Your decision when choosing between Private Labeling and Custom Manufacturing, or co-manufacturing, rests on several factors. In both cases you will be outsourcing the manufacturing. What it comes down to is your goal and your budget. In the case of co-manufacturing, you will be developing an original, high-quality product not currently on the market. In Private Label you enter the market with a generic product and focus on boosting your brand through perceived value. The risks with custom manufacturing are far greater, but the potential reward could be as well.
Custom manufacturing usually involves a few companies working together to create an original product from scratch. Not only do you have to think of the ingredients of the product, you need to research a market that might not exist yet.
While this is far riskier and costlier than Private Labeling, it does enable you to create a product that is entirely original. If it turns out your research was correct and there is a sizable demand for it, you alone will own the market and you can even create your brand around the product, easily establishing yourself as the market leader.
Co-manufacturing is far cheaper than manufacturing in-house, and they won’t skimp on quality due to a lack of resources. Expanding capacity is also less risky, since you don’t need to provide the infrastructure. This is especially relevant in terms of location; how many they have and where they are. Selecting the manufacturer is a process of trial and error. You’ll have to consider several and do some test rounds to find the right one.
With custom manufacturing there are two key words: Control and Quality. By taking on more control, you take on more responsibility, and the success of the product lives or dies by your research. Co-manufacturers specialize in quality, the rest is all you. You’ll be able to dictate which ingredients should be included or excluded from your supplement, but also carry all legal responsibility to ensure that the ingredients are accepted by government.
If you have an existing business with more than one product line, consider launching another one with co-manufacturing. While your business continues running, you can do research on potential products. The co-manufacturer takes care of the logistics, and you focus on marketing and getting feedback from customers, evaluating the success of a new product line. This makes it easier to test a product in the market without investing a lot of upfront costs on in-house manufacturing.
Private label is a great business model if you want to sell an already established product. There is no unknown factor, since the market is already there along with evidence of the demand. By adding your brand to the product, you can then drive sales and put marketing strategies in place to get a share of the established market. In this case you will be focusing on increasing the perceived value of the product.
In the case of private label supplements, your customers are already comfortable with the supplement and its ingredients and might be using it already. By raising the perceived value with improved packaging and design, you add brand value and boost brand loyalty. This way you can turn a fairly generic product into a cash cow. The upfront costs are minimal compared to researching and custom manufacturing a new product line from scratch.
With private label supplements the amount you can customize the supplement is very limited, if not completely restricted. Usually you cannot make any changes to the ingredients in your supplement, but will be allowed to change all branding to match your company. Private label manufacturers will supply you with a ready to market product, as well as a packaging and shipping service. This gives you the option to design your own packaging and labeling. By marketing your brand, you reach customers that already love the product and want a trusted brand that they can count on to stay around.
Private labeling is by far the lower cost option, giving you the expertise of a third-party manufacturer without the massive upfront costs of having a factory in-house, or doing custom manufacturing. Co-manufacturers have a far higher MOQ (Minimum Order Quantity), so the jump in investment and time is considerable. Because third-party manufacturers have a lot of clients, they have the resources to do large production runs on request and do so in a fairly short time. Which means that you can scale your business much quicker and expand.