What is best for your business?
There is a lot of confusion regarding the subtle differences between contract manufacturing and private labeling. There are advantages and disadvantages to each method, and either can work well depending on the product and the requirements of the buyer. The end goal for both methods is the same, to procure a great product that customers will buy!
In contract manufacturing, the buyer approaches the manufacturer to work on the design and manufacturing of a product per spec. While the manufacturer will often offer advice and expertise, it is the buyer who retains final say, responsibility, and control over the product produced.
Contract Manufacturing Advantages & Disadvantages
- The buyer has total control over the product.
- Relationship gives the buyer access to advanced skills: The manufacturer is an expert in making product and can improve upon it.
- The buyer retains: Image, branding, and packaging control.
- Product quality may be superior as the buyer sets the standard and testing methods.
- Lower unit costs: Since the buyer is contracting the manufacturer, they can typically negotiate market pricing that is lower than private label options.
- Higher start-up costs and longer development time.
When a buyer procures product using private label manufacturing, they are typically putting their name on a product that the manufacturer has already designed and built. In this case, the manufacturer usually has control of the product, specifications and manufacturing.
Private Label Advantages & Disadvantages
- Quick and easy access to product: There is no design, engineering, tooling, or ramp-up phase required.
- Low start-up costs: The product is ready for market.
- Laser focus: Having ready-to-market product helps the buyer focus on selling and marketing.
- Competition in the market: Multiple channels might be selling the same product.
There are pros and cons to contract manufacturing and private labeling. It is important to understand the implications of which method you choose. Contract manufacturing ultimately provides the buyer more control over the product and a price advantage on each unit produced.
If you are interested in manufacturing a product, please contact the experts at RSP to discuss any questions or concerns you might have.