The Ultimate Guide to Co-Packing by Adams Michael

Author:Adams, Michael [Adams, Michael]
Language: eng
Format: epub
Publisher: UNKNOWN
Published: 2016-08-30T16:00:00+00:00

That’s pretty high for production. But, let’s make it a bit more complicated. Let’s say you had three shipments received for that production and you had a couple of prep hours the night before:

Day rate: $750 for an 8 hour day

Receiving fees: $60

Ingredient prep: $100

Units produced: 1,000

Cost per unit: $0.91

Your labor cost per unit just increased 21.3%

And that’s just your labor cost. Nevermind your ingredients, packaging, transportation costs, and other fees. The increase needs to be passed all the down your distribution channel, up to your customer or you’ll be making less money.

What are the downsides to paying a flat day rate?

1. Fluctuating per unit rate

Every time you produce, you have no idea how much your labor is going to influence your product cost. One week, your product is cheap to produce. The next? Something goes wrong and your cost spikes. It’s tough to control.

2. Pressure to produce as much as you can

When I was just starting out, I was paying a flat day rate. That meant I needed to produce close to 1,000 units just to break even. And I didn’t have the demand to meet the supply. When I produced less, my costs went up. It’s just part of the numbers game.

3. Tight cash flow

When you pay several hundred dollars a day for use of a co-packing facility and you’re doing it weekly, it adds up. Then you’ve got jars, caps, ingredients, transportation, and time. That’s a lot of money. Some production runs have cost me upwards of $2,500. And that was just to get off the ground.

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