Co-Packing Pricing: The Math That Stops You From Buying Revenue at a Loss

Most co-packing pricing gets set the same way: ask around, find out what the plant two states over charges, knock ten percent off to win the deal. That's not pricing. That's buying revenue with your own margin. Here's the seller-side math — tolling fees, per-unit rates, changeover charges, and annual step-ups — that keeps every run profitable.

Your line hour has a cost. Find it first.

Every price you quote is a multiple of one number: your loaded cost per line hour. Not labor alone. Labor, plus the supervisor's share, plus utilities, sanitation, QA time, depreciation on the filler, insurance, and the slice of rent that line occupies.

For most $2-15M food plants, that lands between $250 and $500 an hour depending on the line and the region. Picture a 38-person sauce plant in Ohio running its main bottling line at $340 an hour loaded. If that line demonstrates 4,000 units an hour, the floor cost is $0.085 per unit before a single ingredient, cap, or label — and before the plant has made a dime.

If you can't produce your version of that number in five minutes, stop quoting until you can. Everything below depends on it. And if you're still in the planning stage, the same math belongs in your model from day one — it's covered in how to start a co-packing business.

The three co-packing pricing models

There are only three structures. Everything else is a variation.

Tolling. The brand supplies ingredients and packaging; you charge for processing only. Tolling fees are usually quoted per unit, per case, or per hundredweight. Lowest working-capital risk for you — you never own their inventory — but the thinnest revenue line, and no materials markup.

Turnkey. You source everything, run it, and ship it. You mark up materials 10-20% for procurement, carrying cost, and shrink, then add processing on top. More revenue and more margin, but more exposure if the brand walks or an input price jumps mid-contract.

Line-time rental. The brand buys hours, not units. Rare outside pilot runs and R&D work, but worth keeping in the drawer: it's the only model where the brand's inefficiency is the brand's problem.

A sane default: tolling for new relationships, then move proven brands to turnkey once trust and volume justify tying up your working capital in their inventory.

Building a per-unit price that survives the floor

The formula is short. Getting the inputs honest is the work.

1. Start with your loaded line-hour cost.
2. Divide by demonstrated units per hour — not nameplate. If the filler is rated 100 a minute but runs 68 after jams, breaks, and rework, use 68. Pricing off nameplate quietly gives away a third of your labor on every run.
3. Add a yield and waste allowance: 2-5% depending on the product.
4. Add materials plus 10-20% markup, if you're running turnkey.
5. Add margin: 15-30% for standard contract packaging, higher for allergen-controlled, organic, or low-volume specialty work.

Then check the run length. A per-unit price that works on a 40,000-unit run collapses on 4,000, because the fixed cost of starting the line gets spread over a tenth of the units. That's the whole argument for volume tiers and floor volumes — the numbers are laid out in how to set minimums that protect your margin.

Changeover and setup fees: the leak nobody invoices

A changeover isn't downtime. It's production you paid for and didn't sell. Teardown, washdown, change-parts, line clearance, QA release, first-article checks — 45 minutes on a clean SKU swap, up to three or four hours on an allergen changeover with a full CIP cycle.

At $340 an hour loaded, that's $255 to $1,360 of real cost every time the line switches over. Run six uninvoiced changeovers a week and you've donated somewhere between $80,000 and $400,000 a year. Not to charity. To brands with better gross margins than yours.

The fix is a rate card, not a negotiation:

• Setup fee per run: $250-$1,500, scaled to line complexity.
• Allergen changeover premium: 1.5-2x the standard fee, because the washdown and verification take longer.
• New-SKU onboarding: $500-$2,500 one-time, covering spec setup, first-article, and label proofing.

You can waive any of these to win a deal you want. Waive them visibly, as a concession with a stated dollar value. A fee that never appears on paper isn't generosity — it's a price cut the brand doesn't even know it got, which means it buys you nothing.

Annual step-ups: the raise you have to schedule

Labor in food manufacturing has been climbing 3-5% a year. Packaging and freight move faster, and in both directions. A three-year contract at a flat rate is a scheduled pay cut: by year three you're running the same line at roughly 10-12% higher cost against the same invoice.

Three rules:

1. Every contract gets an escalator. CPI-plus-one, or a fixed 3-4% annual step-up. No exceptions for friendly brands — especially not for friendly brands, because those are the ones you'll feel too awkward to reprice later.
2. Index the volatile inputs separately. If resin or corrugate jumps 15%, a pass-through clause moves your price in 30 days instead of at the anniversary.
3. Calendar the conversation. Sixty days before each anniversary, send the new rate sheet. A step-up that arrives on schedule reads as policy. One that arrives after a bad quarter reads as desperation.

Put every number in the agreement

A rate card that lives in email threads gets renegotiated one exception at a time. The pricing schedule belongs in the contract itself: per-unit rates by volume tier, setup and changeover fees, allergen premiums, storage and pallet charges, the escalator, and the triggers that reopen pricing — a volume shortfall, a spec change, a packaging swap. The full checklist is in what a co-packing agreement should include.

One last thing, because nobody says it out loud: pricing power is pipeline. If one brand is 40% of your volume, you'll eat their pushback on every fee above, because losing them is unthinkable. The plants that hold rate are the ones with two or three qualified brands waiting for line time. Filling that calendar is a different discipline than running the line — it's the one Feed The Line runs for co-packers so you never have to negotiate scared.

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