Toll manufacturing, or toll processing, is a co-packing arrangement where the brand supplies the materials and the manufacturer charges a fee to turn them into product. The brand buys its own pepper mash, bottles and labels, ships them to the co-packer, and pays a fee per unit made. The co-packer never owns the materials: they're the brand's goods, held for the brand, used in its runs and returned or kept for the next run. The opposite is turnkey, where the co-packer buys everything and sells the brand finished product. Toll keeps the brand's ingredient costs and suppliers in its own hands, and it puts a job on both sides: every run has to be reconciled, materials in against product out, with an agreed loss allowance for what's spilled, broken or rejected. In the example below, a Massachusetts co-packer runs and reconciles 5,000 bottles of hot sauce for a brand.
The short version
- Toll manufacturing: the brand supplies the materials; the co-packer charges a fee per unit made.
- Turnkey: the co-packer buys the materials and sells finished goods.
- The brand's materials stay the brand's: held apart, used only in its runs, never in the co-packer's stock value.
- Agree a loss allowance for each material in the contract.
- Reconcile every run: materials received, expected use, actual use, good units out.
- Use beyond the allowance is the co-packer's cost; leftovers are held or returned.
- TaroStack keeps a client's goods as the client's own and records whose material each run used. More below.
Toll or turnkey
| Toll | Turnkey | |
|---|---|---|
| Who buys the materials | The brand | The co-packer |
| What the brand pays | A fee per unit, plus any materials the co-packer adds | A price per finished unit |
| Who carries material stock | The brand, at the co-packer | The co-packer |
| What has to be reconciled | Materials in against product out, each run | Mostly the finished count |
| Suits | Brands with their own suppliers or special ingredients | Brands that want one price and no buying |
What a co-packer charges either way is in co-packing fees, the whole cost per bottle in how much does a co-packer cost, and the contract that sets the allowances in co-packing agreement template.
An example: a toll run, reconciled
Merrimack Valley Co-Pack, a made-up co-packer in Lowell, Massachusetts, makes hot sauces, barbecue sauces and jams for about fifteen small brands. One of them, Blue Ridge Hot Sauce in Virginia, sent 2,000 lb of pepper mash, 300 gallons of vinegar, and 6,000 bottles with caps and labels. The agreement: a fee of $0.85 a good bottle, salt and garlic supplied by the co-packer at cost, and loss allowances of 1.5% on ingredients and 2% on packaging. The October run of 5,000 bottles:
| Material | Expected for 4,960 good bottles | Allowance | Actually used | Over allowance |
|---|---|---|---|---|
| Pepper mash | 806 lb | 818.1 lb | 830 lb | 11.9 lb |
| Vinegar | 93 gal | 94.4 gal | 94 gal | 0 |
| Bottles | 4,960 | 5,059 | 5,040 | 0 |
| Caps | 4,960 | 5,059 | 5,020 | 0 |
| Labels | 4,960 | 5,059 | 5,030 | 0 |
The run made 4,960 good bottles. The bill: 4,960 × $0.85 = $4,216 in fees, plus $96 of salt and garlic at cost, less a credit for the 11.9 lb of mash used beyond the allowance, 11.9 × $1.80 = $21.42, for $4,290.58. The brand's stock left at the co-packer after the run: 1,170 lb of mash, 206 gallons of vinegar, 960 bottles, 980 caps and 970 labels, all still Blue Ridge's, on the month's statement. The mash overage came from the kettle's first batch, scorched and dumped, which went in the run notes.
Get the calculator
Download the toll run reconciliation. One sheet: type the good units made, each material's amount per unit, its allowance, what was received and what was used, the fee per unit and each material's price; expected use, the allowance limit, the overage, its charge, the fee and the stock left fill in. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
One brand and one run fit on a sheet. Fifteen brands' materials on the same shelves, two runs a day, and a month-end statement for each brand, is where a mash drum gets used for the wrong client.
How TaroStack does it
TaroStack keeps each client's goods as the client's own, from the day they arrive to the statement.
A client's goods, at no cost. A brand's mash, bottles and labels are received from that client at no cost, kept apart, and left out of your stock value and margins.
Toll runs. A run for a client uses that client's goods and yours, never another client's, records every material it used and whose each was, and carries your fee per unit made.
Releases, bills and statements. Finished goods go out on a release to the client; the fee and your materials at cost go onto an ordinary sales order, each line naming its run; and each client gets a monthly statement of their goods by lot, opening, received, used, made, released and closing.
| The job | Spreadsheet | In TaroStack |
|---|---|---|
| A brand's materials on your shelves | A tab per brand | The client's own goods, apart |
| Whose mash a run used | Written on the batch sheet | Recorded on the run |
| The fee and your materials | Typed onto an invoice | Billed from the run, once |
| What each brand holds with you | Built by hand each month | A monthly statement by lot |
Keeping goods for clients 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.