When I first started my largest business, I was operating a white-label product model – though if you had told me so at the time, I would have stared blankly, not knowing what white-labelling was.
I had started a B2B, buying and selling operation from home. I did fairly early on have a small manufacturing unit of my own, the majority of the things that I sold were manufactured by a third party. But I quickly discovered that any suggestion of outsourcing had potential customers running for the hills. They wanted to know whom they were dealing with. So, I put what I bought together into a brochure under my brand.
White-labelling is normally associated with the big retailers, those giant “own brand” cereals and baked beans, and other value-line products that are marketed under the supermarket’s own label. The sheer volume they buy means they can price low and run their own discount brands without the hassle of manufacturing. However, white-labelling has been a growing trend in many markets, food stuffs and electronics in particular, and even goes on in service industries. And as manufacturing in the UK has become more and more prohibitive and global trade with far cheaper alternatives has opened up, it has become the province of small businesses too.
It was far less common back when I started a business and rarer still in small businesses buying from other UK small manufacturers. However, the small companies I was dealing with were delighted to have a steady stream of work, combined with low delivery costs as they only brought the goods to me. On my side, I escaped the seemingly impossible hurdle of developing and manufacturing myself. It was relatively easy and moderately profitable for both sides.
As with any outsourcing, there are both problems and dangers. There are a lot of people handling the goods which means a series of mark-ups. I remember the aforesaid small manufacturer seething with temper having seen what their pieces were selling for retail, not understanding that it was inevitable after both I and the retailer had added our profits. Nor were mine hefty, despite his belief that I must be pulling in easy millions.
You are also piggy in the middle and gets the flak from the sides. It is your reputation that goes to the wall if the manufacturer messes up. It is you who has to still pay if the retailer doesn’t pay you. It is therefore crucial that you can develop a strong partnership approach to the relationship with your supplier, for white-labelled goods – or indeed any other outsourced goods. You are, very literally, putting your reputation in their hands. For the same reason, while white labelling may appear a good financial option, never chose any supplier based on cost alone. Quality and reliability are worth paying a little extra for; indeed they can cost a great deal less in the long run.
Buying in does not absolve you from responsibilities. This means meeting your customers’ obligations but it also means ensuring the quality of goods is met so no liability could result in their use. It is essential that you ensure any supplier holds full public liability insurance, health and safety protection, or a standards’ accreditation in your industry in addition to the product itself. Never just take their word for it – see it for yourself.
Increasingly important, too, are the moral and ethical behaviours of your manufacturer. They need to be aligned with your brand, not just to please you, but for your reputation. Customers will rapidly disappear if they find your ethically responsible company’s goods are really made in a sweatshop somewhere. That brings transport into the equation, too. While it might not matter for services, if you are bringing goods from a distance, there are eco-considerations on that transportation. Plus, distance adds to the risk of delay. Longer transportation means higher risks, higher costs. You can’t just nip down there in five minutes and sort out a crisis either.
Total trust and total transparency are the ideal, but this is business so ensure you have crystal clear agreements with every i dotted, every detail specified. Ideally, there should be penalty clauses on the manufacturer so that you share the burden when things go wrong, at least financially. But manufacturers are under pressure and few will agree to sign one, especially if you are only a small customer.
Entrusting some or all of your business into someone else’s hands is a risky business and that is what you are doing when your white label. Diversification may mitigate the risks, but also waters down your clout with the manufacturer. Things will go wrong, and you will be the one who pays. Backup plans are essential but they only go so far. When I was doing it, I was faced with the main manufacturer closing down quite literally overnight. That is not a situation I would recommend. It was a horrendous moment, suddenly seeing the business you had worked so hard for falling away in front of your eyes.
But for all the downsides, white-labelling can make for a fantastic business model, a partner without equity, an asset without investment, and a potential facilitator for enormous growth. And it certainly isn’t just for the big boys, but an option worth considering for small companies as well.
