Co-Packer Contract Terms for CPG Brands: What to Negotiate and What to Watch Out For
Your co-packer contract determines who owns your formula, what happens if they raise prices, and how you exit if the relationship goes wrong. Here is what to negotiate before you sign.
Most CPG brands spend more time negotiating ingredient prices than co-packer contract terms — which is backwards. Your co-packer contract governs one of your most critical business relationships and can have enormous financial and strategic consequences if the terms are unfavorable. Here are the key provisions to understand and negotiate.
Intellectual Property Ownership
This is the most important provision in any co-packer contract. You must ensure that you own your formula, your processes, and any improvements made to your formula during the relationship. Some co-packers include language claiming ownership of "improvements" or "modifications" to formulas developed at their facility — this is unacceptable and must be struck.
The contract should explicitly state: (1) you own the formula, (2) the co-packer has a limited license to use the formula solely for manufacturing your products, (3) any improvements or modifications belong to you, and (4) the co-packer will not manufacture the same or substantially similar products for competitors without your written consent.
Key Contract Terms to Negotiate
| Term | What to Watch For | What to Negotiate |
|---|---|---|
| Minimum purchase commitments | Annual minimums that exceed your realistic volume | Quarterly minimums with a true-up; ramp provisions for new products |
| Price escalation | Unlimited right to raise prices | Cap annual increases at CPI or a fixed % (3–5%); require 90-day notice |
| Exclusivity | Exclusivity you are granting without compensation | Limit exclusivity to your specific product category; require volume minimums to maintain exclusivity |
| Termination | Long notice periods (6–12 months) that trap you | 90-day termination for convenience; immediate termination for cause (quality failures, food safety issues) |
| Liability for recalls | Unlimited liability for recalls caused by your formula | Mutual indemnification; clear allocation of liability based on cause (co-packer error vs. formula issue) |
| Tooling & equipment ownership | Co-packer claims ownership of tooling you paid for | Explicit statement that tooling purchased by you is your property |
The Minimum Commitment Trap
Annual minimum commitments are one of the most common sources of financial pain in co-packer relationships. If you commit to 100,000 units/year and only sell 70,000, you either pay for 30,000 units you do not need or pay a shortfall penalty. Negotiate minimums that reflect your realistic downside scenario — not your optimistic forecast.
Frequently Asked Questions
Do I need a lawyer to review a co-packer contract?
Yes, for any contract with annual value over $50,000 or a term longer than one year. The cost of a food industry attorney reviewing a co-packer contract ($500–$2,000) is trivial compared to the potential cost of unfavorable terms. Look for attorneys with food industry experience who understand the standard market terms for co-manufacturing agreements.
What happens to my inventory if my co-packer goes out of business?
Your finished goods inventory and raw materials you have supplied are your property — you have a right to retrieve them. However, if the co-packer files for bankruptcy, your ability to retrieve inventory may be delayed by the bankruptcy proceedings. Minimize this risk by not holding more than 2–4 weeks of inventory at your co-packer at any time, and maintain your own inventory of critical raw materials at a separate location.
Co-packer data centralized in Guidance
Guidance stores your co-packer contracts, pricing history, production runs, and quality metrics in one place — so you always know your current terms and can make informed decisions about your manufacturing relationships.
Get Early Access →Related: Co-Manufacturer RFQ Guide · Co-Packer KPIs · Variance Analysis