Co-Packer vs Commercial Kitchen: Which Costs Less?

Per unit, a co-packer and a shared commercial kitchen often cost about the same; what differs is the cash, your time, and how much you can make. A shared kitchen rented by the hour is cheapest to start and scales with you up to the hours it can give you. A co-packer takes the making off your hands but wants a large run paid for up front. Your own kitchen has the highest fixed cost and only wins at high, steady volume. In the hot sauce example below, the shared kitchen costs $2.27 a bottle and the co-packer $2.20, while your own kitchen beats them only above about 5,300 to 6,000 bottles a month. Below is the cost per bottle at each volume, the break-even, what the per-unit number leaves out, and how to decide.

The short version

• Shared commercial kitchen: low cash, pay by the hour, limited by the hours you can book.
• Co-packer: no kitchen work, similar cost per unit, but a minimum run paid up front.
• Your own kitchen: high fixed cost, cheapest per unit at high, steady volume.
• Compare cost per unit at your real volume, not at the volume you hope for.
• Then weigh cash, your own hours, capacity and control.
• Many brands go shared kitchen, then co-packer, and only later their own kitchen.
• TaroStack works out what a unit costs on each route, and tracks stock at every one. More below.

The three routes

What a shared kitchen costs in more detail is in commissary kitchen cost, and what a co-packer does, and how to vet one, is in what is a co-packer.

Cost per bottle, by route

Windward Roots, the made-up taro business I use in these examples, makes a chili pepper water style hot sauce in a shared kitchen at $25 an hour, 262 bottles from a six-hour batch, as costed in hot sauce business plan.

The own-kitchen column assumes $3,000 a month of fixed costs: a small lease, utilities, and equipment and build-out spread over five years. That fixed cost is spread over however many bottles you make:

Own kitchen per bottle   = $1.70 + $3,000 ÷ bottles a month
Beats the shared kitchen = $3,000 ÷ ($2.27 − $1.70) = about 5,300 bottles a month
Beats the co-packer      = $3,000 ÷ ($2.20 − $1.70) = 6,000 bottles a month

What the per-unit number leaves out

Cash. The shared kitchen costs about $596 a batch, paid as you go. The co-packer's minimum is 2,400 bottles at $2.20, $5,280 a run, plus a $750 test batch the first time, before a bottle sells. At 1,000 bottles a month, that run sits on the shelf for ten weeks.

Your hours. At 2,500 bottles a month, the shared kitchen is about 57 hours of making, plus driving, setup and cleaning. The labor line pays those hours, but they're your hours, and they're the ones you'd otherwise spend selling. The co-packer gives them back.

Capacity. A shared kitchen can only give you the slots it has free, and 20 six-hour slots a month is more than most will book you. When you can't get the hours, the per-bottle cost doesn't matter. How to work out your kitchen's real capacity is in how to calculate production capacity.

Control. In your own or a shared kitchen, you make every batch and see every reading. A co-packer makes it to your recipe, in their process, on their schedule; you see the run report afterwards. Their facility is the one registered and inspected, which grocery buyers like, but changes to the recipe go through them.

How to decide

Where this stops working

The comparison is only as good as your cost per bottle, and that number moves. Peppers go up, a batch fills 240 bottles instead of 262, the kitchen adds a cleaning fee, and the $2.27 you're comparing against the co-packer's $2.20 is really $2.45. Then the decision is made on a number from last spring, and once you've moved, your stock is in two or three places and the spreadsheet only knows one.

How TaroStack does it

TaroStack gives you the real cost per unit on each route, and keeps track of stock wherever it's made.

The real cost of making it yourself. Ingredients and packaging are costed at what you paid, in FIFO layers or moving average. Each batch is costed from the lots it used and divided by what came out good, against what the recipe says it should cost, so a batch that filled 240 bottles shows a higher cost per bottle, and recipe truth shows if it keeps happening. That's the number to put beside a co-packer's quote.

Capacity you can see. Planning works out what to make and when from your orders and your own sales history, against your work centers' real hours, so a week's plan doesn't promise more kitchen time than you've booked. When the plan keeps running out of hours, that's the signal to look at a co-packer.

And a co-packer is one more site. Your kitchen, your warehouse and a co-packer's premises are each a site, lot by lot. Bottles and labels go to the co-packer as a transfer, with stock in transit until it lands. A run is recorded as a batch at their site, taking your packaging from the stock you sent, or received as a purchase with their lot code and best-by date if they buy everything. One report traces any lot from the supplier to the customer, whichever route made it. The co-packer's fee is on the purchase order rather than in each bottle's stock cost, so put it in your price sheet beside the cost TaroStack gives you.

Lots, receiving and recalls are on every plan, from $49 a month; recipes, batch costs, planning and more than one site, including a co-packer's, are on Standard at $99. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.

Questions people also ask

Is a co-packer cheaper than a commercial kitchen?

Per unit, often about the same. In the example, $2.20 a bottle at a co-packer against $2.27 in a shared kitchen. The difference is cash up front for the co-packer's minimum run, against your own hours in the kitchen.

When should I switch to a co-packer?

When you're selling steadily, you're short on kitchen hours or your own time, a buyer wants more than your kitchen can make, and you can fund a minimum run that sells through well within its shelf life.

When does your own kitchen make sense?

At high, steady volume. In the example, a kitchen with $3,000 a month of fixed costs beats a shared kitchen above about 5,300 bottles a month and a co-packer above 6,000.

What does a co-packer minimum mean for my cash?

The whole run is paid before it sells. In the example, 2,400 bottles at $2.20 is $5,280, plus a $750 test batch the first time.