So you’ve decided to finally start that business with your great grandmother’s salad dressing recipe. You’ve already been bottling it at home or at a commercial kitchen, and you’re getting some great feedback from customers. A larger retail buyer even reaches out to you to see if you’d be interested in selling your product in their 300 stores.

Now, the question is, how will you ever be able to produce enough inventory to sell in 300 stores?! That’s where a contract manufacturer comes in.

We’re seeing more and more brands ranging from startups to fortune 500 companies going lean by outsourcing their manufacturing and packaging to contract manufacturers — AKA co-packers.

Why do this? Because owning and managing your own manufacturing facility, with extensive equipment and a fully skilled staff, gets expensive and time consuming! Contract manufacturers allow you to leverage a 3rd party production partner to produce your products without investing in all that overhead!

Before we go any further – The term co-packer gets used a lot in the industry, but it can really mean a few different things. It might be referring to a contract manufacturer or just a contract packager – so let’s clear up some terminology:

Contract Manufacturer (co-man/co-packer): A contract manufacturer is a food production facility that produces food and/or beverage products on contract for other brands (their clients). They make the products to the exact specification of the brand owned formula. Many co-man’s will also package the finished products for their clients. Most smaller brands will want to find a contract manufacturer that can both produce and package their products.

Contract Packager (also called a co-packer): This is a manufacturer that strictly packages finished products. They typically receive bulk product from a brand and package it to brand specifications. While contract packagers can often handle food products, they don’t typically produce any in their facility.

Private Label Manufacturer: Private label manufacturers are similar to contact manufacturers in that they produce food and beverage products. The difference is that they produce products under their own recipe and then sell those products to brands. The products are packaged and sold under the brand’s own label. This is typically what happens with retailer owned brands. (Example: Whole Foods’ 365 Everyday Value brand)

Benefits of working with a Contract Manufacturer

Working with a contract manufacturer can be a great choice for your business. Not only does it enable you to ramp up volume quickly in order to take on larger accounts and increase overall revenue. It can also help you keep your costs low, while maintaining high quality production.

Many manufacturers also have product development and R&D teams so when you are looking to expand with other SKUs – they can and should be a great resource for innovation.

Lastly, another benefit of partnering with an outsourced production partner is that it allows startups to stay lean and focus their time on sales and marketing, while feeling confident their products are being made by pros.

When is it time to find one?

Working with a co-packer is a big step. It’s important that you are at the right stage in your business to go down that route. Many times brands that are just getting started think the first step is to find a co-manufacturer. But that’s often not true! First try making the product in a commercial kitchen first and getting some sales. Focus on developing your business a bit before looking to scale with a co-packer.

Now if you’ve done that and feel that your business is on a strong growth curve, you’re feeling comfortable financially, and you need the ability to scale up quickly, then it’s time for a contract manufacturer.

A bit of advice on picking the right partner: Match Size! Do your best to find a co-packer that is about the same size as you. If you find someone too big, then you’re the small fish and most likely at the bottom of their schedule priority. It’s good to find a partner that is large enough to grow with you but also truly values your business.

It’s also important that you do your homework before you begin with your co-packer search. The second you begin your conversation with a potential manufacturer they are going to immediately want answers to a number of questions.

Here are some examples of the type of questions you should be ready to answer:

• What type of volume in units are looking to get produced?
• How many different SKUs?
• What type of volume would you need per production run per SKU?
• What are your annual volume projections?
• Does your product require special equipment?
• What type of packaging will the product be in?
• What are your current sales channels?
• What’s your target COGS?

It’s super important that you have spent the time and done your research before reaching out to manufacturers about producing your product. It’s okay if you don’t have concrete answers to all of these questions, but make sure that you understand them and are as prepared as possible.

While the benefits of working with a co-packer are immense, if you end up in the wrong partnership, it can be very detrimental to your brand. When discussing the possibility of working with a co-packer it’s super important that you make sure the partnership is set up for success. Here are a few things you should consider when choosing a partner:

• Clearly Define Terms & Conditions – Make sure that both parties feel comfortable and are set up for a successful and profitable path forward
• Understand their capabilities – make sure they can scale with you. Look at your 1-3 year production goals and review with the manufacturer to make sure you’re on the same page.
• Communicate Openly – Create an environment in which both parties feel equally important to the success and growth of the product. Weekly check in meetings can be really helpful!
• Ensure Quality – Perform a full facility inspection, review quality process and documents, and get a sense of the importance of quality to both employees and management. Even though quality programs may be in place, it takes a strong team of people to ensure the guidelines and policies are followed. Don’t ever settle for someone who does not meet your quality expectations.

Hopefully this has cleared up some of the confusion around the world of contract manufacturing and gotten you excited about finding a great partner for your next product! Remember StartupCPG is always here to help, and check out PartnerSlate to get on the contract manufacturing train when you’re ready!