How To
How to Prepare for Successful Negotiations with Beverage Contract Manufacturers
Contracting with the right manufacturer is one of the most important advantages you can give to your beverage. The steps you take when evaluating and approaching potential manufacturing partners are critical. Use this checklist to help you organize and prepare before contracting your beverage manufacturing.
Prepare Your Vision and Your Formula
You will need to be able to properly articulate the vision for your beverage including who it will serve, how it fits in the market, and what it will look and taste like. Think about the certifications you want for your beverage (e.g. organic, non-GMO, kosher, gluten-free, etc.) and understand your beverage’s requirements in terms of things like preservation method and shelf life. You will need to have a commercial formula that provides the contract manufacturer with the details required to scale, batch, and produce your beverage in a consistent, efficient, and safe manner.
Explore Your Packaging Possibilities
As you know, your packaging is a major opportunity to stand out from the crowd. This is why your packaging strategy is so important to layout before negotiating with a contract manufacture. The type of packaging you select can affect your costs, the number of qualified facilities, and how your product can be shipped and stored. It is crucial to understand the options available for your primary, secondary, and tertiary packaging along with the pros, cons, and costs associated with each. Creating a flexible packaging strategy with a few possible packaging combinations will help you when locating and negotiating with the contract manufacturer.
Think About Minimum Order Quantities
Having accurate market projections will help you understand how much product you’ll need to produce and when. The smallest order you’re allowed to place, or minimum order quantity (MOQ), varies from manufacturer to manufacturer. It’s essential to evaluate not only the MOQs required at each facility but also the ability to warehouse your beverage and the costs associated with that option.
Consider a Wide Range of Manufacturing Options
The more manufacturers you can compare, the more likely you are to find the best match for your beverage. Just as important as gathering the quotes and capabilities from different co-packers is comparing them in a way that helps you see all of your options. Sometimes, a quote that looks high may end up being the best value because of the additional services, options, or flexibility offered. Use the information you have from co-packers to project different scenarios and possibilities for things like logistics, labeling, and storage. You may find that a production path that looks a little different than expected also brings unanticipated advantages.
Evaluate Your Financial Situation
Before entering into negotiations, you must have an accurate picture of your financial model. A complete financial analysis will help you understand what you can afford in terms of co-packing fees and give you a solid starting point for negotiating. Preparing your estimated cost of good sold (COGS) and cash schedule empowers you to communicate confidently and accurately with potential contract manufacturers. A solid financial picture also helps you make smart long-term decisions that will set both you and your contract manufacturer up for long-term, sustainable success.
Prepare Your Plan
Finally, organize all of your information and options and reach out to your selected partners to discuss moving forward. Outline your goals and strategy, be transparent and ready for partnership. Remember, your contract manufacturer is an extension of your business – when you are successful, they are successful, and vice versa.
Armed with the information outlined above, you will be in an excellent place to find your ideal manufacturing solution and start your contract manufacturing relationships successfully. In addition to completing the preparation, remember best practices for successful negotiation. Try to make the first move, know when to be quiet and listen, and to always work towards a compromise instead of giving in to a concession. Happy negotiating!
Editor’s Note: This post was originally published by Adomas Pranevicius, founder of MyDrink Beverages, in 2012 and has been updated to provide more in-depth and accurate information.
Original article was published in Beverage Industry Blog.
