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Contract manufacturing; how to set prices ?
A client hired me to develop two formulas which they will own as IP. I charged a total of $8000 for both formulas. The same client will request that I produce and fill the same products with their brand name on it. They are responsible to supply the packaging.
Now how is sale price calculated? Is it based on the time in the lab/ cost of goods/ the value of the goods at the retail level ?
In this particular case, the client is paying for the IP of formula. I am also going to be selling her private label products filled into her packaging in which case the formula is not shared. Should there be a difference in how both services are quoted?
I suspect that perhaps all these factors come into play. I would appreciate any discussion or feedback on the topic.
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2 Replies
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In our case, we price based on the ingredient costs with a healthy margin to cover all costs including our premises and labour costs, plus a profit margin.We would not differentiate between who paid the IP cost, and just straight private label filling. In both cases, you need to cover your manufacturing costs and make a profit.And a question. How did you arrive at a cost of $8,000 for the formulations? -
Thank you so much for your input.
Just from some research I noted that formulas seem to be sold for $1000 and upwards of $25,000. I also asked the client what her budget was and that helped me assess how much I could charge. The two formulas I sold are not terribly difficult for me to do.
I had also quoted her for a more challenging curl amplifier (Fixative gel/ conditioning cream combo) for $6500. I also gave her the option of private filling this item which is what she chose to do instead of owning the IP. I developed it essentially for free but I was able to get her continuous feedback (successful salon owner with multiple locations) which was invaluable.
Initially, pricing my private label products was based on ingredients costs and done in a fairly linear way across the entire product line. However during my first quote and sale of a facial cream, I realized that once packaged, the client could easily 20X his investment. So I double the price I had originally came up with based on “straight math”. Client was very happy. I understand now why makingcosmetics tries to sell base creams for $50 for 900grams.
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