Have you been making your product in a commercial kitchen or your own small food manufacturing plant? Are you ready to turn over the manufacturing of your product to a co-manufacturer, but you’ve been shocked by the prices you’ve been quoted thus far?
I’ve been working with small food companies (and food manufacturers) for 20 years. I know you probably expected it to cost you the same amount (or less) to contract out the manufacturing of your product. When you got the quote to outsource your manufacturing, you were astonished to find out it would cost approximately as much or even more than what it has cost you to manufacture product by yourself.
Why is this? You probably don’t realize how much manufacturing product yourself is actually costing you.
In a nutshell, it costs so much to outsource manufacturing food products because:
- Scaling your product is going to change your cost structure.
- You forgot to factor in how much time and effort you were (personally) putting in. Nobody else is going to work as hard (or much) as you have because this is your business and yourYou probably have to pay for the work of three people to come close to what you were accomplishing.
- The cost of inventory is high. When you outsource, the manufacturer has to hold raw materials inventory, and you now have to pay them for that service. You no longer have to buy the raw materials yourself, and the manufacturer is going to make you pay for the service of them finding, buying and storing the raw materials required to make and package your product. They will probably end up buying in bulk, but these are large upfront costs.
- You are paying for the quality control programs, which are essential for protecting yourself in the case of a recall.
- You are also covering the cost of running the plant all the time. Perhaps you used to run overtime during production week and then spend the rest of the month selling product. Now you have to pay for continuous manpower, since the plant doesn’t run on your schedule, but rather, on their schedule.
- Opportunity costs. Thus far you’ve probably spent the majority of your time making product, but you only have so much time in a day. You need to be focused on selling product. Finding investors. Coordinating branding efforts. Instead of spending your time watching people make your product, it’s time to hand that off and invest your time into growing your business.
Scaling your business can be expensive, especially if you’re new to the business and don’t know how to negotiate a beneficial contract, get bogged down in outsourced operations management or get too involved in supply chain process issues. Outsource to experts — people who know the food product manufacturing industry and can help you streamline processes and make the right connections. It might be an investment upfront, but you’ll save in the long run.