July 15, 2016
Entrepreneurs have a drive to do it themselves. It’s the secret sauce behind their success. At times, it can also be a hindrance. If creating your own product to sell through your franchise is slowing the forward progression of franchising, you may want to consider white labeling.
Many business owners pause when exploring this option. Ultimately, branding someone else’s product with their logo goes against their inherent nature of doing it themselves. I want you to consider the opportunities this endeavor provides.
White labeling affords entrepreneurs immense benefits while franchising. These products serve as a placeholder while the company grows. The initial start-up phase of franchising is a large undertaking. Creating, manufacturing, and marketing a product take a great deal of effort, siphoning energy away from the main focus.
By leveraging the placeholder, you can:
When you have the franchise operations under control, you can return to product development. Once you launch your product, you have the advantage of established distribution systems, a platform to launch from, and brand recognition. You may even have a dedicated consumer base.
When diving into the white labeling space, here are several things to consider:
Most likely you are already aware of different distributors or manufacturers in your industry. It’s likely that one of the suppliers has options for white labeling, or they are familiar with those who do. Contact organizations directly to explore white labeling options as opposed to working through a middleman. Even if a company hasn’t offered this option in the past it doesn’t mean they won’t be open to the idea.
One of your current suppliers might even be an option for white labeling. Product companies benefit from this relationship because it allows them the ability to focus on creating their product, outsourcing the selling and marketing to the brands white labeling it.
Whatever product you do settle on, make sure it meets the standards you are creating with your business. While you know it’s not your creation, your customers will associate the quality of that particular product with your brand name. Ensure it reflects well on the business.
The goal with white labeling is to simplify the process of introducing a product. There are additional benefits, but the primary reason is to postpone the cost, time and challenges associated with creating and manufacturing on your own.
You want to ensure that the company you are working with fulfills that role, as opposed to creating headaches down the line.
It never hurts to run background checks on the people you are working with and the key principles of the company. It’s better to learn how they treat customers and operate their business early on. Discovering they have terrible service and unreliable shipping while you are relying on them to fulfill a large order is never ideal. Connecting with current customers also helps paint the picture of what working with them will really be like.
At the end of the day, this is a business. You need a competitive price to successfully sell the product. The best product in the world distributed by the most honest and reliable company at twice the market rate will take up valuable shelf space and collect dust for years. That doesn’t do your business any good.
Wholesale prices need to give you the flexibility to be competitive in the market.
Most franchisors white label products to create a placeholder for their own products. Creating a timetable for when you want to introduce your own product helps define your goals when structuring an agreement with the manufacturer. If you are planning to introduce a new line within five years, you will want to try and lock in as many terms for that timetable as possible.
This doesn’t need to be a hard deadline. In truth, you could choose to extend the white label partnership indefinitely if growing the franchise doesn’t leave room for developing your own product line.
There are several components to consider when building a contract with the manufacturer. First, you may want to consider a non-disclosure agreement. This protects any proprietary information you share with the distributor.
In the contract, you will want to solidify pricing. Most likely, it will vary by volume and list out minimum quantities you need to order. Then build in assurances around quality. This can include warranties, language around shipping practices, and the right to return a defective product. Another point that you can address is how long the agreement is in place. This is where having a general timetable for introducing your own product comes into play.
Navigating all aspects of franchising, including white labeling products, is a substantial undertaking. Particularly with developing your Franchise Disclosure Document, it’s essential to partner with a lawyer who will help you build the best legal foundation for your business. As a co-owner of a franchise and an experienced franchise lawyer, I help franchise owners like you protect their largest asset and position their growing corporation for long-term success.