Core conclusions:The difference between the three roads is not in brand awareness, but in three numbers: poor gross profit, early investment, and payback cycle. OEM gross profit is usually 8% to 15%, requiring almost no upfront investment; OEM gross profit is 15% to 25%, and packaging and design investment is about 50,000 to 150,000 yuan; private brand gross profit is 30% to 45%, which is necessary in the first year. Additional investment in packaging design, channel construction, inventory and promotion is usually 300,000 to 800,000 yuan, with a return cycle of 18 to 24 months. The three paths are not one of three choices. The correct posture for most factories is "OEM to support cash flow, OEM to practice products, and private brands to exchange profits."
1. First put out the accounts of the three roads
When talking about brands in domestic trade, it is easiest to start with "Should I register a trademark?" This is the reverse order. What really needs to be settled first are three accounts: how much profit margins can be increased, how much money will be advanced in the early stage, and how long it will be possible to recover costs. Put these three accounts on the same table, and the choices will be much clearer.
| route | Gross profit and upfront investment | main risks |
|---|---|---|
| Foundry | Gross profit is usually 8% to 15%, requiring almost no upfront investment | High customer concentration, depressed account periods, and declining processing fees year by year |
| OEM | Gross profit is 15% to 25%, and investment in packaging and design is about 50,000 to 150,000 yuan | Ownership of molds and drawings, exclusive terms, customer loss and product removal |
| own brand | Gross profit is 30% to 45%, and investment in the first year is usually 300,000 to 800,000 yuan | Inventory occupation, channel expenses, and payback cycle 18 to 24 months |
The ranges in the table and table are common experience values in the industry. The specific numbers fluctuate with the category, accounting period and channel structure. The factory must use its own cost list to convert them, and do not copy them directly. At least three things must be distinguished when converting: how much fixed costs are allocated to each product, how many months the inventory needs to be kept under, and whether channel expenses are raised based on sales or paid based on a fixed amount.
2. OEM: The faucet of cash flow
The value of OEM is not due to its high gross profit, but because it can stably spread out fixed costs. Expenses such as plant, equipment, and labor are rigid. As long as an OEM order covers variable costs and leaves a certain marginal contribution, it is equivalent to covering the fixed costs for the private brand business first. To judge whether it is wise to continue to do OEM, look at three signals: whether the capacity utilization rate is above 70%, whether the proportion of single customers exceeds 40%, and whether the accounting period has been pressed to the point that affects turnover.
If production capacity is vacant and the accounting period is lengthening, the question is not "whether to transform", but "whether to decentralize the customer structure." At this time, a more pragmatic approach is to pick up two or three more small and medium-sized customers first, reduce customer concentration below 30%, and then talk about brands. If the customer structure is not dispersed, it is equivalent to pushing up the original cash flow.
3. OEM: Use other people's channels to practice your own products
OEM is one of the three roads with relatively balanced thresholds and benefits: customers determine the brand, and the factory is responsible for product structure, packaging form and certification data. The source of the increase in gross profit is not the price, but the product and packaging capabilities-if the same product changes the structure, packaging specifications, and certification documents, the price difference that the customer is willing to pay can cover this part of the investment.
There are four things that need to be clearly stated in advance in OEM cooperation: the ownership of molds and drawings (whether they will be transferred to customers after payment), the allocation method of development fees and proofing fees, and the scope of exclusive terms (whether online or offline is only available), and the transition period after customer loss or order termination. Many factories only verbally agreed on these four matters and did not write them down in the contract. They only found that the molds and drawings were not in their hands when the cooperation ended.
4. Private brand: Profits belong to you, and inventory belongs to you
Private brands have to answer three questions. If they can't answer any of them, don't invest heavily first. First, is there a product manager-someone who can determine the product line, price band, packaging and selling point? When this role is absent, the private brand can easily become a pile of unsaleable inventory; Second, there are channels-dealers, e-commerce or direct sales, the cost structures of the three roads are completely different; Third, whether the inventory and promotion expenses can be advanced for 6 months on the account.
Trademarks must be registered first to cover core commodity categories and 35 sales services to avoid being registered after sales are made. In terms of channel selection, the dealer model starts quickly, but it has to make up the price difference and bear the cost of price control; the e-commerce model faces consumers directly, but promotion expenses and operating manpower are continuous expenditures; the direct-sales model has high gross profit and requires team and funds. The requirements are also the highest. The realistic path for most factories is to first use e-commerce to measure products in small batches, produce two or three single products with stable sales, and then talk about distribution by dealers.
5. The five most vulnerable points in the contract
- Ownership of molds and drawings:Whether the payment equals the transfer of ownership and whether the right to use or ownership is transferred must be clearly stated; just writing "for common use by both parties" is the easiest expression to argue.
- Allocation of development fee and proofing fee:If the order quantity does not reach the agreed quantity, how to calculate the fee, how to limit the number of samples taken, and what standard to charge for the excess must be included in the contract.
- Exclusive and Regional Protection:Exclusive terms must limit the region, channels and duration, and bind the minimum purchase volume. Otherwise, it will be equivalent to giving up the region permanently without consideration.
- Transition period for termination of cooperation:Agreed on the handling method of customer inventory after termination, the obligation to complete in-process orders and the final payment settlement node to avoid sudden interruption of supply and causing claims.
- Intellectual Property and Infringement Liability:Who provides the design, who guarantees that it will not infringe, and how to divide liability when infringement occurs. The two situations of self-research and customer drawing should be written separately.
By clearly stating these five points, most of the disputes between OEM and OEM cooperation will be reduced; when private brands cooperate with channel operators, this list will also apply, except that "customer" will be replaced by "dealer."
6. Common questions
1. Should I stop old customers first when I start a private brand?
Not needed and not recommended. A more stable approach is to operate in separate lines: old customers go to the original OEM line, and private brands go to the new product line. The product structure, price bands and channels of the two lines are staggered as much as possible to prevent their own brands from directly impacting the business of old customers. If you really want to do the same category, you must first communicate with core customers to prevent it from being understood as a channel for your own customers.
2. Private brands invested 300,000 to 800,000 yuan in the early stage. Where did they spend it?
There are four main areas: packaging and design (including mold opening, proofing, packaging and printing); channel expenses (e-commerce promotion, dealer policies, display materials); inventory occupancy (first order preparation and safety inventory); and personnel and operations (products, operations, customer service). When the budget is insufficient, priority should be given to cutting inventory and promotion to preserve the packaging and the product itself-the product cannot work, and the traffic cannot be retained even if it is bought.
3. When should I upgrade from OEM to private label?
See whether the three conditions are met at the same time: OEM orders can already stably cover fixed costs, there are two or three items with stable sales on the product line, and someone on the team can be responsible for products and channels full-time. If all three conditions are met at the same time, the success rate will be much higher if you go to your own brand; if you miss any one, it is recommended to make up for the missing one first.
For factories doing domestic trade, OEM, OEM, and private brand are not one of three choices, but each of the three sums of money manages one thing: OEM maintains cash flow, OEM practices products, and private brand exchanges profits--If the order is right, the three paths can be taken at the same time.
Qihang Zhilian Foreign Trade Research Institute·Let China's intelligent manufacturing industry set sail to sea·Tel: 180-0327-6609
