When e-commerce aggregators and investors look at your business, they don’t just look at your revenue; they look at your defensibility.
Many sellers believe that $1 million in sales from a Private Label (ODM) product is worth the same as $1 million in sales from a Custom (OEM) product. In the world of mergers and acquisitions (M&A), this is false.
The manufacturing strategy you choose today—Private Label vs. Custom—directly dictates the “multiple” (e.g., 3x vs. 6x EBITDA) you will receive when you eventually sell your brand.
At HSY SCM, we help sellers transition their supply chains to build real assets. Here is the guide to how product sourcing determines your company’s value.
The Valuation Gap: Cash Flow vs. Asset Value
To understand valuation, you must understand the difference between a “cash flow stream” and a “business asset.”
1. Private Label (ODM): The “Commodity” Trap
- The Model: You buy a generic product that exists in a factory’s catalog and slap your logo on it.
- The Valuation Reality: Investors view this as high-risk. Why? Because if you can buy it, so can your competitors. The barrier to entry is low.
- The Multiple: Typically 2x – 3.5x EBITDA.
- The Verdict: You are selling a sales channel, not a unique product. The value lies only in your ranking and reviews, which are fragile.
2. Custom Products (OEM): The “Defensible” Asset
- The Model: You design a unique product with specific features, own the molds, and control the Intellectual Property (IP).
- The Valuation Reality: Investors pay a premium for this. You have a “moat” around your business. Competitors cannot easily copy you without legal risk or significant R&D time.
- The Multiple: Typically 4x – 6x+ EBITDA.
- The Verdict: You are selling a brand and an asset. The value lies in the product itself and the exclusive supply chain.
Why Custom Products Create a “Moat” (And Higher Value)
In investment terms, a “moat” is a competitive advantage that protects your market share. Switching to Custom Manufacturing (OEM) builds this moat in three specific ways:
1. Intellectual Property (IP) Ownership
With Private Label, the factory owns the IP. With Custom Products, you own the IP.
- Valuation Impact: Buyers love IP. It is a tangible asset that can be legally defended on platforms like Amazon (via Patent or Design Rights), instantly shutting down hijackers and copycats.
2. Supply Chain Exclusivity
When you invest in custom molds and tooling, you create a binding relationship with your supplier.
- Valuation Impact: At HSY SCM, when we manage an OEM project, we ensure the factory cannot sell your design to others. A buyer is buying a secured supply chain, not just a vendor list.
3. Pricing Power and Margin Stability
Private Label products often succumb to “price wars” because they are identical to competitors. Custom products solve specific problems that generics cannot.
- Valuation Impact: Higher, stable margins prove to investors that your brand has loyalty, not just low prices.
The Valuation Matrix: Private Label vs. Custom
Here is a quick reference for how manufacturing choices impact key valuation metrics.
| Metric | Private Label (ODM) | Custom Product (OEM) |
| Defensibility | Low (Easy to copy) | High (Protected by IP/Molds) |
| Supplier Control | Low (Factory holds power) | High (You own the tools) |
| Price Competition | High (Race to the bottom) | Low (Premium pricing) |
| Typical Exit Multiple | 2x – 3x | 4x – 6x+ |
| Investor Appetite | Declining | Increasing |
How to Transition to Increase Your Valuation
If you are currently selling Private Label goods, you don’t need to start over. You need to evolve.
The HSY SCM Strategy for Valuation Growth:
- Identify Your Best Sellers: Take your top-performing Private Label product.
- Gather Feedback: Look at the 3-star reviews. What do customers hate? (e.g., “The handle breaks,” “It’s too heavy”).
- Innovate (OEM): Don’t just restock. Contact HSY SCM to help you redesign that specific component. We will find the factory, manage the new mold creation, and produce a “Version 2.0” that is unique to you.
- Secure the Asset: We help implement NDAs and rigorous agreements so that this new version belongs to you alone.
Build for the Exit
Every dollar you invest in Custom Manufacturing today is worth double or triple that amount when you sell your business tomorrow.
Don’t just build a store that generates cash; build a brand that generates wealth. Transitioning from generic sourcing to strategic, custom manufacturing is the single most effective way to increase your company’s valuation.
