3 Things To Have Before You Reach out to a Contract Manufacturer
Many food and beverage founders reach out to me after months of searching for a contract manufacturer with no luck at finding the right partner. I’ve had some brands who have reached out to 70+ groups with no luck. In my experience, most of the time they have already spoken to the right co-packing groups but they were not adequately prepared for the conversation.
Many food and beverage founders reach out to me after months of searching for a contract manufacturer with no luck at finding the right partner. I’ve had some brands who have reached out to 70+ groups with no luck. In my experience, most of the time they have already spoken to the right co-packing groups but they were not adequately prepared for the conversation. Contract Manufacturers, who field through unqualified leads every day can sense that the brand is not ready and they will either say they are at capacity or won’t respond to the inquiry at all.
When you reach out to an investor, you will have your pitch deck and financial model created. When you reach out to grocery buyers, you will have your sales deck and samples to show. But for some reason, when it comes to your most intimate partnership (the group that will actually make your product) most founders don’t have anything prepared.
Having these three items in order before you reach out to a contract manufacturer will greatly increase your odds of getting responses and having productive conversations towards a successful partnership:
- Product clarity (Formula, processing sites, and packaging)
- Finances (MSRP, costing goals, and cost of investment)
In order to find and work with a co-packer successfully, you need to get the normal customer/client relationship out of your head. You must completely change your mentality and instead think of your co-packer like an investor, especially in the search phase.
Co-packers make their money from brands when a product line has scaled. In most cases, the co-packer will either break-even or lose money while working through the onboarding and initial orders with your brand. They will generally not start to make money from this relationship until you become a customer that is ordering above their minimum order quantity with regularity in a way that they can project your annual volume. This is why they need to make a decision to invest their time, staff, and line time to your product line.
Like any investor, you must collect all of the credibility indicators about your brand and sell yourself to the manufacturing group. Explain your long-term vision, the team members that you have in place, and sales strategy. In everything you do, you are courting the co-packer like an investor. If the co-packer doesn’t answer your first calls or emails, call them again like you would a retail buyer or an angel investor. Better yet, if you can get a referral from another founder, a consultant, or another vendor this will greatly increase your odds of making initial contact.
Being able to communicate your product with clarity is an incredibly important step to start a conversation with a contract manufacturer. Being able to explain that you have already done the due diligence of how this will be made at scale may save you RD lab fees with the group and more importantly, it will not scare away any potential partners.
Getting your product to a food scientist / formulator is a very good idea before you start outreach. I may be a bit biased, but my colleague at Sherpa CPG Victoria Ho is an expert at taking a product from the kitchen level and translating it into a factory friendly recipe without losing the “soul” of the product. Here is an example of what a recipe might look like
Your formula needs to be structured in the correct format for a manufacturer to understand. Typically this is in a % ratio so that it can be scaled up or down easily by the manufacturer depending on the production size. Your ingredients also can not be
Using a 40 gram nutrition bar as a fictional example
- 50% INGREDIENT 1- RAW, UNSALTED, PEANUT BUTTER
- 20% INGREDIENT 2 – 100% MEDJOOL DATE PASTE, ORGANIC
- 20% INGREDIENT 3 – GLUTEN FREE OAT BRAN
- 5% INGREDIENT 4 – 100% RAW CANE SUGAR
- 5% INGREDIENT 5 – STEVIA POWDER, (RA98)
You will also need to detail the correct processing steps and have some of the core pieces of your product understood:
Using a 5oz burrito as a fictional example
- STEP 1 – WEIGH ALL INGREDIENTS IN SPECIFIC ORDER AND ADD TO MIXING TANK, MIX THOROUGHLY
- STEP 2 – EXTRUDE FILLING INTO TORTILLAS
- STEP 3 – ROLL ALL TORTILLAS
- STEP 4 – FLOW-WRAP PACKAGE ALL TORTILLAS
- STEP 5 – SEND TO FREEZE TUNNEL
- STEP 6 – PACKAGE INTO RETAIL CARTONS
- STEP 7 – PACKAGED RETAIL CARTONS INTO CORRUGATED CARDBOARD BOXES, PALLETIZE, PREPARE FOR DOCKING
Lastly, you will need to understand key information about how your product will be packaged. Many times, the way the product is packaged will be a determining factor into which group you can manufacture your product with. Having competitor examples of how you want the product to be packaged is a perfect way to easily showcase what you are trying to achieve.
To start a packaged food business, you will need money. Especially in recent years, You need to have your finances ready and be able to show your co-packer that you have your finances ready. You will not have terms at the start and will likely have to pay 100% upfront. At the best, you will have to pay 50% upfront and 50% at time of ship. On the other end, UNFI will likely not pay you for the first 30-90 days with products that are guaranteed sale, so you need to have money to handle this cash flow.
The best way for you to establish terms early is to get a DUNS number, which is like your social security number for your business. By doing this, you can start to record every time that you pay your vendors on time and that will build the credit score of your business. This DUNS number will become a crucial indicator of the strength of your business as you pitch to larger retailers or buy from larger vendors.
Understand the margin analysis of what this is going to cost so when they give you pricing you can start to think about whether or not that can compete in the marketplace.
Before you reach out to the co-packer, you should do an internal audit of how much it costs you to make your product. You need to take into account everything to get a true production cost. Here is a breakdown of some of the items that go into the cost of production:
- Rent of your commercial kitchen
- Labor fee of employees during production (give yourself a labor fee $/hr as well)
- Cost of ingredients
- Cost of packaging
- Cost of inbound shipping for all materials
- Time to set up production
- Any utility bills amortized over that one day or production
Now you have your final production $ amount of what it takes to make one product. This is similar to how a co-packer is going to look at pricing your product. The key components of a co-packer’s pricing are:
- Set up / break down cleaning
- Processing + labor
- Handling / logistics
- Their margin / profit
The best pricing from your contract manufacturer will come once that partner can make your product with reliability. Similarly, you are going to want to understand how much product that you can make with that manufacturer in an 8 hour period. That is how manufacturers will look at your project and they will also take that into account when pricing your product. At a high level, the magic number is how much product they can make in one day in relation to how much it costs for them to operate that day.
I hope this overview of mentality, product clarity, and finances, helps to improve your odds at getting more responses to your outbound inquiries with contract manufacturers and having more productive conversations for an eventual long term partnership.
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