How Much Does a Contract Juice Manufacturer Cost?
Synergy Food Group Operations Director, Adrian Hall explains How Much a Contract Juice Manufacturer Costs so that you can understand and find the ideal Contract Juice Manufacturing or Private Label Beverage Manufacturing partner for your company.
How much does a contract manufacturer cost?
Now this is the million dollar question.
If you are delving down, investigating about getting your product made really, this is the one key thing that you’re going to want to know, before you decide whether it’s worth investigating for you or not.
So how do you work out what your product should cost from a contract manufacturer?
Unfortunately, the answer to that is really going to vary from product to product and manufacturer to manufacturer.
In this article, I’m going to talk to you a little bit about the ways that we would cost things for somebody and about how you should be asking a potential company to cost things for you as well.
The way that we like to do it here at the Synergy Food Group is to get an understanding of where you need your end price to be.
If you’re already dealing with a restaurant or a supermarket or a cafe, and you’re already selling your product at a finished price, or potentially you’re already getting your product manufactured somewhere else, and you know what they’re charging you for the product. We like to use that as a starting point.
Every business is going to have really different costs. So what you want to do is try and work backwards from that finished cost, understand how much labour is going to be involved to make it, or how much you can automate it. How much are the ingredients going to cost and the packaging going to cost to make your product.
And then from there, you’ll get a very clear understanding of what margins left for the manufacturer to be able to play with.
And then also what margins left for you to be able to put on the finished product as well.
That will really form the basis of us as a business, knowing whether it’s a product that we’re able to help you manufacture.
If it’s not quite right, we will sit down with the customer and we will try and find ways to bring that cost down.
Maybe there’s different ingredients or different packaging that we can use to lower that cost.
Maybe we need to buy new machinery to be able to make the product faster, enabling us to have a lower labour input.
If we know what all of those things are initially, and we can work together with our customers, often we can find some efficiencies that bring that price point to a point where we can both work together.
When you’re really small and you’re making the product yourself and you’re selling direct to a cafe or a restaurant, you might be selling, (let’s use a juice for an example), you’re selling a bottle of juice for $3.
They’re going to buy it for $4.50. Fantastic. You’ve made a $1.50 margin. In the early days of your business, that’s fantastic, but there’s a lot of margins that you need to consider as you continue to grow.
You need to build these margins into your end price to make sure that the product is still viable for the customer whose hand you want it in.
As an example, you may be wanting to buy a bottle of juice from your manufacturer at $2 a bottle. Now you’re going to want to make some money on top of that as well. So let’s say you make 50 cents here at $2.50.
If you’re going to work with a distributor, they’re going to want 30% of that margin, so you’re going to have to add another 75 cents to that price for them to be able to get the money that they need.
They’re going to want to sell it to a supermarket or a retailer. That retailer is going to want to make another 50% margin, so now suddenly you’re at the $4-$4.50 mark.
Perhaps that’s too expensive for the end consumer. So you then need to work backwards and try and work out where you can get some efficiencies in the manufacturing, to be able to make all those numbers work.
Knowing what that end price is, will help, you know, whether the contract manufacturing price is right for you.
When you’re working with a contract manufacturer, they’re really three key things that they’re going to be charging you for.
They’re going to be charging you for the cost of goods, eg the ingredients, the packaging, the labeling.
They’re going to be charging you for the time that is spent to make the product eg the labour, the people and then they’re going to be charging you a very small percentage, for their overheads.
And then at the end of the day, they need to make some money on top of those three costs as well.
So having a clear understanding of how they break down those costings will enable you to be able to find some savings along the way as well.
If that costing doesn’t work, I can speak on our behalf here at Synergy Food Group we would normally sit down with our customer and try and analyze where we could make potential savings to make it work.
If we know you want to be buying it from us for $2 a unit, we need to look back and see, is there any savings that we can make, or compromises that we can make in the ingredients that we buy, or the packaging that we’re using to be able to meet that price point that you want to purchase it for.
Then it’s just a simple matter of communicating between the two parties and deciding whether you’re willing to make those compromises and for the contract manufacturer, whether they can make those compromises to get the price point to a point where it works for everybody.
It’s also really important you’re aware of any potential capital outlay that you’re going to have to contribute to, for the contract manufacturer to be able to make your product.
A lot of companies might say, look we can make the product for you, but we’re going to need to invest in some new machinery and if you want us to make it for you, you’ll have to purchase that machinery. It will belong to you, but we’ll use it to be able to make your product.
Maybe that works for you, maybe that doesn’t, but it’s definitely a consideration that you’re going to have to think about if you’re doing something that’s outside of the scope of what they would normally do.
So another opportunity to consider if the contract manufacturer can’t get their price down is to potentially haggle with your distributor or your retailers and get them to take less of a margin.
There’s definitely been instances in our experience where the price that we offered, we couldn’t budge on that, but we were able to make product for our customer by helping them negotiate with their distributor or their retailer to take less money, to make all the numbers work along the way.
So don’t be afraid to haggle because it can definitely help make the whole puzzle come together.
Although I don’t have a perfect recipe of what it’s actually going to cost you to make a product, what I would say is make sure that you really communicate with your contract manufacturer, make sure you’ve got somebody who’s willing to negotiate and willing to look at other opportunities to make the numbers work. If you do that, it’ll serve your business well going forward.
We certainly do that here at Synergy Food Group and if you’d love to have a chat to us about how we can make your product or bring your products to the next level, you can contact us at Synergy Food Group
Synergy Food Group contract manufacture for Australia’s leading juice & specialty beverage brands.
We were the first Australian company to innovate fruit and vegetable based Cold Pressed Juice, utilising High Pressure Process (HPP) technology, plus we produce a variety of specialty beverages such as Nut Milks, Protein Waters, Functional Beverages, Superfood Smoothies & Coconut Waters.
Some of our clients also use our juice as a premium ingredient to enhance other products such as Ice Cream, Cider & Beer.
Situated in central Sydney has allowed us to build a strong network of Farmers and Producers to source the freshest ingredients.
Synergy Food Group is licensed to produce both raw unpasteurised juice & juice utilising HPP technology and we are SQF certified, ensuring the highest food safety standards.
Our clients range from large retail chains, to boutique juice & specialty beverage brands who have a passion for providing high quality, innovative products to their loyal, health-conscious customers.
Whether it’s for the markets, cafes, restaurants, retail outlets, supermarkets, or international distribution we’ll tailor a cold pressed juice brand or specialty beverage that you can be proud of.