Contract Packaging vs. Private Labeling
What Is The Difference?
In our two previous blogs, What Is Contract Packaging and What Are Private Label Cleaning Products, we explained that contract packaging is a service utilized by a business supply vendor with an outside contractor to produce the vendor’s product. Private labeling is a service offered by third-party manufacturers to create a product for retail merchants and retail distributors to market as their store brand. in this article, we will discuss Contract Packaging vs. Private Labeling.
Contract Packaging vs. Private Labeling
Some say ‘tomato,’ some say ‘ta- ma-to.’ Some say ‘potato,’ and some say ‘pa-ta-to.’ While some differences are personal preference, other subjects are deemed ‘apples and oranges’ — meaning that one topic or issue is not to be weighed the same as the other. The two subjects are as different as apples and oranges and night and day, and each topic or subject is to be respected for its own merits. In this blog, we will dissect and weigh the merits of contract packaging vs. private labeling in the manufacturing system.
Contract packaging vs. private labeling definitions is clearly understood as different. Still, to those on the outside looking in, understanding which service is the best business option can be blurred since both production processes have the same objective focus:
- Outsourcing Production Costs: Production cost savings is the intent of both business suppliers of cleaning products to industry and institutions and retailers and distributors looking to sell a
store-brand cleaning product to individual consumers.
- Higher Profit Margins: The end goal of lower production costs with either contract packaging or private label services by an outside chemical manufacturer, such as Unified Solutions For Cleaning, is that of assuming a larger market share of the cleaning products industry by providing consumers with both a low cost and quality cleaning product.
- Outside Manufacturer Expertise: Whether you are a supply vendor with product innovation or a retailer looking to manufacturer a private store brand product, the core value of eliciting the assistance of an outside manufacturer is the higher testing standards of the products produced in accord the
ISO 9001 international standard for how manufacturing processes are done. It is a ‘marriage’ of manufacturing and marketing ‘heaven’ utilizing the core strengths of those with expertise in product manufacturing and the private business free to focus on the internal business of marketing and distributing their product.
Delving Into The Details
While fundamentally, the reasons are the same when considering contract packaging vs. private labeling with an outside chemical manufacturer to create cleaning and personal care supplies. The ‘devil is in the details of which service is the better option for an individual business.
Outsourcing Production Costs
In the case of which service agreement is better for outsourcing the production process of cleaning or personal care products:
- Contract manufacturing would be the best choice in those cases where a business already has a successful product formula but wants to increase production of the product beyond what their present facilities can handle.
- Contract manufacturing is best for businesses already known for a specific cleaning or personal care product brand, looking to go into another type of product category, and needing an outside manufacturer to research and develop their new patented formula idea.
- Private labeling is best for retail stores or distributorships that cannot expend a great deal of capital for researching and developing a product formula. Such retailers are more than happy to work with the already acquired manufacturer’s patented formula.
Higher Profit Margins
While it is accurate that both business suppliers and retail outlets can both see higher profit margins when choosing between contract manufacturing vs. private label agreements — those margins are relative, in keeping with the adage: what one sows, one reaps.
- Private labeling is best for smaller retail businesses as initial start-up costs are less and production runs minimal. These two elements can equate to higher profit relative to purchasing the costly name-brand equivalents.
- Contract packaging is the option for small to mid-size business suppliers looking for large–scale production volume.
All parties need to understand their rights and responsibilities inherent to contract manufacturing vs. private label manufacturing agreements.
- With a contract manufacturing aka co-packing agreement, both the co-packer and business supplier of a product signs a confidentiality agreement to protect the interest of the business supply firm who is
owner of the product formula.
- Technical consultation before the actual production ensures the production process will be smooth.
- With the production process understood by both parties, a contract manufacturing agreement is signed.
- The business client also signs a technology transfer agreement to allow the manufacturer to use any necessary licenses, patents, trademarks, and utility models in production.
- The manufacturer begins the testing and validation stage to identify any production problems and that the product formula is produced according to their client’s specific specs.
The rights and responsibilities of a private label manufacturing agreement differ with the understanding that it is the manufacturer who owns the intellectual property rights to the product formula and can sell this formula to any business seeking to produce a cleaning product under their brand name label. It should be noted that the product formula could also be marketed under various brand names.
A private label agreement with a manufacturer should include:
- An acknowledgment the chemical manufacturer retains all ownership to the product formula or customized formulation after producing the product for their client.
- The agreement should state which party bears responsibility for product recall expenses, accurate
labeling of ingredients, and management of any recalls.
- With a private label agreement, the manufacturer supplies a specification sheet giving details of the product, such as product ingredients, any possible allergic reactions to those using the product, and safety precautions when using the product. The agreement needs to stipulate what information on the specification sheet should appear on the product label.
- The agreement should also show the business client the FDA certification and license to produce the product.
What form of outside manufacturing is best for your business? Contract packaging or private labeling? Tomato, Ta-ma-to, potato, pa-ta-to, the difference is in the preferences you have in mind to get a cleaning product to market. Contact the experienced professionals at Unified Solutions For Cleaning — our turnkey production system can configure a service agreement plan to fit the need of your business!
To learn more of the benefits of contract manufacturing, and view firsthand our production facility and our personal product line of multi-purpose cleaning solutions, rug shampoos, glass cleaners, oven cleaners, restroom cleaners, hand soaps, dishwashing soaps, pet care products, and personal hygiene products, you will want to speak with the co-packing chemical manufacturing professionals doing business at Unified Solutions For Cleaning since 2005.