You Want To Start A Business? What Is The Most Profitable Strategy For Creating A Product?

Thursday, 26 April 2018


Hi all! Now, you know the difference between Private Label and Custom Manufacturing from what we shared with you previously (click here if you haven't read it). Let’s move on to looking at the costs that come with it.

Private label is generally more expensive than other methods like custom manufacturing or making it yourself. 

Why? Because you pay more upfront for things such as creating the formula, packaging and helping you with creating your brand. 

However, it does allow for lower volume purchasing (for e.g. you can buy 100 units instead of 10,000 units for custom manufacturing) 


So cost- wise, are there any pros in using Private Label (PL) ? Yes of course. 


Pros of Private Label

  1. You can save money in the long run: You won’t need to purchase so much of inventory (keeping your cashflow healthy) while you are launching a new product you haven’t tested in the market yet. Next, you also SAVE TIME. As the PL company usually already has inventory in stock, new products can be made faster, which means you can go to market faster too. 
  2. You don’t have to purchase all the other items. : What other items? What we mean here is the packaging, labels, testing the products etc. All this will save a lot of money as the PL company will have much more experience and will be buying in bulk which allows them to pass on lower prices to you. 

Custom Manufacturing

Now, we look at Custom Manufacturing. 

Cost for using custom manufacturers is usually lesser than private label depending on the volume purchased and the product you want to create. For example, something might cost you RM5/unit for 500 units but only RM2.50/unit for 5000 units

Pros of Custom Manufacturing: 

1. You have a unique product: Allows marketing advantage when your product is unique. Also allows you to sleep peacefully knowing that it is not easily duplicated. 
It is cheaper : This leaves you more money to go towards marketing and promotional activities

2. You get to own your formula: Provided that the entire formulation is yours, it gives you control over your manufacturing costs

When you own your formulation, you have the flexibility to change manufacturers to what suits your needs, and your brand and product will not suffer.


Cons: 

  1. Cost: You need to buy in bulk for it to be cheaper than Private Label. For a new business, stocking up so much of inventory is not wise.
  1. Lead time: Making a new custom formula will take a lot of time. Even if you have your formulation, it can take months before it is ready to go to market. usually 3-6 months before you even agree to a sample.
  1. It doesn’t mean the formula cannot be copied: At any time, any chemist might just make another product which is similar or even exactly the same as yours. But remember, what they cannot copy is your UNIQUE BRAND IDENTITY.


Cost of Making Your Products At Home vs. Private Label vs. Custom

A lot of people initially make the products at home as a hobby and then turn into a business. When they become ready to outsource the production, a lot of people are shocked at the prices!  

This mainly happens because they take into account costs of ingredients, packaging and logistics but forget one IMPORTANT PART, labour cost. 

So here’s a basic list of the things you cannot forget if you are making things on your own at home. 

  1. Ingredients - price of materials + logistics
  2. Mixing time and equipment
  3. Quality testing
  4. Packaging - for the product, for transporting the product to customer (bottles, bubble wrap, boxes etc) 
  5. Labour cost/manhours (yes, even your time spent on your business) 
  6. Profit- Please do not forget, that when you are running a business, the aim is to be profitable. 

We would recommend that you outsource the manufacturing as your business grows, as this will leave you more time to focus getting your SALES! 

At the end, we’d still choose Private Label if you are just starting your business or if your business has just started to grow. 


Choose wisely according to your needs! 

What do i think?

Here is what i think after reviewing all this. i know it can be very confusing. So heres what it is. 

At the end of the day; it all comes to ur budget. How much do you want to spend to start a business? 

If you have a budget in hundreds: i would suggest you go for DIY. Its a little tricky and will take some trial and error but once you get it right; handmade and DIY skincare is the cheapest way to go. its basically 'custom formulation' without the cost of 'custom manufacturing' that can cost up to 100k for one product!But to do this; you need patience and time! 

If you have thousands in budget (Rm1000-5000); then you have an option for private labeling or DIY. If you dont have the time to do it on your own; then go for private labeling.

If your budget is in RM 20k-50k and above; go for custom manufacturing. 

If it was me; and if you are just starting out; i would suggest you go for private or DIY as its a better and cheaper option to 'test' your marketing and sales ability. 

Once your business is stable and you know you have the customer base; then go for the custom manufacturing.

I hope this helps. Do leave a comment below if you have any further queries. 

If this is your first time here; please dont forget to download our Ebooks & Recipes Here. Its Free! If you are interested to start a business in skincare but not sure how; join our FB SoapLab Malaysia Club here. Its FREE

Thank you so much for reading;
Nisha

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