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Anybody interested in starting a short-run formulation, contract manufacturing and filling business?
It appears there is a gap in the market to serve small brands and start-ups that want to develop a product and do small pilot scale manufacturing to test the sales and consumer feedback before going into larger scale production. These smaller companies usually do not have the capital to buy their own manufacturing/filling equipment and no facility to manufacture in. Most contract manufacturing companies want 3k - 5k minimum order quantities it seems. There appears to be a very large amount of smaller brands that are only looking for 500 - 1,000 units (sometimes less). The natural and organic space seems to be rapidly growing, however most of these natural/organic brands are very small companies with limited capital.
please share your thoughts, could something like this even be profitable? where would be the best place to advertise for this type of service to evaluate the level of interest? would more profits be made on the formulation, or manufacturing, or filling/packaging?what geographic locations would a service like this be best suited for? -
35 Replies
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@Fastfiller
Definately think in this day and age with so many small niche brands that there is definitely a strong market for this. Our small company would use this service… we are stuck between too big to DIY, too small to afford huge 10-20k runs. Apply this over at least a dozen products, with the small business owner doing a multitude of jobs and you have a ready made market.
Price wise - unfortunately you have to be competitive with Chinese & Asian contract manufacturers, if you are US based and only looking at certain markets it would be ok, but worldwide you have to factor in currency conversion in your pricing.We would pay a good price for a quality product, especially with filling tubes, but it would need to be cheaper than buying pre sealed tubes, putting a label on and employing someone to manually fill. To play devils advocate… It is a great idea, but for the small business owner, profits are everything in a niche market that is ever changing, so I wonder if there would be enough profit in it for you.
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Could you give an example of what pricing would work to fill/seal the tubes in your case?
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In my opinion, yes, there are a lot of market for this (just search in internet and you will find a lot of small companies with this problem). As ChicoB says, the main thing is to find a way to make it profitable for you, offering competitive prices, if so, I think it could really work. With so many cheap transport companies, it is not difficult to send worldwide nowdays
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any ideas on what flat-fees might work?
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I think Mark Broussard has tried this and had some recent experience. The biggest problem with short rum contract manufacturing is Minimum Order Quantities (MOQ’s). Bringing in outside Formulations you will see the work of numerous Formulators and as such a wide gamut of materials and suppliers. Often they sell in large quantities. Recouping these materials costs (especially since the material may never be used again and would age out of your inventory) is difficult as you will need to recoup these remaining material costs will have a dramatic impact on smaller runs.
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This is a good point Mark. Maybe just offering short-run filling services like this would be more profitable? let the customers send their pre-made bulk in gallons/drums/totes/etc.. What are your thoughts?
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Don’t forget the packaging issues. For instance my MOQ on an upmarket acrylic 50mL pot is 500 off, at approx. $2 each.
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yes MOQ’s on packaging components can be an issue. When dealing with standard size tubes, bottles, jars, there are many in stock options with almost no MOQs. Filling often becomes the challenge in these situations.
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Filling is an area where there is a need. However, you really need to be able to offer more sophisticated (and more microbial resistant) packaging such as tubes and tottles. Also, getting the word out will take some effort but would be worth it.
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@MIcroformulation brings up a good point. The issue with “unique” ingredients that you may never use again except for that one client and MOQ’s is to either let the client purchase the unique ingredient (or pay for the MOQ), to substitute the unique ingredient with a similar ingredient that you commonly use or to substitute with an ingredient that you can purchase smaller quantities from repackers such as MakingCosmetics, The Herbarie, Lotioncrafter, etc.
Give the client the options and let them decide. You cannot put yourself in a position of paying for and stocking excess of a unique ingredient that you are likely to never use again. Usually, the clients elect to substitute with a similar ingredient that can be purchased from a repacker.Depending on the ingredient and the quantity used in the run, sometimes all you really need is a couple of extra samples and most suppliers/distributors will help you out with that if they understand it is for a small production run that may lead to MOQ sales in the future. -
@MarkBroussard The samples can be used to some extent but that window is narrowing as well. I speak to multiple (>5 distributors a week) and they all say that they are being charged to investigate the credentials of the requester (if unknown) as well as end use and expected quantities that may be purchased. Too many Crafters (who may never buy ever) have gotten onto Prospector and begun ordering samples vice buying from a repacker. A week doesn’t go by without a call “Do you know such and such in Charleston who is requesting samples?”
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@Microformulation … that’s interesting because ULProspector usually does a good job checking credentials and if you do not have a business address and a company website, you cannot register.
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Some were able to sneak through. At one point Michelle Rodriguez at Prospector recognized a company email (soandso@soandso.com) as credentials. However, as even she admits it is not terribly difficult to set-up these emails. In the last 6 months or so she has to either speak with them on the phone or get a reference. I get emails from her all the time asking about SC companies. She says that they have had complaints from some distributors. Also, the chemical distributors are also following-up more. I think others can support this as well.
My address is not a Commercial address since I consult out of my home and my lab is a separate finished garage (the old owner was a gunsmith so the garage is converted). In 99% of the cases I can get supplies directly here. In some cases (Dow Corning, Nexeo) they require a commercial address. I use a friends warehouse address in that case.
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All they need to do is Google the shipping address and that tells them whether it’s a business or not. Not hard to police.
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@Microformulation - Your comment about more sophisticated (and more microbial resistant) packaging such as tubes is spot on. We are seeing a big increase in the amount of smaller clients wanting to package in squeeze tubes (bottles and jars allow contamination into the natural/organic products too easily). The problem is that cheap tube sealers (in the $1,500 price range) give a very unprofessional seal on the tube and make the product look amateur. There are now new tube sealers on the market which are table-top and use hot-air sealing thus giving the same professional sealing results (quality and looks) as found on large fully automated machines usually owned by larger contract manufacturers. These new table-top hot-air tube sealers are in the $10k - $15k price range which is still often times way too much for small companies to spend (let along having the technical labor and facility to run the machines).
So how about a service to help these smaller run sizes get to market…This new FLAT-RATE tube filling & sealing service can now accommodate these smaller clients with run sizes from 100 pieces and up, all using professional-level tube sealing machinery, performed in a clean-room environment. Same-day service is an option (customers send in the product bulk/empty tubes and filling/sealing can start right away).Any input you all have on the flat-rate pricing levels would be greatly appreciated!!! -
I’m an engineer originally, with some experience of sealing multilayer plastics (the sealer I developed was an impulse sealer closed by air rams and controlled by a PLC)
@Fastfiller - your contribution interested me. I watched the video and did some research into how the hot air sealers work. Interesting.However I went one step further, and for small manufacturers I think ultrasonic sealing offers a better choice at lower cost. EG THIS at $2,420 FOB. You’d need to add a couple of hundred dollars for consolidated freight of course. I can foresee buying one of these. -
@Belassi, ultrasonic is working less often today with the new tubes coming to market (new multi-layer resins, injection molded IML tubes, etc.). Thermal impulse also does not work on some of the newer tube designs. Besides ultrasonic and thermal impulse will damage the tube graphics if decorated to the top of the tube seal. Hot air sealing is what’s used on high end production tube filling machines, most the tube suppliers develop their tubes for use on hot-air sealers. Hot-air sealing in a table-top, small machine format is fairly new to the market.
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Hope Im not coming to the discussion too late. I would be very interested in this service myself, and would even consider offering up some of my (albeit) limited resources to help. It seems like a promising idea. It would seem the solution lies in streamlining ingredients and packaging. Customers provide their own labels for bottles, and even certain “claims” or “unique” ingredients which the manufacturer does not keep on hand, and the manufacturer uses standard (but elegant) packaging to complete the project.
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I still think the MOQ’s will be an issue although if they provide the materials albeit it becomes their issue. I still believe that @MarkBroussard can weigh-in on it best since he has very recent experiencing doing exatly what we are discussing. In the end I think the MOQs for material and packaging will be the biggest hurdles.
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How long are most raw materials good for on the shelf? it would seem a formulation lab could stock a bunch of raw materials (in small quantities if possible?) depending on the shelf life of said raw materials?
Are there any raw materials suppliers who concentrate on small MOQ’s? There are many primary packaging component suppliers and digital label printers that will sell in-stock packaging down to whatever quantities are needed. -
Shelf life for most liquid materials would be about 1 year. Solid materials may be longer but 1 year is pretty much the standard for ingredients.
There are a few online sources that do small amounts of materials but not many. http://makingcosmetics.com is an example. There may be some distributors who could get small amounts for people too. -
Do you believe there is a need for a raw material supplier to specialize in smaller volumes?
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In this case I don’t think it’s a need thing, I think it’s a profit thing. If you have to buy bulk of a material that is $10,000 a KG and the average order is 10 grams for a home crafter or small business you’ll be sitting on a kg worth of material and more so thousands of dollar for quite some time before you break even.
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We do filling of small quantities of around 200 pcs (depending on size). The thing is you are going to pay for it and you may need to plan ahead if we have all our lines tied up with long runs. I have customers I manufacturer and fill 100 to 200 pcs for. But they make it worthwhile for me. We are not a small company either.
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David, do you do tube filling?
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