Private Labeling

Question: My prospect would like to private label my product and has asked me if I could differentiate it from the norm and says he could sell it for more if I made a few changes.  He says he has big box stores that would carry the line but they want to be different.  What should I be asking in return for private labeling my product?

Answer: You have what sounds like a great opportunity, but there are pitfalls and blue bird’s sometime crap and it is not easy to recover if you signed the wrong type of agreement. My suggestions from what you have indicated dictate that you understand what type of changes your prospect requires in order to private label your product.

 If the changes are cosmetic such as color, documentation or disabling features, I would categorize those as relatively minor to control but they could be major if you do not negotiate the one time upfront costs to make the changes.  The changes require the manufacturer, you in this case to now have separate packaging, inventory control, warranty and support and special off book pricing considerations.

If the changes include the cosmetic as well as internal or external modifications, you have a whole new ball game and the impact to your current manufacturing, sales support and warranty may have to be totally be revamped.  You may have to go through the regulatory processes to get the products recertified and that could be lengthy depending on the modifications.

None of these conditions are bad if you have favorable terms such as decent margins to cover all of the exceptions.  Be sure to take into consideration the longevity of the contract, committed sales forecasts, the impact to your current manufacturing requirements and channels you private label will be selling into.

What impact will the private label have on your other channel partners?