How Much Do Food Co-Packers Charge?
You have a brilliant idea for a new artisanal chips brand. You’ve saved up ample funds to get things going and you’ve scoped out some co-packers to make it happen. But before you pull the trigger, you want to make sure you’re using your money wisely–and that you don’t overspend for your product.
That’s why it’s essential to understand how co-packing is charged and how much you can expect to pay to make your food or beverage product a reality.
- What is a Food Co-Packer?
- How Does a Co-Packer Get Paid?
- Figuring Out Your Co-Packing Cost
- Again-Don’t Forget to Count Co-Packer Shipping Rates
1. What is a Food Co-Packer?
Food co-packers specialize in packaging, and often manufacturing and distributing, food or beverage products for other brands. They generally play support roles for product entrepreneurs seeking to launch brand offerings in stores or online. Some advantages to using a food or beverage co-packer or co-packing service like GhostLabel include:
- Regulatory compliance – Trustworthy co-packers will be up-to-date on all certifications for their ingredients and products. Credentials like organic certification, food safety verification and SQF are all costly standards that can drain any sized company of precious resources. It’s better for you–the product entrepreneur–to rely on verified food or beverage co-packers to maintain manufacturing compliance.
- Warehousing – Like certifications, warehousing products can add up to high costs over time. Some co-packers will offer free or discounted warehousing options depending on your order size. Remember: When it comes to developing food or beverage products, every penny counts.
- Distribution options – If you plan on expanding your product to multiple locations, you’ll need distribution. By manufacturing your products with a trusted co-packer, you might be able to either rely on them for shipping your orders to different stores or ask them for an affordable distributor reference.
2. How Does a Co-Packer Get Paid?
As with most mysteries in the food and beverage co-packing world, the answer to this question is: it depends. If you’ve just started working with a co-packer, chances are they’ll charge you 100% up front (also known as NETCASH) for your orders through ACH or wire transfer. The reason for this is that, frankly, they simply don’t know you well enough to provide you with financing terms just yet.
If you’ve worked with your co-packer for several months or years, that’s a different story. And if you don’t have financing terms already, you should ask your co-packer if you may pay on a 30-day basis (also known as NET30) or with a 50% down payment with a remainder due in 30 days. This will help you stave off costs while you sell your product and keep your account padded as you expand.
3. Figuring Out Your Co-Packing Cost
So let’s say you feel confident enough to call up a co-packer for pricing. Before calculating your final price, these simple steps of co-packer pricing will help you determine the total landed cost of your product:
- Ask for a Minimum Order Quantity (MOQ) – When you start talking with your co-packer, they may ask you how many units you’d like to order. Instead of answering this question right away, or giving an ambiguous estimate, it’s best to ask your co-packer what their MOQ–the minimum order you can request–is. If they say a ridiculous volume you simply can’t afford or sell at the moment, that co-packer may not be ideal for your current project. However, they may even give you a lower-than-anticipated volume you might be more comfortable with.
- Discuss ingredient and material options – An excellent way to carve down your cost is to discuss ingredient and material options. If an ingredient is an essential component of the product (like cocoa for chocolate milk powder), then obviously it’s off the table. But let’s say you’re crafting a chai tea blend and use an expensive star anise variation to round out the flavor. Perhaps a star anise extract or flavoring would be less costly. Or let’s say you want to use pricy compostable packaging for your frozen lasagna brand. Try settling for a recyclable material instead.
- Ask for volume discounts – After nailing down your ingredients and materials, ask for any price breaks at greater volume levels. For instance, if you’re ordering 1,000 units of canned bubble tea, ask if there’s a price reduction at 3,000 units. The co-packer will typically tell you what volume you need to reach for a cost reduction. The price cut per unit is usually several cents to a dollar, but you’ll feel the discount spread over several thousand units.
Now that you know a few steps for negotiating price with your co-packer, you need to calculate your costs. Here are the different factors you need to add together:
- Cost per unit (CPU) (co-packers usually give you a cost including materials and labor)
- Cost per case pack per unit (CPCPPU) (some co-packers charge for organizing your product into multi-unit boxes for easy shipment, so you’ll need to divide that cost by your unit number)
- Shipping cost per unit (SCPU) (divide your overall shipping cost by your number of shipped units)
- Warehousing cost per unit (WCPU) (if your co-packer is charging you warehouse fees)
- Distribution cost per unit (DCPU) (if your co-packer is distributing or drop-shipping your product)
- Administrative fees per unit (AFPU) (not all co-packers charge extra fees, but some may charge for payment processing or handling)
Your equation will look like this:
CPU+CPCPPU+SCPU+WCPU+DCPU+AFPU=Total cost per unit
That being said, it’s a wise idea to generally add in a few cents ($0.03 works well) per unit to account for price fluctuations or unexpected costs.
So let’s say you’re developing a raspberry seltzer. You determine you want 100 units. The cost per unit is $1.16, and the co-packer lets you know the cost to put your product in case packs will be $2 a case pack of 10 units (or $0.20 per unit). So your cost goes up to $1.36 per unit. Shipping all 100 units will be $50, so you’ll need to add $0.50 per unit, bringing your unit cost to $1.86 per unit. You forgo distribution, as you’re sending everything to one place, and your co-packer doesn’t charge a processing fee. Add $0.03 for padding and your total cost is: $1.89 per unit.
4. Again-Don’t Forget to Count Co-Packer Shipping Rates
We can’t hit this home enough. If you’re paying $800 for a 100 units of frozen beef, and $800 on shipping, you’ve just doubled your product cost. Discuss shipping options with your co-packer in advance and keep in mind that the smaller the order, the more you’ll likely pay per unit in shipping.