A private label product is made by a third‑party manufacturer but sold under a retailer’s own brand name. Rather than producing everything in‑house, the retailer contracts a manufacturer to build the product to its exact specifications and then markets it under its own label. This model lets retailers control design, packaging, pricing, and quality while avoiding the capital investment of owning their own factories.
With more retailers willing to partner with manufacturers on their own-brand products, the potential to capture margin, control design, and build loyalty is significant. But success in private label manufacturing isn’t automatic. When margins are razor-thin, as they often are in private-label arrangements, manufacturers and brand owners must deploy smart tactics to protect profitability and scale efficiently.
Here are proven tactics to tackle the challenge and drive a private-label program that delivers both scale and margin.
1. Clarify Your Value Proposition
When entering or scaling private label manufacturing, the first step is to define your value proposition to the retailer or brand partner and map out your cost structure clearly. According to McKinsey & Company, private-label products often carry about twice the gross margin of comparable national-brand SKUs.
That extra margin exists because you are in a position to control manufacturing, branding, and supply chain more directly. But when margins are already thin, you cannot afford hidden costs.
Start by breaking down your full cost base: raw material, manufacturing labor, tooling, quality control, packaging, inbound logistics, duty/tariffs (if applicable), outbound logistics, and retailer margin expectations. Then identify where you can optimize or remove cost without eroding quality or brand promise.
From this foundation, you can set pricing and negotiate terms with the retailer that protect your margin and allow for sustainable profitability even if the retailer demands aggressive pricing or promotional support.
2. Select the Right Categories
Not all product categories or SKUs are equal when it comes to private label goods. Some categories lend themselves readily to differentiation and margin capture; others are heavily branded, saturated, or subject to strong national-brand loyalty. Top-performing private label programs tend to focus on product categories where the manufacturer or retailer has a clear advantage over competitors.
Ask the following questions:
- Does the category allow you to differentiate (via cost, design, packaging, performance)?
- Can you deliver quality equal or better than national brands while remaining cost-competitive?
- Are you able to supply reliably and scale the SKU when volume grows?
- Is the retailer willing to give you sufficient shelf or online visibility and support for the private-label offering?
When you pick the right SKUs, you avoid being locked into commodity items alone (where margin pressure is fiercest), and you position yourself for higher margin growth and differentiation.
3. Build Quality into Your Process
Because private label products often sell at lower price points or under tight margin constraints, any failure in quality or reliability can erode margin quickly. This can happen through returns, rework, production downtime, or retailer charge-backs.
Key tactics to ensure quality include:
- Establishing robust quality-control protocols at the supplier/manufacturer interface.
- Monitoring critical process parameters and tolerances to reduce defect rates.
- Tracking labor performance, line efficiency, rework rates, and scrap as these directly affect unit cost and margin.
- Implementing lean manufacturing or continuous improvement (even if the product category seems commoditized) to keep costs down and quality up.
- Ensuring your supply chain (materials, components, packaging) has minimal variability and direct visibility on cost/lead-time.
By doing this, you reduce hidden cost leakage and protect your margin even when pricing is set aggressively.
4. Optimize Your Labor Planning
In private label manufacturing, where margins are thin and volumes can spike with retailer promos, workforce management becomes a differentiator. Effective labor alignment ensures you are not over- or under-staffed and that every hour of labor contributes to value.
Tactics to improve labor alignment:
- Use demand forecasting (informed by retailer data) to plan labor needs in advance rather than relying solely on reactive overtime or temp labor.
- Cross-skill operators so they can shift between SKUs or lines as demand changes. In turn decreasing idle labor and improving flexibility.
- Monitor labor cost per unit produced and compare across SKUs to identify high-cost runs.
- Implement scheduling that aligns shifts and staffing to actual demand rather than build-to-max.
- Treat labor as a flexible resource: build buffer capacity deliberately for promotional spikes, but avoid maintaining excess capacity during slow periods.
By aligning labor to demand, you protect margin from one of the largest cost categories in manufacturing.
5. Collaborate Closely with the Retailer
Because private-label brands are often exclusive to a retailer or part of its brand strategy, success depends on close collaboration with that retailer. Private label manufacturing operations are challenged by forecasting, space, assortment, promotion, and pricing complexity.
Consider these tactics to eliminate miscommunication:
- Share forecast and inventory data with the retailer or its category management team so you can align production and avoid stock-outs or excess inventory.
- Plan packaging and design that meet the retailer’s brand aesthetic but are cost-efficient to produce and scale.
- Coordinate promotional events early so you can ramp production or labor accordingly and avoid rush premium costs.
- Monitor retailer performance of the private label SKU (sales, returns, shelf positioning) and adjust your operations accordingly.
When you’re aligned with the retailer’s goals and supply-chain rhythm, you reduce risk, flatten costs, increase margins, and negotiate better.
6. Eliminate Profit Margin Erosion
Because margins are thin, you must watch them closely for erosion. Some hidden penalty areas include: expedited shipping, excess inventory handling, rework returns, frequent change-overs, unplanned overtime, and supplier premium charges. When you control the value chain end-to-end, you can boost profitability.
Tactics to maintain your profit margin:
- Track cost per unit and margin per SKU across the private label program.
- Identify change-over frequency and cost: more SKUs may drive variety, but may also drive higher cost per unit.
- Negotiate logistics and supplier terms with the understanding of your private-label volume potential (you may warrant better terms).
- Build buffer capacity or flexible labor/shift planning so that rush jobs don’t force premium cost labor or overtime.
- Regularly review retailer feedback, return rates, and defect trends. Treat these as threats to the margin.
By actively monitoring and managing the margin levers, you protect profitability even if sales volume grows.
7. Grow Your Operations Strategically
Once you have a solid foundation, cost structure, quality, labor alignment, and retailer collaboration, you are ready to scale. Growth in private label must be managed carefully because rapid expansion without process discipline can erode margins quickly. According to McKinsey, companies have grown private-label penetration from sub-10% to above 40% while increasing gross margin.
Tactics for scaling your private label manufacturing operations:
- Invest in flexible manufacturing lines or modular tooling that allow you to switch SKUs or scale volume without major rework.
- Maintain visibility on labor utilization, line efficiency, and overtime so scaling doesn’t lead to hidden cost inflation.
- Expand your private label offering selectively by adding SKUs only when cost, quality, and logistics are stable.
- Leverage your data and manufacturing footprint to negotiate better terms with suppliers, packaging vendors, or logistics partners.
When you scale with discipline, you capture the margin upside of private label while avoiding the cost traps that undermine profitability.
Case Study: Treehouse Foods
Treehouse Foods, a major North American private label food and beverage manufacturer, is a real-world example of how smart workforce management unlocks margin potential.
They implemented Indeavor’s workforce management app to modernize their scheduling and employee management. Key benefits they experienced include:
- Eliminating Manual, Paper-Based Scheduling: Treehouse moved away from paper practices to real-time, digital scheduling.
- 7-Day Schedule Visibility for Workers: Employees can see their full week’s schedule, promoting clarity and planning.
- Reduction in Human Error: Automated scheduling cuts mistakes common with manual processes.
- Increased Employee Autonomy: Workers can use self-service tools (shift swaps, availability, PTO) to manage their own time.
- Scheduling Standardization: Across departments, practices became more consistent, fair, and aligned.
These outcomes helped Treehouse better align its workforce to production demand, reduce unnecessary costs, and strengthen its operational foundation. All critical components to protecting your private label manufacturing.
What’s Next
Private label manufacturing offers a strong pathway to profitability if the right tactics are in place. By aligning your operations to the tactics above, manufacturers can drive programs that deliver profitable growth even in a low-margin environment.
For organizations looking to elevate their employee scheduling as part of that strategy, partnering with a specialist in workforce management optimization can make the difference.
Ready to optimize your private label manufacturing operation and protect your margins? Book a demo with our team of experts to see how Indeavor can help you build a sustainable, high-margin private label operation.
About the Author
Claire Pieper is the Digital Marketing Specialist for Indeavor. In her role, she specializes in crafting strategic and engaging content, ensuring that customers are well-informed. Claire is dedicated to enhancing the customer experience and optimizing the user journey through Indeavor’s solutions. To learn more or get in touch, connect with Claire on LinkedIn.
