Private Labeling

Manufacturer Responsibilities

If you are private labeling or contract manufacturing a product (or a whole line of products) for a customer, what are your responsibilities for labeling?

White labeling, private labeling and contract manufacturing are very similar. Both refer to a manufacturer making a product that is ultimately labeled for retail sale with someone else’s name or brand on the package. Within handcrafted soap and cosmetics there are some slight differences — sometimes.

White Label

White label refers to a retailer purchasing an existing product and putting their own label on it.

White label is frequently done in the electronics industry where a fairly generic item is purchased as-is from a manufacturer and then labeled by the retailer; support, if any, is handled anonymously by the manufacturer. You might think your XYZ brand like a universal TV remote is better or more reliable because you purchased it from your trusted XYZ store, but it is likely the exact same remote as from the discount store across town; only with a different label. If you call support, you’ll get the manufacturer’s support service, no matter where you purchased the remote.

For handcrafted soap and cosmetics, white label means purchasing a ready-made product (with or without the final label) which will be sold under the retailers name. Some suppliers sell already bottled lotions, for example, that are just waiting for your label.

Alternatively, you if you make a marvelous lotion, you might be able to sell that same lotion to a retailer who will sell it under their own label. In that case, you might send the products to the retailer naked or provide a labeling service in which you create and label the product to the retailer’s specifications.

Private Label

The terms “private label” and “white label” are often used interchangeably in that they both refer to a product that is made by a manufacturer and then sold under the retailers brand. However, “private label” can also mean that it is a unique product made for just one retailer. To carry forward the TV remote example, private label would be if the retailer were to contact the manufacturer and have the same remote made with a red case (instead of black), making their retail version of the same product slightly different.

For handcrafted soap and cosmetics, a “private label” product may be one that is normally made, or it could be one that is customized to the retailers specifications for color, scent or special additives. In some cases, private label includes the actual labeling of the product with the retailer’s label (in their design and to their specifications); other times the product is delivered “naked” and the retailer has the responsibility for designing, producing and applying the actual label to the package.

Contract Manufacturing

Contract manufacturing differs from white label and private label in that the formulation and the product itself are the property of the retailer; the manufacturer is just hired to make a product to meet the specifications. However, there is again often overlap in that contract manufacturing companies may help with the actual formulation or may already have their own formulations available as-is or with modifications (similar to private label).

For handcrafted soap and cosmetic makers, contract manufacturing is generally when someone comes to you and asks you to make a product to their specifications; they already have the recipe. Generally, but not always, the contact includes labeling the finished product to the customer’s specifications.

Key Difference: Who Owns the Formula?

In all the cases covered here, the common factor is that the person who manufactures the product/ company is NOT the person/company whose name and brand are on the label. One key (and very important difference) between them is whether the manufacturer or the retailer owns the formulation. While you can’t copyright a recipe, a good recipe can be considered intellectual property for a business.

Generally speaking, for white or private label — even when the private label includes some modifications to an existing formulations — the formulation is the property of the manufacturer and doesn’t need to be disclosed to the retailer.

In contract manufacturing, when the retailer brings the formulation to the manufacturer, the formulation belongs to the retailer. The manufacturer is usually expected to sign a non-disclosure agreement (NDA) stating that they won’t disclose or use the formula other than as approved in the agreement.

Pricing

When a retailer comes to you for a product to sell under their own brand, calculating what to charge can be daunting. There are several factors that come into play. First, start with your wholesale price, and require sufficient quantity — either in the first order or in guaranteed orders over time — to make it worth your while in the first place.

Once you have your wholesale price, then take into account:

• If the product is made using your existing formulation, ADD a premium to offset the time and expense you invested in the development of the formulation. The retailer is coming to you so they don’t have to invest into the R&D of a new product.
• If the product requires modification to an existing formulation, ADD a premium to offset your time and effort to ensure that the modifications will work.
• If the retailer has asked you to design and/or print labels to their specifications, ADD a premium for your time to do so. Graphic designers charge a lot; if you are being required to wear a graphic designer hat, then charge appropriately.
• If the retailer requires different packaging than you would normally provide, ADD a premium for the time and effort that goes into the new packaging. Be sure to take into account the cost of new packaging itself (boxes, ribbons, specialty papers, etc.), the time it takes to actually package AND any packaging that ends up being unused. DEDUCT the cost of the packaging that would normally be on your wholesale products.
• If applicable, ADD for the expected amount of trouble this is going to cause you. As an example, I know a web designer that was asked for a bid on a job. After dealing with the people involved, she realized they were going to be really, really difficult to work with — so she doubled her calculated price... and they took it!
• Adjust for your profit, and “what the traffic will bear.”

Keep in mind that if the project is really going to cause you grief and there is no price at which it would be livable, consider passing on the job.

Labeled or Unlabeled?

The contents of a label on a private label, white label or contract manufactured product are just the same as the requirements on any other label (see inset)

Note that the ONLY difference is that the retailer’s name is on the label instead of the manufacturers name. However, as the manufacturer, you still have some responsibility for the correct labeling of the product — whether you deliver it labeled or unlabeled.

Labeled Product

If the retailer purchasing your product wants you to label it according to their specifications, you must ensure that the final, labeled product you deliver is legal. Even though it’s their design (or your design to their specs), you still need to make sure that what you send is correctly labeled. Since the law covers “products in commerce,” if you are shipping or delivering the product, you are responsible for ensuring that what you put “in commerce” is legal.

Note that if the retailer is unwilling to design, provide or approve label that meets legal requirements, you may be unable to deliver. If you are being asked to provide a labeled product, it’s best to get a commitment up front that they will provide a legally compliant label or you won’t ship (but the retailer will still need to pay for the product made for them).

Unlabeled Product

If you are shipping or delivering unlabeled products to the retailer, your responsibility is different. In this case, you must ensure that you have some sort of written contract with the retailer that includes the clause that they are a) responsible for the labeling, and b) will label the products legally. (Of course, it’s a good idea to have a contract covering all aspects of the transaction anyway.)

You will need to provide the retailer with the ingredient declaration as is should be stated on the label, and the correct net contents. You might also want to provide some links or referrals to what is required for correct labeling. At the very least, give the retailer the link to the Cosmetic Labeling Guide on the FDA site.

In Summary

Contract manufacturing and/or product/white label products can be a good way to extend your product line. In order to make it work, be sure to charge enough for your services and keep in mind your legal requirements and responsibilities for the labeling.