula or you can add your private label to an existing product that is already ready-to-market.
Many private label manufacturers exist with a staggering array of available products. Private label manufacturing is often the quickest and most affordable way to get a product to market.
First, the research and development, compliance and testing is already complete. A new custom skincare product can take anywhere from 60 days to a year before the product can be approved for production.
Second, the development and testing phases are expensive, involving everything from lab time to raw ingredient costs.
However, you really do need to compare apples to apples and look at the lifecycle of the product you intend to market.
Private label usually provides cost savings as you start up. But, there will also be a need to calculate the difference in margins over time. Your upfront cost will most likely be lower with a private label manufacturer, but with a custom product your margins will be usually be higher. So, after you recover the start-up costs, your profits might be significantly higher with contract manufacturing.
The last thing you will want to consider is what is known as the M.O.Q. or Minimum Order Quantity. Generally, private label MOQs are significantly lower than contract manufacturers require. If you’re looking to put your brand on a product to sell at your spa or hair salon, for example, private label will probably be the right solution due to the MOQs.
However, that is also something that can be negotiated with the contract manufacturer, and if your business volume is large enough, it’s conceivable that you will sell-through enough product to meet most MOQs.
Ultimately, private label is a different service than a contract manufacturer. Your needs for your new product, will determine the best fit for your business.