Don’t Lose All Your Profits on Your Private Label Products

My first “lessons learned” post was supposed to include data from my first sales. It was supposed to be about how I got 25 positive reviews. About how I already had to order additional inventory and was ready to add a second product line. It was supposed to include a pretty spreadsheet showing how this was going to be a profitable product.

Instead, I’m writing about none of those things. Four weeks since my last post, I have accomplished nothing. Zero inventory. Zero sales. Zero reviews. That’s not to say nothing has happened; I just have nothing to show for it.

In short: Chinese New Year (CNY) ended about 4 weeks ago (I mentioned that in my last post). My private label products were going to ship sometime after that. And they did. In fact, they arrived last Thursday. Sweet! Right?

Let’s just say that I’m glad I had the product shipped to me before going to the FBA center. I wanted to inspect my first bulk order to make sure everything was up to par. When I opened the box, I erupted in excitement! Well, not really. I don’t show emotion. But I was impressed. Everything was neatly packaged inside the poly packaging and organized in the box. Everything was great until I opened one of the products.

My strategy for positioning my first product is bundling it. There were supposed to be some extra parts in each package¬†because some parts can wear out after a year of use. So instead of buying a replacement every year, I am including extra parts. I know that’s vague¬†but just go with me here.

I’m sure you know where this is going. I opened the first product to inspect it. This was fine because I also needed to take some photographs for the Amazon listing. Losing 1 out of a quantity of 100 is nothing. But when I opened it, the extra part was missing. This time, I did erupt. Except it may have been with mild profanity.

I had waited over two months to get this first bulk order. I was finally starting my private label business. And now I was forced to change sales strategies. Or “pivot.” Or give up. Something.

I immediately emailed the manufacturer about the issue. The next morning when I checked my email, my account rep acknowledged their mistake. I gave some suggestions in my first email about possible solutions. He responded by giving me his company’s FedEx account number and asked me to ship it via International Priority back to them. They would add the extra part to each piece, repackage everything and ship it back to me ASAP. I figured this would still take a couple of weeks, but I was fine with that. I want to do this right.

Literally the morning after I shipped the box back, my rep emailed back and asked me not to ship it back. It was going to cost them more to pay to ship the product back then it would be just to reproduce the entire order correctly and send it to me.

Oops. I called FedEx immediately, but the shipment was already on a plane back to China. After I told the rep, he emailed back saying he’d made a huge mistake and that his boss may “punishment” him (his words). He asked if I would consider splitting the shipping cost for returning the package. Normally, I would absolutely refuse. That’s “Customer Service 101.” It was their mistake, so they have to fix it.

Except this is China. I don’t know the culture personally, but I wasn’t ready to have someone’s blood on my hands for making an innocent mistake. I have no idea how a boss would punish an employee over there, but my guess is the possibilities are slightly more intense than a written warning like one would here in the US.

The guy didn’t realize that International Priority shipping plus customs fees were going to cost them $500. The entire product order only cost $450! There were plenty of other ways to make the situation right, and he just didn’t think it through. It’s a simple mistake anyone could make, so I decided I would split the $500 to return the product to them. That probably means that this entire first order (when I finally get it) will not be profitable. But that seriously doesn’t matter to me.

All I’m concerned about is getting this product in the FBA warehouse and generating sales. I just want to see if this product will work. So, now that I’ve written an 800-word introduction to the meat of this post, here my lessons learned so far for starting a private label / FBA business.

Get photos of your finished products before they ship.

The manufacturer I’ve been working with is fantastic. They have been extremely responsive from day one. They didn’t gouge me when I ordered my initial samples, and they didn’t gouge me when I ordered my prototypes with my logo on them. They sent me photos of the prototypes before they shipped them to me to make sure they looked good. They sent me photos of anything I asked them!

Except I didn’t ask them to send photos of the final product batch before they packaged it for shipping. Had I done that, I would have noticed the missing piece. And then I wouldn’t be in this predicament (that’s a great word–say it out loud right now). So the lesson is to ALWAYS have the manufacturer send you photos of your product(s) after production and prior to them shipping it to you. Once you get the first few orders and they are all correct, maybe you’ll trust the manufacturer and now have to worry about it.

But when starting out with a new product, always get pictures.

Communicate. All the time. As much as possible. Over-communicate.

You’re going to want to Skype or talk on the phone with your manufacturer eventually. I didn’t do that. In fact, I’ve never physically talked to anyone there. I’ve only communicated via email.

I thought this was a good thing. And maybe it is. After all, I’ve got a huge paper trail that shows the order was clearly communicated by me and they confirmed it. And like I said above, I even have pictures that were emailed to me from the prototype batch that had the extra pieces.

Would Skype or a phone call have helped? I don’t know. It certainly wouldn’t have hurt. But the fact is THERE IS NO SUCH THING AS OVER-COMMUNICATION. I asked my rep to notify me before he shipped my product. That was mainly just because I was anxious, but I also wanted to confirm what was in the shipment. However, I didn’t email him daily. It was maybe once or twice a week. And he did notify me, but the notification was an email that my product had shipped.

By then, it was too late. So the lesson is: Communicate often. Communicate clearly. And communicate frequently. Wait. Did I repeat myself?

Pick a manufacturer who communicates clearly.

This ties in with the above. If you have a hard time understanding your manufacturer, that just opens up the door for mistakes. My manufacturer communicates very clearly, and even that (obviously) doesn’t eliminate every problem.

If you have to go with a manufacturer who is a little more expensive than another, it is well worth the cost if they are better at communication. I don’t know about you, but I can’t read (or speak) Chinese. I wouldn’t even begin to know how to translate between the two.

Even though I ended up with a problem, the actual written communication was never an issue. And even though it cost me $250 more to remedy the situation, it was remedied quickly and clearly. You’ll appreciate a manufacturer who is good at your native tongue.

Be sensitive to cultural differences.

As I said earlier, I don’t know what the work culture is like at my manufacturing facility. I hope to God it’s not a sweat shop (and I don’t get the impression it is). But I do get the sense that there is a clear boss-employee hierarchy in China.

I feel that employees are probably very subservient to their bosses. And–because I have it in writing–I think there may actually be consequences for making mistakes. I hope it’s nothing more than a reprimand. But the fact that I’m dealing with another country and another culture means I’m not going to take any chances. If I have to pay a little more money to fix a situation, I’m going to do it.

At the end of the day, I have to sleep at night. I hope you do, too.

If the manufacturer wants you to pay 100% in advance – RUN.

You need to have some leverage. If you are working with a manufacturer that wants you to pay all (or most) of the cost prior to production and shipment, then you lose your “hand” (to quote Mr. Jerry Seinfeld).

I only had to pay 30% up front. And that got the product all the way to my doorstep (even though it was wrong). But think about it: If I had paid more than that, I might have been screwed. If I had paid 50%, then most likely all of the costs of the manufacturer would have been covered. When I notified them that the order was wrong, they could have just said, “eat it.” Or “All sales final.” Or who knows what. I didn’t have any sort of serious contract. I signed a sales order and paid a deposit.

So just keep that in mind. You want the best terms you can get (while balancing all the other issues I’ve listed, of course). If you pay too much up front, then you lose any leverage you may have in the event that something goes wrong.


 

So that’s it for now. Somehow this turned into a 1700-word article, but I hope some of it is helpful to you.

I’m curious to know any other “lessons learned the hard way” that you may have. Let me know in the comments.

And hopefully, my next article will be a little more positive!

Brandon