Let’s say sales of your product are doing pretty well. Then one day, you get a call from your main customer: They want to drastically increase their order quantities. Can you increase production in order to meet their demand? Or do you need a copacker, a company that can take care of producing and packaging for you? Perhaps the biggest question of all is, can you hit the necessary price point and stay profitable?
Before you say yes to your customer’s request, do some market research.
Market research
The risk is much more on you than on your customer, so don’t just take their word for it when they give you their sales projections.
- Do a SWOT (Strength, Weakness, Opportunity, Threat) analysis that evaluates both your competitors and the market environment.
- Single out the knowledgeable people in your business circles and question them. Ask them their opinion
- Get out and meet your other customers
- Create a focus group. Get an opinion about your product from unrelated people in your target market. Why would they buy it? Why wouldn’t they? What needs to be improved?
Once you’ve gathered your information and made your analysis, present your findings to everyone you can trust. The more people see your analysis of the situation, the better overall view you will have of it. As the saying goes, “two heads are better than one”.
Find the price point you need to hit
If you’re certain the opportunity is worth going for, immediately think price backwards.
What price do you need to hit? Not “how much profit will I need at my new level of production and what price should I set?” Rather, what price will make your product viable on the market, period. This may not be your current product’s price. You might be about to compete in a higher-volume category with higher-volume competitors The price may well be lower.
Can you afford it?
Using the data you’ve gathered, set an ideal price for your product. If you keep that price in mind throughout the process of projecting a production increase, or asking copackers for quotes, it will force you to calculate knowing the absolute limit of your profitability. You may even come to the realization that there is no way to produce at the needed price point. It’s much better to find that out before you’ve signed anything. This can also give you the opportunity to get really creative with new alternatives.
Remember that the price you need to hit may even be dictated by those who distribute and sell your product. They will likely have very specific pricing expectations. Validate your price with them. If the pricing you’ve come up with ends up being different, you’ll need to have very good arguments to convince them.
Conclusion
Whether you decide to produce at the new quantity yourself or hire a copacker, or even decline your customer’s request, it’s important that you are in control of your profitability every step of the way.
If you’d like to find out more about how copackers can help you attain your business objectives (and the right price point!), look out for a new ebook on copacking, coming this fall on our website!
