How Do You Price Private Label Products?

Looking to get into the game of private-labelling, but are unsure what price to set for your product(s)? In order to determine a viable price, we’ll need to reverse engineer the pricing to make sure the price is in alignment with our business and the market. Phrased differently, there are three variables to consider: your brand, your market, and your business model.

BRAND / MARKET

It all starts with your brand. First, look at your brand and its position in the market. The competitive landscape of your brands market segment will highly influence your price.

I think it’s best to break this down with an example. Let’s say we’re looking to private label a line of high-end men’s hair gels and pomades for our company called Taylor Matthews. If I needed to start, I would start by answering a few questions about the competition:

  • Who am I competing with or who will I be competing with? (I would look for at least 10 competitors to my brand). The best place to start looking for competitors is Amazon and Google. Just enter a phrase that is relevant to your brand in the search (high-end hair pomade) and look for either best sellers, with the most reviews, or listicle blogs comparing similar products.
  • What is the price my competitors set for comparable products? I would then analyze their pricing strategy. Taking our example of a hair pomade, I would want to find a product from a similar brand with the same attributes: size of packaging, same type of hair pomade, etc.
  • I would also look at contextual information, such as: how are they positioning their brand to justify this price? Phrased differently, what is their value proposition? For a hair pomade, you might want to look at the ingredients in their products? Is it organic? Or have ingredients that might help with hair restoration? Etc.

BUSINESS MODEL

Now that we have an idea of what price the competitors to our brand are selling their products at, we need to use that information to figure out what makes the most sense, not only for the Taylor Matthew’s brand but also the business model. The economics need to make sense. That statement may seem obvious, but it’s critical that our price and business model are aligned for profitability.

An important variable to consider when conducting our competitive analysis is to consider our business model and our competitor’s business models.

  • Is Taylor Matthew’s going to be selling directly to consumers via their own website, and/or Amazon?
  • Are we selling to distributors who are turning around and selling our products to stores?
  • Are we selling to stores who are turning around and selling them to the end consumer?
  • Are we doing all three?

The answers to these questions will determine what price we will need to set for our products. For our Taylor Matthews example, we want to sell our high-end men’s hair pomade:

  • Direct to stores ( like Barbershops & Salons), &
  • Direct to consumers online.

Therefore, we will need to set a retail price that will allow us to sell our products profitably to stores so they can turn around and sell them profitably to their customers. Your appropriate margin will depend on your product and market segment, but for the example of hair-pomade, a good margin to target for both us and the store is 50%. Ideally, more profit for our business, if possible.

Let’s recap with the Taylor Matthew’s hair pomade example. After the competitive analysis, we determined the average price for similar pomades is $25.00 for a 4oz jar of product. However, we want to be a bit cheaper than the average, so we’ve set our price at $22.00. Furthermore, knowing that I want to sell my product to stores, as a rule of thumb, I will need to sell it to them for $11.00. This means that my product cost should be no more than $5.50.

Therefore, when private labelling a product, we should be finding something within that price range. If the product is going to cost us more, than we should change our price accordingly, but we need to be wary not to price ourselves out of the market. Remember the economics need to make sense, which means sales need to be feasible and repeatable. For a silly example, how many people would spend $100 on a 4oz jar of hair pomade?

And there you have it folks, I hope this answer helps. If you have any other questions, please feel free to email me at vince@petrasoap.com or visit our website to learn more about our private label offerings!

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