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Cost Structures for small lab
We are running into new situations every month or so. Most of our clients come to us new and we charge X amount to formulate and then X amount per piece when we produce. What do you do when they bring you a formula (either they wrote or another chemist does only formulas) and ask you to make samples for them before production? Half? We still buy the ingredients and do basic stability. Also if it is terrible - we will have to adjust to make it work. Your help is appreciated.
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6 Replies
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Ah the joys of clients bringing in formulations that may or may not work. As a manufacturer it would always be prudent for you to make it up anyway before production and possibly even doing some stability on it. However, that shouldn’t give your client access to some free development work. I would consider asking for an upfront payment for you do this work with an option to rebate all or some of it once you pack the first run. That being said they should also understand that if you need to do any modifications/improvements/changes/more stability then they should be prepared to pay for this also because at the end of the day it is in both of your interests to have a good quality product in the market.
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Thanks for this! Since we are small we get some hobbyists expecting us to just produce their kitchen creation. I’ll set up some hourly rates and minimums ????????
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I like this approach. Make them put some money down upfront. If it moves on to production you can just credit them some amount (depending on how much extra work you did) towards the price of the first production run.
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Thanks Perry. It certainly seems the most reasonable.
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I do flat-rate custom development with 3 rounds of samples; above 3 rounds is extremely, extremely rare and typically only required when the client has no sense of direction. The flat-rate is also broken down into XYZ hours at rate $$. This I learned is important as you will notice some clients require more assistance than others, and other clients will have a boat load of questions which will eat away at your time. I also do not include ingredients as its impossible to keep every ingredient in house. It also makes them aware of unit costs. The few times I waived ingredient costs, the client conveniently chose very expensive raw materials and I said never again.
When I first started- the flat rate was broken into 3rds- one third to start, one third to release samples and one third to release final formula/sop. However this quickly changed during the pandemic. I realized many people could not afford to complete the work and I ended up burning a lot of my time on clients who could not afford to pay for sample release or even their final formulas. Now, I do 100% or 80% upfront. I also require clients to provide shipment labels as its one less invoice I have to send.
I do a very simple stability assessment in-house, however if the client desires a robust stability assessment, there is a charge. When I first started one of the hardest things for me to do was ask for money- so getting into the mindset of “everything has its costs” was very difficult. Now its not a problem ????
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You’re so right! Win some loose some with clients eating up time. I’ve framed the samples for an existing formula (just wanting to manufacture) as not including specialty ingredients, I will specify when I see the formulas. Thanks for sharing.
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