Private label and contract manufacturing are both well-established production methods for supplement brands. However, for new brands, choosing between the two can be a confusing task. Many people think that these are different terms, but in reality, it’s the contract manufacturer itself that offers private label services under its banner.
For example, TrustWorks, based in Los Angeles, is the most established and sought-after contract manufacturer in the US. They offer everything from package design and formulation advisory to full-panel private label and white label options. Let’s dig in a bit more to find out which approach is better for your growing supplement brands.
What is private label manufacturing?
In private label manufacturing, the brand sells pre-formulated products made by a manufacturer with their own label and logo. You get to customize the flavors, textures, color, and formulation type, and the product is made exclusively for your brand. It’s quite a common approach for products like vitamin C gummies, omega-3 softgels, and multivitamin capsules.
The manufacturer takes full responsibility for ingredient sourcing, package design, and the full production process based on your specifications. You can customize packaging, design, label art, flavor variation, and the material and dissolving process of the supplement.
However, for the most part, the base product in itself remains mostly standardized across different clients of the manufacturer, with each opting for their unique specifications for market penetration. This type of manufacturing process is quite popular among new and emerging supplement brands, Amazon FBA sellers, and small businesses testing market demand before placing full custom formulations.
What is Contract Manufacturing?
In contract manufacturing, you can ask the manufacturer for full end-to-end customization. It gives you greater control over the product structuring. You can provide your own proprietary formulations, select specific ingredient sources, establish per-serving dosage, and basically control every aspect of the production process.
The manufacturer here acts as your production partner and helps you to bring your unique vision of your product to life. In the case of a supplement, it could decide how gummies will taste, when they should be used, whether they are vegan-friendly or not, or what their sugar content is.
It also allows you to decide which absorption technology to use, and you can target new growing markets by making fully natural products free of harmful additives and preservatives. Also, the manufacturer takes care of product testing, regulatory clearances, and IP rights for your specialty formulations.
The only quirk is that the contact manufacturer often requires you to put in a high minimum order quantity, which can be a barrier to entry for new players. Also, the more customization you do, the higher the lead time you’ll face. But all in all, this approach allows for product differentiation and full ownership of formulation, which can lead to long-term market dominance.
Which approach is more cost-effective?
Both private label and contract manufacturing have slightly different cost structures. Choosing it carefully is important, as it can affect the initial capital requirement and long-term profitability.
Usually, private label manufacturing needs lower upfront investment. Why? Because the formulation is more or less already ready, and the manufacturer maintains appropriate inventory, you can get started with as few as 500 to 2000 units, depending on what type of product you are targeting.
Gummies usually have a high minimum order quantity similar to the capsules, as they are a bit more complex to make. Also, the per-unit cost will remain slightly elevated because you are paying for overall flexibility and convenience. However, on average, it should not cost you more than $3000 to $15,000 for your first order.
Also, with incremental orders, the maker will probably offer you bulk discounts, which can improve profit margins in the long term. On the other hand, contract manufacturing is a bit expensive and requires quite some upfront capital investment. Developing a custom formulation with a manufacturer can cost up to $2000 to $10,000, even before the actual production starts.
Now coming to minimum order quantity, that’s also high and can fall in the range of 5000 to 26000 units for gummies, 10000 to 60000 units for capsules, and 5000 to 17000 units for softgels. Per-unit cost is lower in contract manufacturing because of the sheer scale on which these firms work, and this can translate to better margins as your brand becomes established and picks up in sales.
Which one should you opt for?
The best choice depends on your brand goals, resources, and product market fit. You can choose a private label if you are new to the market and want to test out new products with limited initial capital, probably under $20,000.
This allows you to quickly penetrate and ride on ongoing trends. It’s perfect if you want to build your brand with marketing as a strong pillar, not product excellence. Private label works quite well for influencer brands, content creators, or businesses where a supplement helps in complementing other wellness product stacks.
Go with contract manufacturing if you have huge upfront capital (upwards of $50,000), a unique product formulation, a full grasp of consumer demand, and a plant to build a premium brand that can demand high prices. Your aim should be to scale above a million dollars in revenue or build and sell the brand to some big established players.
Conclusion
Both approaches have their pros and cons. A better way is to use a hybrid approach, which means first testing the market with a label to generate initial cash flow and build a mature buyer base, and then slowly transitioning to custom formulations with contract manufacturing as revenue and margins improve.
Whichever approach you take, make sure to stick with well-known manufacturing partners like TrustWorks. Never compromise on certifications, product testing, insurance, the importance of GMP compliance, and on-the-ground product response gathering.
Be genuine, use high-quality ingredients, and offer good post-sale support; that’s the only way to grow at a fast scale in a brutally competitive supplement market with new players popping up every other day.
