1. What you see is what you get
You’re not making any changes to a white label product that will significantly differentiate it from your competitors. Sure, you can probably choose between a few color options and design a better logo. Product packaging is likely the most customizable aspect of your product!
You should never sell in a niche you do not completely understand. The best brands and products do their best to identify a problem to solve and create the best solution to that problem. Of course, that takes huge amounts of time and energy. But that’s what it takes to carve out a healthy portion of the market. Grow your brand by ADDING VALUE!
Notice improvements that can be made to the plastic housing? The mold has already been made, and no, they’re not making any modifications to the mold for your 500-unit order. Discover that clients would happily pay 25% more for a unit powered by USB-C? That would require a new supply chain and PCB design.
There is next to nothing you can change with a white label product that will provide your customers with additional value!
2. You’re paying 30-50% more
9/10 times your cost per unit is going to be significantly higher than any ODM solution. Seeing a 100-200% markup for some private-label products on Alibaba is not uncommon. Your product needs to pass through lots of hands before the final assembly. Every single component is being marked up in price along the way.
Unless your product is a single component it is nearly impossible for it to be made by a single factory. Every time a component changes hands, someone adds a markup. Seeing as you’re not in communication with every component factory in the supply chain, you have no ability to negotiate on a component-by-component basis. Sure, you’re not paying for molds/tooling/development, and for some products that amount to HUGE savings. It is well worth breaking the most common costs down to see what kind of margins your Alibaba supplier is tacking on to your product.
3. No barrier to entry
Other than having enough capital to hit your supplier’s MOQ, there isn’t much-stopping anyone from directly competing with you on the exact same product. Anyone can find your supplier and slap their own logo on it. If someone is selling the exact same product as you, it quickly turns into a race to the bottom for price unless your competitor’s marketing capabilities are totally non-existent. Of course, this low barrier of entry makes it easy for you to dip your foot into the pool of entrepreneurship, but it’s usually not a sustainable business model for building your brand.
4. No control over your supply chain
Let’s say you are selling a simple electronics product with 8 components. These are 8 huge variables that you have no control over. All of your communication begins and ends with your Alibaba supplier. Every component can fluctuate in price-point, quality, and availability. Seeing as you have no knowledge of each component’s cost, you will never have a clear picture of what choices you could make to reduce the total per-unit cost. Any quality control issues will need to pass through multiple people before they reach the factory responsible for the issue. Sure, ODM products are susceptible to quality control and price point issues, but you have a far higher degree of control.