Amazon Private Label: Myths and Facts

This post is by Will Tjernlund, a third-party Amazon seller who has sold over $10 million worth of inventory through Amazon over the last 3 years.

Private labelling is where you buy generic items, then add your own branding to create a whole new product. It’s one of the most popular strategies for people who sell through online marketplaces, especially Amazon sellers.

When something gets as popular as private labelling is right now, hype can take over from reality. Rumours start about how it works, what you need, and what you should always do – or always avoid. Then they get repeated and spread until it’s hard to tell fact from fiction.

So here are my top twelve myths about Amazon private labelling. They’re misconceptions that I’ve heard time and time again, and now’s the time to put them right.

Myth #1 – You Need a Specific Number of Product Reviews

People believe that you need to have a certain number of reviews (20 or 100 for example) or you’re not going to get sales, or your listings won’t convert as well as they should.

I can see where that view comes from – when you browse Amazon, the products that rank high in search often have a lot of reviews. Of course, products that sell well are more likely to get more reviews than those that don’t, but that’s not the same as the reviews being the direct reason for those sales.

The search results are based off sales, not the number of reviews. Some sellers have manipulated the system by buying reviews or offering huge discounts, so if someone has 500 reviews maybe they’ve had 500 sales over the last few days. They’re going to rank high, and they might think that’s because of the 500 reviews. Really it’s because of their sales velocity. I’ve had products that sell around five units a day, and I sell that product for a month and a half before I get my first review. Reviews are not necessarily a barrier to sales.

Do reviews impact conversion rate? To some extent, yes, but it’s not all about the number of reviews. Think about the ordinary people shopping online – they want quality over quantity. My mother, in her late 50s, isn’t going to buy one product because it has 40 reviews, and another one only has 15. She cares more about the quality of the product, the brand name, the accessories, and if it actually fits her needs. All of that is more important than the number of reviews the product has.

Also some products lend themselves to reviews more than others. If you’re selling a drink coaster, it’s very difficult to get reviews. And the reviews are kind of pointless, because there’s only so much you can say about a drink coaster. You get it in the mail, you open it up, you put your drink on top of it and you never think about it again. A genuine buyer won’t go back to Amazon and say, “Hey, this does a really good job of making sure my cup doesn’t touch the table.” It’s just common sense that some products don’t get a lot of reviews, and it wouldn’t make much difference if they did.

Having said all that, reviews should only help with your efforts to drive sales. It’s really nice to have at least one to five reviews to show that your product’s legit – people have ordered it and they haven’t been scammed. But once you’ve shown your track record, that’s about all you need. I don’t think that a product with 40 five-star reviews is going to convert much better than a product with 20 five-star reviews. The quality of your item and your product photos matter a lot more.

Myth #2 – Chinese Suppliers Will Always Try to Screw You Over

There’s a fear that when you trade with the East that everyone’s out to get you, everyone’s trying to rip you off.

But if you think through the process, it’s actually much more profitable in the long run for Chinese sellers not to rip you off. They can have a long-lasting relationship with you, selling you products year after year rather than just one time as they would with a scam deal.

Myth #3 – Private Labelling Helps Build Your Brand

There’s a really wide range of different ways to create new products. Sometimes I’ll throw a brand name in the title of the product but I won’t even add a logo. That’s as minimal as it gets, and right at one end of the spectrum. A small step up from there is slapping a logo on a product that’s completely generic.

Then at the other end of the spectrum you have custom packaging, custom instructions, a properly built-out website, a way to remarket to customers and so on. Then you’re getting pretty close to building a brand.

But most people’s version of private labelling is nowhere near what it takes to build a brand. If you really want to build a brand, a name that people remember and that stands for something, then there’s a lot more involved than just private labelling.

Myth #4 – There Are No New Niches Left for Private Labelling

If you watched the Apple announcement recently, between the new iPad sizes and colours they came out with something like 99 new SKUs. If Apple’s coming out with 99 SKUs a year, then there could be maybe a hundred different accessories to go with each one of them. That’s just one company, creating by itself maybe 10,000 new product ideas in one year.

If you look at it from the 50,000 foot view, there’s new products being invented every day. And there’s new complementary products and accessories that go along with them. There’s never going to be a time when there’s no new products to make money on.

This misconception has its roots in all the Amazon private label training courses that are out there, in my opinion. A lot of the courses teach people to start with the bestsellers list. The bestsellers list might as well be called “the most competitive list” because everyone uses it. Eventually the big guys come in with millions of dollars, buy inventory for 10 cents a unit and just kill you on quality and price. I like to look for niches within a niche. And I also stay away from kitchen, barbecue, pet or exercise products – they’re the most popular categories for people doing the Amazon courses.

Then the people who have done the courses might only have one SKU. And since they only have one product their listing is just awesome. They have amazing pictures, they have so many keywords stuffed into every bullet point, and they have 500 reviews because they gave away 500 products. So you’ll see a saturated niche and every listing on the first two pages is just flawless. I’m not competing with those guys, I’m going to go compete against listings made by baby boomers who don’t understand how Amazon SEO works, and just blow them out of the water.

Myth #5 – Amazon’s New Reviews Policy Will Make it Hard to Launch Products

Amazon recently updated their terms of service around “Prohibited Seller Activities”. One part now says:

You may not intentionally manipulate your products’ rankings, including by offering an excessive number of free or discounted products, in exchange for a review.

People have got hung up on the word “excessive”, and have been asking for a specific number. So is 50 excessive? What about 20? Is 200 excessive? If there really were a precise limit, everyone would try to get one less review than that. You’d browse around Amazon, and say “That’s weird, everyone has 49 reviews!”

It doesn’t work that way. There’s a million different ways to market your idea and get your product out there. I lean towards not doing any of those gimmicks or hacks. If you sell good products at a good price, you’ll have a more sustainable business than if you are always trying to find the new hack to launch your products without doing any creative thinking.

Myth #6 – You Won’t Have Any Competitors If You Private Label

You can private label as many meat claws as you want but everyone’s selling the same old products. Unless you’re going to create new value for your customer with add-ons, special packaging, a modification in design, or selling a size or colour that no one else has, you’re not adding anything to the market.

So you are not protected against competition as a private label seller, because someone else can easily order the same exact product and slap a logo on it too. Even though you’re not in competition for the Buy Box, you’re still in competition with similar products.

What you do get from private labelling is you prevent other people from jumping on your listing, and having to compete for the Buy Box with them. And private labelling is the very first baby step to building a brand. When you first put a logo on a product you’re not really differentiating yourself much from the competition. But as you sell more, you can add custom packaging, make a website, set up social media accounts and start getting some real traction.

Then you can protect yourself a lot more because people will look at your product and go, “Wow! That’s not just someone slapping their logo on something. That’s an actual brand, an actual company”. You can be the only one with a real brand, while everyone else just has a bunch of products with logos on them.

Myth #7 – You Need to Sell Through Every Marketplace

Some sellers think they need to be on every marketplace, that they should sell on Amazon Japan and Amazon Canada and Amazon Mexico. Then eBay and Rakuten and everywhere else.

But if you are based in the US, then the US market is likely big enough for you for some time to come. With all the paperwork and tax information you’re going to have to figure out to sell on all these different channels, it’s probably not going to be worth your time. If you’re doing millions and millions of dollars in sales, and you’ve maxed out your own little niche, that’s a good reason to move to other sales channels. Otherwise your time will be better spent improving and developing your products.

If it’s really within reason then you could test other sales channels. But it can come to a point where it’s more work than it’s worth. With eBay I find you almost have to communicate with the customer on every transaction – wait for them to pay you, send them the tracking information and so on. You have to be a lot more hands-on with your eBay business. I could sell 1,000 units in the next 20 seconds on Amazon and I wouldn’t even notice, but if I sell 1,000 units on eBay I’ve got a lot of work to do. For me personally I don’t think that I can get enough sales from eBay to justify selling there.

Myth #8 – The Buy Box is Only Based on Price

Most of the time you have to be fulfilled by Amazon (FBA) to win the Buy Box, and if no one’s fulfilled by Amazon then it’s an even playing field. After FBA, price and seller ratings come into it.

If you have a 99% seller rating and the next person down has a 94% seller rating, you can actually set your price higher than them and still win the Buy Box. There’s a great ebook from Feedvisor called the Buy Box Bible (contact details required for download, you can see a summary here). They have the hard data from millions of purchases and can tell you accurately how the Buy Box really works.

The Buy Box uses the seller rating percentage, for example, but it’s a tiered system. So 100% to 98% are all treated the same, 97% to 95% are all the same, and so on. If you’re in a higher tier than your competitors you can price higher than them and still win the Buy Box. But if you’re in the same tier then you have to price the same or lower to win the Buy Box. There’s a lot more to it than most people think.

Myth #9 – It’s Fine to do Your Own Fulfillment If You’re Just Starting Out

I hear this all the time. People will say things like, “I’m just going to do my own fulfillment to start out because I don’t want to pay $40 a month to have an Amazon Pro Seller account.” I think that’s kind of ridiculous.

First off, $40 a month is going to be one of the smallest fees you pay as you build your business. If you’re not willing to put that much down, then you shouldn’t be trying to build a business in the first place. Second, people think it’s going to be easier if they fulfil orders themselves, or they feel intimidated by the Amazon FBA process.

But I would never do merchant fulfilled. First, if you’re competing for the Buy Box you’ll never win it if you’re merchant fulfilled. Second off, people come to Amazon because of Prime, because they want the guaranteed two-day shipping. They buy stuff for say 10%-20% more on Amazon than they do on eBay because they know it will be at their doorstep within 48 hours. If you’re doing merchant fulfilled you lose all that trust – you’ll be like any other ecommerce site and a lot of people won’t buy your stuff.

Myth #10 – You Need Software for Research, Inventory, Feedback, Analytics…

One of the easiest things for people to do when they’re building their business is to sign up for things. They feel like they’re busy and they’re actually doing something, because they’re filling out sign-up forms. It’s very easy for someone to spend two weeks signing up for different software, before they even know which ones they actually need and want. They get two weeks into the Amazon selling experience and have all this software, but they’ve spent 600 bucks and they haven’t really gotten anywhere.

The only software I personally use is an inventory management, accounting and tax package. I don’t use any research software. I don’t use any software to boost the number of reviews. People who are just starting out want that quick fix, that easy hack – the one software which will take their business to the next level.

Research software in particular leads everyone to the same conclusion. You might find a product with a huge profit margin and very high sales velocity, but you’re not the only one seeing that. It’s like the courses where they lead people into an echo chamber with everyone doing the same thing, instead of thinking outside the box.

Analytics and data are your friend, but use your own data not some third-party software. I had a VA go through me and my brother’s 1,700 SKUs, and compare our sales volume to what some research software was saying. They were anywhere from 5%-25% off on every product. But people will spend months looking at analytics in their product research, when the analytics are wrong in the first place.

Imagine two different scenarios. One person, Seller A, researches with third-party software for two weeks, and finally figures out the exact product they want in the third week. In the fourth week they get their first sample. They’re a month in, finally sending their sample to Amazon, and hoping that it sells.

Now imagine Seller B. They spend two days on research, then order three different products they think might work from AliExpress. They get the products a week later, and send them into Amazon. Only two weeks in, they can start seeing how well the items are really selling, and decide where to go with that product next. It’s much better to be like Seller B. Get real data after a couple of weeks and base your decisions on that, don’t make decisions upfront based on estimates that will often not match reality.

So you really only need the software that you need, when you need it. If there’s something that you’re doing over and over again and it’s a repetitive process, then get software for it. But if you’re getting software because you need to grow your business by 10% this month, and don’t really know what to do about it, then that is not a good way to build a business.

Myth #11 – You Have to Private Label

This just isn’t true.

Something my brother and I sold a lot was heavy machinery, industrial and scientific equipment with no private label or brand name at all. We’d sell, say, a foot-long bolt. No one cares what the brand name of that bolt is. There’s no reason to private label it, or get someone to put our logo on a bolt. It’s a foot-long bolt, and they use it for something in construction.

You can sell stuff that’s completely generic as long as you’ve got a small enough niche and there’s not much competition.

Myth #12 – Amazon Needs to Treat Its Sellers Better

There are very, very few sellers that Amazon would care about if they left their platform, such as some big brand names. But as for any of us third party sellers, they couldn’t care less. There’s always a new seller who is going to come in and fill the gap. Amazon has made it impossibly easy to sell on Amazon. They’ve made it impossibly easy to build an Amazon business with fulfilment through Amazon (FBA), because they handle all the picking, packing, shipping, customer service, returns and so on.

Will all the third party sellers leave Amazon because they’re not treating them well? Some will, of course. But all of them? Definitely not. When sellers leave Amazon that’s great for the rest of us. We benefit from less competition, and can pick up all their scraps. It’s a paradox: the more sellers that leave, the more that others will want to stay.

Amazon is just a channel to sell on. I wouldn’t see them as a partner or a supplier, and we sellers are not their customers. They are just a marketplace and a platform. In the real world, think of a big open square, with a bunch of vendors set up there selling their wares. Every time they sell something, they have to pay 20% to the person who owns the square. Would you call the person who owns the square a partner? They’re not really that. You wouldn’t call them like a customer either, or say that you’re their customer. They’re just providing somewhere for you to trade.

It’s a strange thing the relationship between an Amazon seller and Amazon. It really depends on what type of business you have too. Are you using Amazon just to make a bunch of cash? Are you using Amazon to build a brand? How are you using Amazon to your advantage? That’s what people really need to think about: how they can make cash and build a brand through Amazon, not how they can partner up with them.

So should Amazon treat its sellers better? Yes, of course.

Does it need to treat its sellers better? No, right now it does not. And it would take a lot to change that.

This post was by Will Tjernlund, a third-party Amazon seller who has sold over $10 million worth of inventory through Amazon over the last 3 years. You can find Will on Twitter as @WTjern.