What is a co-packing fee?
Co-Packing Fee · Also called co-man fee, tolling fee, conversion fee, manufacturing fee, toll fee
A co-packing fee is what a contract manufacturer charges to process or pack your product. It may cover labor, equipment and facility time; the quote sets what is included and how it is billed.
What it is
In a tolling arrangement you supply some or all of the ingredients and packaging and pay the co-packer for conversion. In a turnkey arrangement the co-packer buys the materials too and quotes one price per finished unit. Ask which costs are included before you add your own component estimates.
Fees can be quoted per unit, per case, per batch or per hour of line time. Setup, cleaning, changeovers, testing, storage, minimum run charges and product development are often billed separately.
The number to compare is the cost per accepted unit: everything the run costs you in conversion, divided by the units that pass quality and can be sold.
Why it matters
Fixed charges for each run are spread over the units in that run, so small runs cost more per unit. That is a big reason your unit cost falls as you grow.
Two quotes with the same headline fee can end up far apart once setup, minimums, yield and who buys the materials are counted. Compare them at the same specification and run size.
Formula
Effective conversion cost per accepted unit = Total conversion charges for the run ÷ Accepted sellable units
When the fee is billed only on accepted units, this simplifies to Per-unit fee + (Fixed run charges ÷ Accepted units). If the contract bills attempted units, input volume or a minimum, use that basis instead.
Worked example
One quote at two run sizes, then with yield loss
- Assume a quote of $0.10 per accepted unit plus a $200 setup charge per run, and no other fees.
- On 10,000 units: $1,000 + $200 = $1,200 in total, or $1,200 ÷ 10,000 = $0.12 per unit.
- On 5,000 units: $500 + $200 = $700 in total, or $700 ÷ 5,000 = $0.14 per unit.
- Now assume a different contract bills $0.10 on all 10,000 units attempted, plus the $200 setup, but only 9,500 pass quality. You pay $1,200, and $1,200 ÷ 9,500 = about $0.126 per good unit.
- Materials, freight and other costs are still separate from these figures.
Common mistakes
- Comparing quotes on the per-unit fee alone, without setup, cleaning and minimum run charges.
- Not asking whether a quote is tolling or turnkey, and so double-counting materials or leaving them out.
- Dividing by units planned or attempted instead of units accepted. Agree on expected yield, overrun and underrun tolerance, and who pays for a failed batch.
- Leaving ownership of unused ingredients and packaging undefined until a run ends.
Common questions
- Is the co-packing fee my full COGS?
- Only if the quote truly includes every product cost, which you need to check line by line. A conversion fee on its own usually leaves out at least some materials or freight.