Fixed-Cost Pricing in Co-Packing Contracts with CEO PJ Wiebel
Explore the key benefits of fixed-cost pricing in co-packing contracts with insights from Econo-Pak’s CEO, PJ Wiebel.
Learn how locking in a consistent price for packaging services over 12 months can provide food companies with budget stability, predictability, and improved profit margins.
Mike Mead:
PJ, thanks for joining me.
PJ Wiebel:
Thank you for having me.
Mike Mead:
We wanted to bring you in today and talk about the fixed cost model and how that benefits our clients.
PJ Wiebel:
So as a contract packager, fixed cost is a core of who we are and what we do in the service that we provide. Essentially, if a food company out there is producing their own product, that’s what we call variable costs. So depending on the efficiency of their production line, their people, and a lot of other factors on a daily basis or per ship basis, their cost could be a dollar per case. It could be 70 cents per case. It could also be $2 a case, depending on all the efficiencies of how their operation is operating on that given shift and that given day.
When you come to Econo-Pak, a majority of how we manage is you get one price, we lock that price for 12 months, and that’s your price so your price is then fixed for the year. So I gave the example of a dollar a case. So if we price you at a dollar a case, it’s a dollar a case every day. Then, it becomes up to us to be able to figure it out. Or to manage our efficiencies so we have to be very efficient to make sure that we can make money and be profitable off that dollar.
So we do everything we can to make sure that our lines and people are running efficiently, but our clients get the benefit that it’s a dollar every single day, every shift, first, second, and third shift. And we’re able to continue on that for 12 months. Where again, if they’re running it, their cost model is all over the place. So fixed cost is great because obviously if you sell it for $2 and the cost from Econo-Pak is a dollar, your profit margins are much more consistent rather than the variable model when you make it yourself. So we’ve seen a lot of benefits to that over the years with a lot of different clients and products that we make.
Mike Mead:
So high-level executives, they can make better decisions on what they want to do from a budget perspective and how they want to work within their own business having that model. It makes it a lot easier.
PJ Wiebel:
Yeah, it makes it a lot more predictable. Exactly. Again, we lock that in for 12 months and based on what their margins are, they can pretty much guarantee that margin will stay in place. Again, we don’t control, and oftentimes the material pricing, but at least the labor part, which is a big part of it, is locked for a year, and the margin expectation is there consistently, which is a great thing.
Mike Mead:
That’s great. And I know we have a really strategic attainment schedule that we work on with our clients too, guaranteeing somewhat of a weekly… We have our weekly and then our 13-week rolling forecast to plan so I could see how that could become very critical, having a fixed cost model and having a guaranteed output based on that, that we can help them and control.
PJ Wiebel:
Yeah, we’re tracking everything very, very tightly, making sure that most of our schedules are based on per week output so we make sure that we have our three shifts that we can run five days a week. We make sure that we are hitting that number. For whatever reason we are not, we will run overtime on the weekends to make sure that we hit that weekly number to ensure that the shelves and the warehouses are full of our customer’s products so that they can sell and not be short stock.
Mike Mead:
If you don’t mind me asking, what led you to kind of building a business around a model like that?
PJ Wiebel:
It’s really what clients are looking for. They want to be able to know that if they go to a great packaging company and their sales and marketing team are doing a great job, that there’s other avenues for people to be able to get their products made at a fixed cost efficiently with obviously high quality. And so over the years where we started as a packaging company, we’re now a contract food packaging company. We saw great demand there with all the food industry growing, and it’s been a great avenue for us and a great model.
Mike Mead:
Yeah, that’s great. Well, thank you for joining me today, PJ. We appreciate your time.
PJ Wiebel:
You’re welcome. Thanks for having me.
Fixed-cost pricing offers significant advantages in stabilizing budgets and improving operational efficiency.
For additional insights from CEO PJ Wiebel, explore his other episode, Packaging Unpacked: A CEO’s Insight into the Contract Packaging Industry’s Growth. In this episode, he discusses the evolution of the contract packaging industry and strategies to address emerging challenges.
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Is your demand outpacing your ability to package your own product? Then consider outsourcing with Econo-Pak.
With over 40 years of experience working with both small brands and Fortune 500 companies, we are capable of handling your specific dry food product.
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