Co-Packing vs. Building Your Own Facility: Which Is More Cost-Effective?

As your food or beverage brand grows, there comes a point where your current production setup simply can’t keep up. At that moment, you face a major strategic decision:

Should you partner with a co-packer or invest in building your own facility?

It’s not just a question of operations—it’s a decision that affects your costs, margins, growth speed, and long-term flexibility. Both options have clear advantages and potential drawbacks. The challenge is figuring out which is right for your business at the stage you’re in now.

This guide will walk you through the core differences, cost implications, and strategic considerations to help you make a well-informed choice.

The Case for Co-Packing

A co-packer (contract packer) manufactures and packages your product in their facility, using their staff, equipment, and certifications. You pay for production, often per unit, without taking on the capital expenses of building and maintaining your own plant.

Why Co-Packing Can Be More Cost-Effective:

1. Low Upfront Investment
   With co-packing, you avoid the enormous capital costs of real estate, construction, and production equipment. Instead, you direct resources toward marketing, distribution, and product development.
2. Variable Costs Instead of Fixed
   You pay only for what you produce, making it easier to manage cash flow during seasonal or fluctuating demand.
3. Built-In Expertise
   Many co-packers specialize in certain products, such as powders, sauces, or beverages, which means they’ve already solved production and packaging challenges that might take you months (or years) to figure out on your own.
4. Faster Speed to Market
   Because the facility and equipment are already in place, your product can reach store shelves much faster than if you were waiting for construction to finish.

According to recent industry reports, more than 75% of food and beverage manufacturers rely on at least one third-party partner like a co-packer to meet demand, largely because of labor shortages, equipment costs, and operational constraints.

The Case for Building Your Own Facility

Owning your own manufacturing facility means you control the entire production process from start to finish. This path requires significant capital, but for the right business at the right scale, it can lead to greater profitability and control.

Why Owning Your Own Facility Can Be More Cost-Effective in the Long Run:

1. Complete Control Over Production
   You decide how products are made, packaged, and scheduled—no competing priorities from other clients.
2. Potential for Lower Per-Unit Costs
   Once your facility is running at high utilization, fixed costs are spread across a larger volume, potentially lowering your per-unit expenses compared to co-packing.
3. Retention of Co-Packer Margin
   The portion of your price currently paid to a co-packer stays within your business, improving gross margins.
4. Brand and IP Protection
   You keep your formulas, processes, and sourcing completely in-house, which can be important for proprietary or high-margin products.

However, the initial investment is steep. For example, building a compliant, multipurpose production facility can require tens of millions of dollars in equipment and installation alone, not including real estate or staffing. Unless your sales volume is high and steady, that investment can be difficult to justify.

Cost Factors to Compare

When weighing co-packing against building your own facility, focus on these key areas:

1. Capital Requirements
   • Co-Packing: Minimal capital investment; costs scale with output.
   • Own Facility: High upfront costs for land, construction, machinery, and permitting.
2. Operating Costs
   • Co-Packing: Costs are mostly variable; minimal overhead.
   • Own Facility: Fixed costs for staff, utilities, maintenance, and compliance, whether you’re at full capacity or not.
3. Scalability
   • Co-Packing: Easy to scale up or down with demand.
   • Own Facility: Scaling requires new lines, equipment, or even expansions.
4. Speed to Market
   • Co-Packing: Often ready to start production within weeks or months.
   • Own Facility: Could take 12–24 months or more before the first production run.

The Break-Even Point

The question isn’t simply “Which is cheaper?”—it’s “At what volume does owning become cheaper than outsourcing?”

When your sales are growing but unpredictable, co-packing keeps you nimble. You avoid being locked into high fixed costs during slow periods and can ramp up quickly during peaks.

When your volumes are consistently high, your margins are strong, and you have the capital to invest, owning your facility can make sense. The savings on per-unit costs and retained margins may eventually outweigh the ongoing payments to a co-packer.

Think of it like leasing versus owning real estate: Leasing offers flexibility with lower upfront risk; owning can be more profitable over the long haul if you’re ready for the responsibility.

Hidden Costs to Consider

Even if you’re leaning one way, make sure you account for less obvious costs:

• For Co-Packing:
  • Minimum order quantities (MOQs)
  • Changeover or setup fees
  • Freight to and from the co-packer’s facility
  • Less flexibility for last-minute changes
• For Owning:
  • Equipment downtime and repairs
  • Staffing and training
  • Regulatory inspections and certifications
  • Insurance, security, and utilities
  • Opportunity cost: tying up capital that could be used for marketing or product innovation

Making the Decision

When deciding between co-packing and building your own facility, ask yourself:

• Do I have the capital to build without jeopardizing other parts of the business?
• Is my demand high and predictable enough to keep my own facility running at near capacity?
• Do I need total control over production for quality, IP, or speed reasons?
• How important is flexibility in the next 2 to 3 years?
• What’s my break-even point for owning versus outsourcing?

If you can’t confidently answer “yes” to the first two questions, co-packing is likely your more cost-effective option for now. It minimizes risk, preserves cash, and allows you to focus on sales and brand growth.

Final Thoughts

Co-packing and owning your own facility are both valid strategies, just at different points in a company’s lifecycle.

• Early and growth stages: Co-packing keeps your costs variable, your capital free, and your team focused on market expansion.
• Established, high-volume stages: Owning your facility can deliver better long-term margins and control if you’re prepared for the complexity and cost.

At National Packaging, we connect brands with our experienced co-packers who understand the demands of scaling in the food industry. If you’re weighing your options, we can help you evaluate costs, timelines, and operational considerations so you can make a decision that supports both your current needs and your future growth.

Contact National Packaging today to schedule a free 15-minute consultation and find out if our co-packers are the right match for your company!