One of the big keys in many businesses is how can they improve the margin that they’re getting on the sale of products to customers. One factor can be whether the products are products that you’ve created and produced or are you just functioning as a distributor of somebody else’s product.

It might be worthwhile to consider creating your own label of products. I had one client that did this during the past year. It made a big difference on certain products, taking the margins up form 45% to 70% or more on certain lines.

The change in the process might not be as dramatic as one might think. In this situation, the processing was not very intense. If anything, it was as much repackaging as it was pure processing. Or, it would be very mild batch processing that would be involved. It could be as simple as just encapsulating liquids going from drums of material into individual capsules and then having the capsules packaged into bottles. Or, in certain cases, there was maybe some modest batch processing and then having the finished products wrapped and otherwise packaged.

Certainly, there were other costs to set this up, such as doing the artwork, the design, creating the brand name, producing the labels, getting any regulatory approval required and other such startup costs. However, compared to the huge increase in the margins, it was a great return on investment.

Another factor to consider is what it could mean to turnover. If you’re selling somebody else’s product, it can be available elsewhere. A customer might buy from you for the first time or two, but especially in this day of the Internet, they could be every more prone to shop it around and switch to somebody who happens to have slightly better prices than you.

That changes when you have a private label product. Now, it’s under your label, people can only get it from you. You can now have your customer locked in to have to buy from you.

Total margins are not only a factor of how much you get per sale, but also what your volume is in the particular sale. Going private label can help out on both sides of the equation.

So, if you are distributing products for somebody else, consider the process involved in the production of the product. If the underlying raw materials are readily available and the processing is fairly simple, it might be very worthwhile for you to consider moving towards your own private label.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
Bringing new insights on results and maximizing company value