Marcus Lemonis: The smart move Jessica Alba made with The Honest Company

The smart business move Jessica Alba made: Lemonis

It wasn't the celebrity factor that landed Jessica Alba's Honest Company in talks with Unilever for a potential acquisition, according to turnaround king Marcus Lemonis.

The actress-turned-entrepreneur, along with her co-founders, set the company apart from competitors by sourcing good products at cheap rates, Lemonis told CNBC on Friday.

"[Alba] really knew where to go out and find the product — not only give the margin to herself, but give it to the retailer," Lemonis said.

Marcus Lemonis
Scott Mlyn | CNBC

The Wall Street Journal reported last week that the talks with Unilever over a deal valued at more than $1 billion were in the early stages. Alba's green products company was valued at $1.7 billion last year, the Journal said.

Lemonis, who helps businesses become more profitable on CNBC's "The Profit," explained how finding the right source for products is crucial to retail success.

"Consumer products, whether it's this foam or a bottle of cleaner, it's all based on the retail price, is all based on the sourcing," Lemonis said.

It all comes down to "keystoning," or the process where the cost of a product doubles when it is sold to retailers, and then doubles again when the consumer purchases it from a retailer.

Jessica Alba attends The Honest Company.
Stefanie Keenan | Getty Images

"The product goes from the cost of a dollar, it keystones, which means it doubles the margin to $2, and then sells to the consumer for $4," Lemonis said.

"Because she was able to source properly, her keystoning from her to the retailer, the retailer to the consumer stayed at or below market," he said.

The Honest Company has survived a number of controversies over ingredients of its products, including a Wall Street Journal lab test of its ingredients, a proposed lawsuit and negative social media posts. It has publicly responded to criticism.

"[Alba] went from the home to baby, to clothes, and she surrounded herself with amazing brand folks and the right sourcing agents," Lemonis said.

The Honest Company did not return request for comment.

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