Private Label Agreements: What They Are & Key Common Issues

In my prior posts, I discussed different partnership and distribution models, such as referral partners, resellers, technology integration partners, and OEM relationships. In the last post in this distribution and partnership series, I discuss private label agreements – what they are and key common issues to be aware of. Hopefully, these different partnerships will inform discussions you have with your team and potential partners, and help you determine the lift needed to get them implemented operationally, potential revenue they can help capture, and agreements that need to be prepared. 

Private Label Partners: What They Are

In a private label relationship, a supplier is manufacturing or producing a product that another company sells under its own brand (the brand owner). In this scenario, the product design and IP is owned by the supplier, not the brand owner. The brand owner only owns its own branding and trademarks and takes no IP ownership in the product design and manufacturing. 

Private label products are often obvious at a consumer retail level, where a retail store is selling products under its own brand, so that the consumer may not know who the manufacturer is.  Examples of consumer private label products include grocery-store branded cereal and drugstore-branded medication, such as acetaminophen. 

Private labeling is also used at the wholesale level, such as a company manufacturing consumer goods that are then distributed to many retailers. Examples include factories producing branded clothing and merchandise for numerous retail brands, each with their own logos.

In B2B SaaS, many tech companies have a partner program that allows partners to use their platforms, often back-end or infrastructure products, with their partners’ own branding. An example is Hubspot’s CRM partner program, where partners incorporate Hubspot's CRM into their own marketing solutions, under partner branding.

Private label companies often want to sell products produced by a supplier under their own name for a few reasons. First, the most obvious: businesses are often not equipped operationally or financially to manufacture all the products they sell. It makes more sense to contract with another company that specializes in manufacturing, which allows them to focus on their core business while preserving profit margins. Private labeling also allows the brand owners to diversify their offerings to customers. Manufacturers often include private labeling in their revenue model to fill in excess production capacity and capture more revenue.

Key Common Issues in Private Label Agreements

Business concerns vary with your role in the private label arrangement (brand owner v. supplier) and what level of production you’re concerned with (wholesale v. retail), with each company having their own interests. Here are some common concerns:

• Product customization: brand owners sometimes want some product customization to differentiate their products from competition; suppliers often want to limit customization to constrain operational modifications and control costs.
• Exclusivity: brand owners may want the supplier to supply only them with the particular product, while suppliers often want to be able to supply many brand owners to increase revenue.
• IP: suppliers want to retain IP rights in the product’s design, manufacturing process or formulation, and any customizations. Brand owners want to retain trademark and copyrights in product branding and copy.
• Product warranty and liability: the brand owner and supplier need to agree on allocating responsibility for product warranty and liability. Brand owners often want the supplier to provide broad warranties as brand owners don’t have as much control over product quality, while suppliers have an interest in agreeing to fewer obligations, such as being liable only for negligence. This is particularly true when they’ve customized products at the brand owner’s request.

These are only a few of the many issues that need to be resolved from a business and legal standpoint; other issues to consider are indemnification and pricing, which are meaty aspects in their own right. 

If you’re considering a private label arrangement, it’s best to discuss with your team and commercial attorney to determine whether it’s the best arrangement for your company, and go over business and legal concerns to inform your discussions with partners.

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