You are ready to market your product. You have a very good idea of how widely you can distribute. You’ve tried to figure out a way to produce the quantity you want yourself, and you simply can’t. Now, you are looking to hire a copacker
Negotiating a deal with a copacker is not a simple task if you’ve never done it before. Before getting to the negotiation stage however, you have to make sure that they have the equipment and the motivation to meet your requirements. Can they prove their production methods are according to industry norms? Have you seen their safety records and quality control procedures needed for your product? Do you know how their procurement and production systems work? Have you toured their plant to see it all in action? Are you convinced they can do the job? If so, it’s time to negotiate.
The first thing to look at is how responsibilities will be shared. These can include:
Costs
Copackers will have a series of standard rates that need to be addressed. It is important to get them out in the open early in the negotiating process and make sure there are no hidden costs waiting for you down the road.
- What are their day rates? This will give you an idea if you will be financially able to sustain their production or not.
- What are their storage fees? Yes, even if they are not the distributors they will likely have storage fees for finished production.
- Are there costs associated with liabilities or workers compensation?
- Keep asking about other possible fees that may be encountered, such as unscheduled (emergency) production or what costs are incurred if you interrupt production.
Responsibilities
Some copackers are flexible enough to take on many responsibilities, ranging from research, right up to distribution. However, you may be looking to share some of those responsibilities to reduce costs.
- Who will be responsible for the supplies, ingredients, ingredients sourcing, product processing and packaging?
- How about labelling and finishing the product? And how will the transportation and distribution be taken care of?
- Quality control. This is of paramount importance. If you don’t get this nailed down correctly with your copacker (it needs to be documented too), all the rest doesn’t matter. How will the QC process work? Will you be able to do your own independent QC in the production facilities? If not, it must be a reputable company with a QC process you can understand.
More responsibilities
- Record-keeping. As mentioned for the QC process, you have to work out the record keeping details for all activities. You have to be comfortable with how everything will be accounted for including activities, inventory and pricing.
- Payment terms must be established and if applicable, non-compete agreements must be signed.
Other negotiation topics
Finally, the process scheduling and delivery dates need to be hammered out. While negotiating, be sure to establish the main contacts you will need to call upon if necessary: for example, the production manager, the kitchen manager, the ingredients manager and procurement.
To successfully work with a copacker, transparency is required on both sides throughout the contract. Make sure that is clear to them. And remember: a copacker is responsible for delivering quality product according to the schedule and cost you have agreed upon.
