Back in the day, food brands had one main way to scale: find a good place for co-manufacturing. But times have changed. Self-production is now a viable alternative, especially for brands with early-stage and more customized products.
Competition for line time – the hours or days when the co-manufacturer produces your product – is fiercer than ever. You might wait months to get on their schedule, and even then, you could be bumped for a larger or more established customer.
Also, if you haven’t nailed your formulation, process, and packaging, working with a co-manufacturer can be challenging. Some are great partners in product development, but others aren’t set up for effective pilot or R&D production.
Finally, minimum order quantities (MOQs) can be make-or-break. Co-manufacturers often require orders of thousands of units just to get started. That’s a big risk before you even know if your formulation will deliver quality at scale.
As a result, more brands are self-manufacturing new SKUs in specially designed commercial kitchens, like those we have at Amped. As a rule of thumb, if you’re selling less than $2 million to $5 million per year and/or your product is innovative – with specialized ingredients, processes, and/or packaging – self-manufacturing offers distinct advantages, alongside important challenges.
Here are three questions to help you decide between co-manufacturing and self-manufacturing:
- Do you want full control of your product and process? For many, the obvious answer is “yes!” But remember, control is a double-edged sword. Your fate is in your hands, but are you ready to learn the ins and outs of manufacturing and operations? Are you prepared to hire and manage your production team?
- How “baked” are your formulation and packaging? If you’re making something generic – like chocolate chip cookies, energy bars, or a simple beverage – co-manufacturing can be a great option from the start. Many co-manufacturers have the right equipment, expertise, and experience, so you can focus on brand development and marketing. But if you’re making something new – with special ingredients, processes, or packaging – until you pass $2 million to $5 million in annual sales, finding a good co-manufacturer can be tough. Self-manufacturing might – or might not – be the answer.
- What’s a better deal for you? Fixed costs or MOQs with co-man fees? In self-manufacturing, kitchen rent and equipment are the main fixed costs. Variable costs include ingredients, packaging, and staffing. Co-manufacturing, by contrast, often includes no fixed costs per se, but minimum order quantities are the price of admission. When comparing self-manufacturing to co-manufacturing, consider how much capital you’ll need for your first run and how much you’ll need for the second, third, and beyond over your first year. The answer will be heavily product- and volume-dependent. You might be surprised!
For more insights into co-manufacturing versus self-manufacturing, tune into a StartupCPG webinar with Amped Kitchen’s Mott Smith and Catapult Commercialization Service’s Jamie Valenti-Jordan in October!
