For dropshippers trying to stand out in the market and make a profit, choosing the right business model can be difficult.
After selecting a dropshipping niche, you have to decide which products to sell and how to market them. Do you sell branded products, private label them, or manufacture entirely new ones?
Our co-packing vs private label comparison will explain these two models in detail. By the end of this guide, you’ll know which dropshipping business model is best for you. Enjoy.
目录
Co-Packing vs Private Label: An Overview
Here is an overview of the major differences between co-packing and private label dropshipping.
| Characteristic | Co-Packing | Private Label |
| Authority Building | Allows you to establish yourself as a unique expert in your niche | Even though you’ll be able to private label items, your expertise is as useful as the next dropshipper who sells a similar product. |
| Expertise and Data Required | Many hours of research and a deep knowledge of your niche is required to find a need to fill. | You only need to do a few hours of research to find the bestselling products to private label. |
| Cost Investment | A co-packer spends more money to cover production costs. The MOQ is high. May also have to pay for warehousing. | MOQ is low. Doesn’t always have to pay warehousing fees since many suppliers are willing to fulfill orders as they come in. |
| Profit Margins | Very large product margins because the dropshipper is selling a unique product. | Profit margins are not as high for private label dropshippers. Customers can find similar products. |
| Market Flexibility | Is not very adaptable to market changes especially trends. | Private label dropshipping is very flexible. |
| Risk Margins | Co-packing is very risky because the dropshipper is investing a lot of time and money into his idea. | Private label is not risky and MOQs are low. |
| Competition | A co-packer has few or zero competitors because he is selling a unique product. | Is competing with everyone selling a similar product. |
What Is Co-Packing?
Co-packing means working with a supplier to develop a new product. Let’s say you want to co-pack earrings. You contact a dropshipping supplier and ask them to design a new type of earring. You choose which metals and coatings. A manufacturer usually signs an NDA not to disclose your method or use it for another business.
Co-packing has several benefits. First, you fill a gap in the market and sell a unique product. Second, you’re not responsible for manufacturing equipment and logistics. Third, you quickly become an expert in your niche.
To succeed in co-packing, you must either have special knowledge of a marker gap or spend a ton of money researching to find that need. Co-packing is best for dropshippers who have a large audience. A new dropshipper will spend a lot on marketing.
What Is Private Labeling?
Private labeling is adding your logo to unbranded products and selling them under your brand. Instead of producing new jewelry, a private label dropshipper selects a mass-produced one and adds his brand. Private label dropshippers can request slight modifications in length or color.
Private label is a more accessible entry point for a beginner dropshipper. It gives you the chance to stand out while selling something people are already interested in buying.
Co-packing vs Private Label: Major Differences
Authority and Brand Building
Authority building is vital for dropshippers because it allows them to be trustworthy in their industry. It also increases a customer base since people are more willing to trust an expert.
Co-packing allows a dropshipper to build a more authoritative brand. Since you’re offering something that is not in the market, you become an expert in the business.
Private label dropshipping allows you to be as much an expert as the next private label dropshipper. The only authority you have is above people who don’t have a brand at all.
When it comes to branding and authority building, co-packing wins.
Expertise and Data Required
Succeeding in co-packing requires a large amount of data. A dropshipper has to spend hours researching to confirm whether there is a need in a niche to fill.
You have to find what customers need, understand how to supply that need, and which manufacturers can work with you.
In contrast, private labeling only requires a dropshipper to confirm that people are already into a product. You can then find a supplier who can custom label your products and deliver them to customers.
For a private label dropshipper, the research comes down to a few hours of looking at bestselling lists and top-rated products. For a co-packer, research means spending dozens of hours poring over product descriptions, customer reviews and feedback, and public forums.
Cost Investment
A co-packing dropshipper will spend a lot of time and money researching and finding a supplier. You will also pay cash for production.
For a co-packer, the minimum order quantity is going to be high. For example, a manufacturer may require that a co-packer buys at least 1000 pairs of earrings but that the private label dropshipper buys only 50 pairs.
The reason for this is apparent. For the co-packer, the manufacturer will be producing an entirely new product, and working with new raw materials or old raw materials in new ways.
No manufacturer will spend tons of factory resources for only ten pairs of earrings. So a co-packer will pay more money to cover production means and costs. And the MOQ is going to be higher than for the private label dropshipper.
This proves that a private label is better for the dropshipper who does not have a large budget. You can pay little money for your brand to be placed on an already made unbranded product.
Profit Margins
With a private label, a dropshipper is almost guaranteed to make a profit. After all, you’re selling goods that people are already buying.
However, a private label dropshipper has an already determined average profit margin. Since dozens of dropshippers already sell similar products, you cannot price your item too high.
For a co-packer, the profit margin is very high. In co-packing, no one is selling what you’re selling. You can price your product how you like.
When it comes to profit margins, co-packing wins.
Market Flexibility
Market trends come and go. In private labeling, it’s simple to adapt to market changes.
Imagine a private label dropshipper who sells fabric. If the market loses interest in the fabric design, the dropshipper buys the trending one and adds his private label.
For a co-packer, there are several disadvantages regarding market trends. If people stop being interested in the product, the dropshipper spends more time researching the need for a new one.
Second, he may have an unsold inventory. The manufacturer will not repurchase it because no one else sells it, and it won’t be easy to modify the products into what people want.
In market flexibility, private label dropshipping wins.
Risk Margins
Co-packing is riskier than private label dropshipping. There’s no guarantee that people will like the first-time product when it hits the market.
A co-packer will have to do as much research as possible to determine what people want. You will have to look for a manufacturer who is willing to co-pack. You will have to pay a lot of money for a high MOQ and spend a ton on marketing.
Failing in co-packing will make one lose a lot of money.
For the private label dropshipper, the risk is low. You only buy a small number of generic products on a private label. Failing to sell out your inventory won’t make you much money.
Competition
Private labels have a lot of competition to fight. They aren’t selling unique products, and so they have competitors.
Co-packers don’t have to worry about competitors. Their audience cannot get their product anywhere else, so they can charge any way they want.
Co-packing vs Private Label: Two Similarities
No Manufacturing Experience Required
Both co-packing and private labels do not require you to have any manufacturing experience. You reach out to a manufacturer who takes care of all the productions and supplies.
Allow Personal Branding
With both business models, anyone can name and build their brand. They have the right to place their brand on all of their products.
Co-Packing vs Private Label: Pros and Cons
Co-Packing Pros
- It makes you the go-to expert in your niche
- Lets you have very high profit margins
- You have very little competition to fight
- Exponentially increases authority and following
- Increases your customer base
Co-Packing Cons
- You have to invest a lot of money and time
- Co-packing is not very flexible to market trends
Private Label Pros
- Allows new dropshippers to stand out in a crowded market
- Is very flexible to market demands
- It does not involve a lot of risks
- Many suppliers are more open to private labeling than to co-packing
- No need to spend a lot of time researching market needs
Private Label Cons
- You’re not selling a unique product
- An average already sets your profit margins
- There is more competition than in co-packing
Conclusion
Both co-packing and private labeling are good business models for dropshippers. They allow a dropshipper to be seen as an expert and to make money.
However, co-packing is better for the dropshipper, who has a large audience and is already very familiar with how the market works. A beginning dropshipper will do much better private labeling products.
BestFulfill is a dropshipping agent that specializes in working with dropshippers to make the process a lot easier. We connect with only the best and most reliable suppliers. Apart from product sourcing, we fulfill orders, custom package products, and take professional product photos.
Reach out to BestFulfill to source the best manufacturers for your dropshipping business. Good luck.
