A co-packing agreement is what a food brand and its co-packer agree before the first run: who supplies which ingredients and packaging, who owns them while they sit in the co-packer's warehouse, what each run costs, how much loss is acceptable, who answers for the label, and what happens in a recall. The two clauses most first agreements get wrong are ownership and the loss allowance, because they decide who pays when 60 bottles break or a client's pepper mash runs short. Below is what goes in one, a filled-in example for a hot sauce brand and its co-packer, a pricing schedule that handles the minimum run, a reconciliation of the brand's materials against the allowance, and a free template. It's a starting point, not legal advice.
The short version
- Say the model: toll (the brand sends materials) or turnkey (the co-packer buys them), or a mix.
- Say who owns the brand's materials and finished goods while the co-packer holds them.
- Put prices in a schedule: fee per unit, setup per run, minimum run, storage after a free period.
- Set a loss allowance, and a credit for usage above it.
- Agree on specs, testing, lot codes, records and how fast each side shares them.
- Agree on recalls, insurance, confidentiality of the recipe, and how materials come back if it ends.
- TaroStack keeps each client's goods as theirs, bills each run's fee and prints each client's monthly statement. More below.
What goes in a co-packing agreement
| Term | What it settles |
|---|---|
| Parties, products, specifications | Who, what, and the spec sheet each run is made to |
| Model | Toll, turnkey or a mix: who supplies each material |
| Ownership | Whose materials and finished goods they are while the co-packer holds them |
| Recipe and confidentiality | The recipe and volumes stay the brand's, used only for the brand |
| Prices | Fee per unit, setup per run, minimum run, storage, testing |
| Loss allowance | How much over standard usage is acceptable, and who pays beyond it |
| Forecasts and lead time | How far ahead the brand forecasts, and how long a run takes to schedule |
| Quality | Specs, tests per batch, retained samples, what happens to product out of spec |
| Food safety and rules | The co-packer's registration, license and records; the brand's process authority letter |
| Labels | Who answers for the label's content; who applies it and codes the lot |
| Lot codes and records | A lot for every run, materials used by lot, how long records are kept and shared |
| Recalls | How fast each side tells the other, and who pays |
| Storage | Free days after a run, then the pallet rate |
| Payment, insurance, term and ending | Terms, coverage, notice, and how everything comes back |
What a product spec sheet holds is in product specification sheet, and the process authority's letter in process authority letter.
A filled-in example
Blue Ridge Hot Sauce, a made-up hot sauce maker in Roanoke, Virginia, I use in these examples, agrees toll terms with Merrimack Valley Co-Pack, a made-up co-packer in Lowell, Massachusetts:
| Term | Example |
|---|---|
| Model | Toll: Blue Ridge sends pepper mash, vinegar, bottles, caps and labels; Merrimack supplies salt, labor and the facility |
| Ownership | Blue Ridge's materials and sauce stay Blue Ridge's; Merrimack keeps them apart and returns them on request |
| Loss allowance | 2% over standard usage on ingredients, 1% on packaging; usage above it credited at Blue Ridge's cost |
| Forecasts and lead time | A rolling 3-month forecast; runs 3 weeks after materials arrive |
| Quality | pH tested and recorded for each batch; retained samples kept a year; out-of-spec sauce held for Blue Ridge's decision |
| Lot codes and records | A lot code for every run; materials used, by Blue Ridge's lot, kept 2 years and shared within 24 hours |
| Recalls | Each tells the other within 24 hours; costs fall on whichever caused it |
| Storage | Free for 30 days after a run, then $30 a pallet a month |
| Payment | Net 30 from each run's invoice |
| Insurance | Product liability of at least $1,000,000 each, naming the other |
| Ending | 60 days' notice; all of Blue Ridge's materials and sauce back within 14 days |
The pricing schedule
| Sauce | Fee a bottle | Setup a run | Minimum run | Ordered | Made | Run cost | Cost a bottle |
|---|---|---|---|---|---|---|---|
| Original, 5 oz | $0.60 | $250 | 2,500 | 5,000 | 5,000 | $3,250 | $0.65 |
| Smoked habanero, 5 oz | $0.60 | $250 | 2,500 | 2,000 | 2,500 | $1,750 | $0.70 |
| Green chile, 5 oz | $0.60 | $250 | 2,500 | 3,000 | 3,000 | $2,050 | $0.68 |
The smoked habanero order is under the minimum, so it's made at 2,500 and costs 70 cents a bottle instead of 65; ordering 2,000 means paying for 2,500 either way. The setup fee spreads thinner over bigger runs, which is why a brand's cost a bottle falls as it grows. How minimums work on both sides is in minimum order quantity.
The loss allowance, reconciled
After a run of 5,000 bottles of original, Merrimack reconciles what Blue Ridge sent against what the run should have used:
| Blue Ridge's material | Received | Standard usage | Allowed | Used | Over | Credit | Left |
|---|---|---|---|---|---|---|---|
| Pepper mash, lb | 2,000 | 1,250 | 1,275 | 1,290 | 15 | $27.00 | 710 |
| Vinegar, gal | 300 | 250 | 255 | 255 | 0 | $0.00 | 45 |
| Bottles | 6,000 | 5,000 | 5,050 | 5,060 | 10 | $4.50 | 940 |
| Caps | 6,000 | 5,000 | 5,050 | 5,020 | 0 | $0.00 | 980 |
| Labels | 6,000 | 5,000 | 5,050 | 5,110 | 60 | $4.80 | 890 |
| The run | $36.30 |
The credit is small this time. The point is that it's worked out the same way every run, from records both sides can see, so a run that lost 300 labels to a jammed labeler is settled by the agreement, not an argument. It also tells Blue Ridge what's left of its materials at Merrimack before it orders the next labels. What a brand should ask before signing is in how to find a co-packer.
Get the template
Download the co-packing agreement template. Three sheets: the agreement, with example wording for every term to change; a pricing schedule, where each product's fee, setup and minimum give the bottles made, the run's cost and the cost a bottle for the order you type; and a materials reconciliation, where what the brand sent, the standard usage and the allowance give what the run should have used, the credit and what's left. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers. Have a lawyer read your agreement before you sign it.
Where this stops working
An agreement says how the reconciliation works; it doesn't keep the numbers. A co-packer with fifteen clients, each sending materials on different days, runs that use a client's mash and the co-packer's salt, and a credit or a charge every run, needs each client's materials counted as theirs from the day they arrive, and every run recording whose materials it used.
How TaroStack does it
TaroStack keeps each client's goods as theirs, bills each run's fee and prints each client's monthly statement.
The client's goods, kept as theirs. With We make or keep goods for clients turned on, the pepper mash, bottles and labels Blue Ridge sends are received as Blue Ridge's own, at no cost to the co-packer, and kept out of the co-packer's stock value. A run for Blue Ridge uses only Blue Ridge's goods and the co-packer's, never another client's, and records each material it used and whose it was.
Fees on the bill. The fee per bottle is set on the item, and Bill puts each run's production fee and the co-packer's materials at cost onto a sales order to Blue Ridge, each line naming its run. A credit like the $36.30 is typed onto the same order.
A monthly statement. Blue Ridge's statement shows its goods at Merrimack and how each moved in the month, by lot: opening, received, used, made, released, counted and closing, with the month's charges. How a co-packer's side compares with a commercial kitchen is in co-packer vs commercial kitchen.
| The job | Spreadsheet | In TaroStack |
|---|---|---|
| The brand's materials on hand | Counted when asked | Kept as the client's own |
| What a run used, and whose | A run sheet | Recorded on the run |
| The run's fee | An invoice by hand | Bill: fee and materials, by run |
| What the brand is told each month | An email | A monthly statement, by lot |
Copacking, with clients' own goods, runs, releases, billing and statements, is on Standard at $99 a month. 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.