PART 2 [STRATEGIZE]: When Is The Right Time To Find a Co-Packer? Am I Ready?
When should I look for a Co-Packer? Here’s how you know.
Upgrading to a co-packer is an exciting, intimidating, and monumental moment in your business journey. You’ve spent countless hours mixing in your kitchen, hand-applying labels, setting up at farmer’s markets, and driving back and forth from the post office. You’ve seen orders skyrocket month over month. But you also feel spread thin, maybe a little burnt out or overwhelmed by how much there is to do. You possibly feel like there’s a glass ceiling to your current operation’s capacity.
- Don’t want to/aren’t financially able to invest in equipment or a facility of your own.
- You or your investors think your time + expertise is better used on growing the business rather than managing manufacturing.
Your current operations…
- Aren’t set up to produce on a larger scale.
- Require too much time, equipment, and capital you don’t have if you wanted to expand into new product categories.
- Don’t allow you to legally call out certifications your products are, i.e., gluten-free, kosher, organic, etc.
**(HB Specialty’s FDA Compliance Manager details in this article the slippery slope of calling out nutritional claims your finished good has NOT been officially certified for or why dietary claims like “Keto” or “Low Carb” can result in two words: lawsuit & expensive)**
If you’re nodding your head yes, you’re ready to prepare for a transition! Co-packers want (and need) to know you have an understanding of your business and how you want to grow it, which helps them meet your expectations. The checklist below is everything you’ll need to prepare. If you aren’t ready for it, this next checklist will serve as your north star.
“Am I Ready For a Co-packer?” Checklist
Disclaimer: The following are all strong and subjective suggestions based on my personal experience with Prymal’s transition to working with HB Specialty Foods and my conversations with fellow entrepreneur friends.
Anticipated Volume & Demand Forecast
Every co-packer requires a minimum volume of hundreds, or even thousands, of units needed to begin a production run. I still remember feeling embarrassed when I reached out to the first co-packer on my vetting list…within a total of 5 min we discussed what my products were, the number of units I was requesting, and a swift “goodbye you are way too small”. Haha! It’s funny now but in that moment I was so discouraged.
This to say that in your journey you must vet multiple partners for everything you do. But don’t be discouraged when a few are jerks. Stand your ground and be honest with yourself on what your accurate needs are. And if you notice that 5+ co-packers are saying your volume doesn’t meet their minimum then maybe you aren’t really ready yet. And keep operations as is until you hit the average minimums.
Impact of Shelf Life & Seasonality:
Meeting the minimum may be a viable option if your product has a long enough shelf life. For example, imagine you are working with a co-packer who requires a minimum of 1,500 units per run. If your product has a shelf life of one year and the projected demand is 400 units a month, one production run would produce enough units to satisfy nearly four months’ worth of demand.
If your product has an extremely stable shelf-life, it may be worth investing in a single run and storing it. Examples are baked goods if your product is a dry powder.
Sourcing & Recipe Scalability
After replicating your recipe for the hundredth time, chances are you can do it with your eyes closed. Yet unlike manufacturing your product in the flexible setting of a home or commercial kitchen, industrial mass production requires extremely detailed recipes with no ambiguous factors. Differences in processes, machinery, and ingredients themselves can have a huge impact on the final product.
Before you begin the search for a co-packer, you will need to make sure your recipe is both precise and large enough to fulfill the co-packer’s minimum. This will help to eliminate any confusion during the manufacturing process.
Packaging & Stability Requirements
Bulk-manufacturing with a co-packer will result in a lower price per finished unit, but here are some other costs associated with this next stage you will need to consider: Packaging Source.
The days of hand-filling pouches or cartons however you like are gone. You can’t get away with applying whatever sticker, stamp, or handwritten words you have done in the past. You will want a verified, quality-controlled packaging partner to source your new packaging material because once you’re officially out there to the masses, FDA compliance and food safety are paramount to your success.
Packaging that doesn’t meet the standards set by your co-packer’s quality control team should not be used. Skimping on proper packaging that preserves the integrity + freshness of your product will save you from potential lawsuits.
- Almost every young food startup has a story about how they calculated their nutrition facts by plugging it into something like a MyFitnessPal or Recipe Calculator. And voila! Print that on a sticker and then stick it on the bag for customers.
This is fine and normal for the early stage, but at a stage where you’re moving into a co-packer, their internal R&D team will run the recipe, make the tweaks, run it by Compliance & Regulatory and provide you with the final FDA required ingredients list and nutrition facts.
- Sorry to break the news but trendy Nutritional Claims and callouts like Keto, Sugar-free, Low-Carb Friendly, or “Only ‘x’ gram of net carbs” are illegal. The FDA doesn’t recognize these claims and you expose yourself to FDA investigation or consumer litigation if your packaging callouts aren’t to FDA code or aren’t legally verified certifications.
Here’s a scary example: Your candy is marketed as “Keto”, “Sugar-Free”, “Safe for Diabetics”. BUT, something in your formula actually causes blood sugar to spike. Every customer who purchased your product because of your claims are actually eligible for a class action lawsuit for misleading marketing. Food-related litigation is no joke. Red Bull settled $13 million in a consumer lawsuit for their slogan, “Red Bull Gives You Wings” and Izze natural soda lost a consumer class action lawsuit as well for their claim “No Preservatives”–the customer said vitamin C (ascorbic acid) is a preservative and she was misled to thinking otherwise.
Every co-packer should have a regulatory department who will let you know what you can say and what cannot be said. Don’t skip this step. It’s just not worth it.
Digital print vs Offset printed packaging:
- PRO’s of digitally printed packaging is that minimums per SKU are a lot less (I’ve seen as low as 1,000 units per SKU) and you have the flexibility to change the packaging whenever you like because it’s like an extremely beefed up home printer.
- CON’s are that it’s more expensive than offset. As you grow and volume increases, the price will decrease. But it will always be more expensive than the traditional offset way.
- PRO’s of offset printed packaging is cost-effectiveness. Offset printing is made of metal plate molds that are like a stamp. Once you pay for the mold, printing becomes extremely efficient.
- CON’s of offset are high MOQ’s (minimum order quantity). When I contacted the first packaging supplier on my list their MOQ was 25,000 pouches per SKU design. At that time my demand per SKU was probably only 1,000/month. My demand didn’t justify the expense to purchase 25,000 pouches. The other con is flexibility–if you make a spelling mistake or if you decide to rebrand, you’ve got to pay for a whole new mold which can get expensive. Whereas digital printing it’s as simple as emailing your partner the new artwork.
**Takeaway: If you have a lot of SKUs in your product offering, the change costs and minimum order requirements can add up quickly in offset and I’d recommend digital printing. If you only have a couple of SKUs, you don’t anticipate any changes to your design, and you’ve got the capital + demand to meet the manufacturer’s MOQ I highly recommend offset printing.
If you have the actual sales to support the minimum runs a co-packer needs in order to make business sense for them, this is good. But now you’ll also need to calculate the rough cost of manufacturing 60,000 units at a time like ingredients, packaging, freight?
Future plans & “What’s Next?”
So you’ve secured your co-packer, transitioned everything over, placed your first PO (purchase order). Now what? It’s time to revisit Marketing, Sales, Hiring, and Expansion! All of the other business functions you were starting to unintentionally neglect–hence, your need for a co-packer because the previous inventory production process wasn’t scalable. This is your responsibility now to meet those inventory demand projections you put together.
TIP: It’s imperative to know exactly what you’re going to do with the newfound time you’ll get back in your day before making the switch. This way, you’re ready to hit the ground running after that PO is placed. Lastly, get excited! This is where the fun and next set of challenges of growing your business begins.
Stay Tuned for our upcoming series
Part 1: Learn
What is a Co-Packer? What You Need to Know to Find a Great Manufacturing Partner
PART 2: STRATEGIZE
When Is The Right Time To Find a Co-Packer? Am I Ready?
PART 3: PREPARE
The Questions Co-Packers Will Want to Know & How to Answer With Confidence
PART 4: ACTION
Founder, CEO of Prymal, and has been a customer of HB Specialty’s since 2018.