Co-Packing Fees: How to Price Co-Packing Services

Co-packing fees come in four kinds: a fee for each unit made, a setup fee for each run, a storage fee for each pallet a month, and fees for the extras, such as pilot batches, testing and rush runs. Each should come from what that piece of work costs you. Fee per unit = (the line's cost an hour + your overhead an hour) ÷ units an hour, plus supplies, then your margin. In the example below, a small sauce co-packer's bottle costs 36 cents to run and 65 cents with the rent, so a toll fee covering everything is 81 cents; it charges 60 cents and lets the setup, storage and turnkey work carry the rest. Below is each fee worked out, how they fit together, the minimum run, and a free fee calculator.

The short version

• Work out what the line costs an hour: crew with payroll taxes, plus gas, power and water.
• Spread your fixed costs over the hours the line is busy, not the hours in a month.
• Fee per unit = (line cost + overhead an hour) ÷ units an hour + supplies, then add your margin.
• Charge a setup fee for each run: changeover and cleanup take the line out of use.
• Charge storage by the pallet a month after a free period.
• Set a minimum run so the setup fee adds only a few cents to each unit.
• TaroStack bills each run's fee and materials from the client's page. More below.

The fee per unit

Merrimack Valley Co-Pack, a made-up co-packer in Lowell, Massachusetts, I use in these examples, runs a bottling line with three people, filling about 240 five-ounce bottles an hour:

The overhead is spread over the hours the line is actually busy, runs and setups, not the 730 hours in a month: an empty line still pays rent. If the line is busy 250 hours instead of 165, the overhead per bottle falls to 19 cents, and the full cost to 55. That's why a co-packer's first year is hard and its third is easy. What a brand compares on its side is in co-packer vs commercial kitchen.

The setup fee

Every run starts with setting up the kettle, filler and labeler for the client's sauce, and ends with a full cleanup, because the next client's sauce may be allergen-free or a different color. That's 3 hours of one person and $6 of sanitizer: $60. But the line can't run for about 2 of those hours, so the setup also carries 2 hours of overhead: $198 in all, $248 at a 20% margin. Merrimack charges $250 a run. Its 24 runs a month take 48 of the line's 165 busy hours; a co-packer that charges nothing for setups is paid nothing for nearly a third of them.

Storage

Brands leave finished cases and their own materials with the co-packer between runs. Merrimack's storage takes about 24% of its floor, 80 pallet positions, so each position carries $10.50 of the $3,500 rent, plus about $4 of handling and insurance: $14.50 a pallet a month. It stores free for 30 days after a run and charges $30 a pallet a month after that, which keeps the floor from filling with a brand's slow sauces. How a client's goods are kept apart on the books is below.

The minimum run

A setup fee spread over a tiny run is a big part of each unit's price. Merrimack's rule: the setup shouldn't add more than 10 cents to a bottle, so the minimum run is $250 ÷ $0.10 = 2,500 bottles. A brand that wants 1,000 bottles pays for 2,500, or pays a higher fee per bottle; either way the price says what the run costs. How minimums work for both sides is in minimum order quantity.

How the fees fit together

A toll bottle at 60 cents is under its full cost by 5 cents; at full speed, 20,000 a month, that's $1,000 the setups, storage and turnkey work have to cover, and they do. A co-packer can price this way on purpose, to win small brands with a low headline fee, as long as it knows the full cost of each fee. One that doesn't know finds out at year end. The whole year is in how to start a co-packing business.

Get the calculator

Download the co-packing fee calculator. One sheet: type your crew, wages, the line's pace, your fixed costs and the hours the line is busy, and the variable cost, overhead, full cost and fee for your margin fill in for each unit; then the setup fee from the changeover hours, the storage fee from the rent per pallet position, and the minimum run that keeps the setup fee under what you choose per unit. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.

Where this stops working

A fee sheet sets the prices. The money comes from billing every run, every setup, every pallet-month and every bit of the co-packer's own salt or labels that went into a client's run, for fifteen clients, without missing one. A run billed from memory at month end is a run where the setup or the materials get forgotten.

How TaroStack does it

TaroStack bills each run's fee and materials from the client's page.

Fees on the item. The fee per unit made is set on the client's item, so every run of it knows what to bill.

Bill from the runs. On the client's page, Bill puts what's still to bill onto an ordinary sales order: each run's production fee and the co-packer's own materials used in it at cost, each line naming its run, billed once. Setups, storage and other charges are typed onto the same order.

What each client is told. Each client's monthly statement shows their goods you hold and how each moved, by lot, with the month's charges and their total. A client's own goods are kept out of your stock value, so your books say what's really yours.

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.

Questions people also ask

How do co-packers price their services?

Often a fee per unit made, a setup fee per run, storage per pallet a month, and fees for pilot batches and testing. In the example, 60 cents a bottle, $250 a run and $30 a pallet a month.

How do you calculate a co-packing fee per unit?

Add the line's cost an hour and your overhead an hour, divide by the units the line makes an hour, add supplies, then your margin. In the example, $0.65 full cost, $0.81 at a 20% margin.

Why do co-packers have minimum runs?

Because each run has a setup and cleanup that costs the same for 500 units as for 5,000. In the example, a $250 setup over at least 2,500 bottles adds no more than 10 cents a bottle.

Do co-packers charge for storage?

Many do, after a free period. In the example, 30 days free after a run, then $30 a pallet a month.