We know that the majority of cosmetic brands do not make some or all of their own products. What I mean by this is that very few brands own their own development labs or manufacturing facilities and therefore rely on contract manufacturers.
Why do companies use contract manufacturers?
A laboratory and manufacturing facilities are very expensive to run. For a lab, you need to employ chemists, have access to hundreds of ingredients (raw materials), and need special equipment to weigh, heat, blend, and formulate products. For manufacturing, you need storage space for raw materials and packaging, kettles to mix the formulas, and filling equipment that can be very specialized. Manufacturing machinery can easily cost $500,000 for a single unit. Therefore, the investment to be able to make your own products is extremely cost prohibitive for most brands.
If the cost for facilities is the primary reason why brands use contract manufacturers, then why would huge brands and corporations that own labs and manufacturing facilities utilize them? There are several reasons. Brands are always looking for innovation. Often, contract manufacturers launch innovation that only they can provide. It could be that they have a special proprietary formula, or maybe they have machinery that is very specific (think encapsulated beads) or have capabilities that are niche (wood pencils, nail polish, aerosols). Another reason could be that a brand wants to cut the time to market, and picking up a nearly perfect formula from an outside vendor allows them not to have to develop such products from scratch, which can take years. Additionally, growing large companies sometimes leads to them exceeding their own internal manufacturing capabilities and needing help keeping up with the demand for products. So, they may outsource manufacturing of some products out of necessity.
What types of contract manufacturers are there?
Contract manufacturers come in lots of forms, shapes, and sizes. Some specialize in color products, some in skincare, and some in other areas or multiple product categories. In some cases, a contract manufacturer is so specialized that they are one of the very few companies worldwide that can make certain products. For example, there are 2 major wood pencil manufacturers that most prestige brands use; the same goes for nail polish, wipes, sampling packettes, aerosols, bar soaps, and pressed powders.
Certain vendors also have certifications that others do not. The FDA requires very specific qualifications and registrations for a manufacturer to be able to make OTC (over the counter) drugs such as sunscreens and acne products. If those are the types of products a brand is looking to manufacture, their pool of possible partners narrows significantly. Another example of this is Certified Organic. Certified Organic (with the USDA seal) products are extremely difficult to formulate and also require very specific requirements. Somewhat surprisingly, certified organic products are some of the most difficult to source—very few vendors are able to make them.
Contract manufacturers also offer a vast range of services. Some vendors can only formulate and manufacture certain categories of products. On the other end of the range, some do that and can source packaging, work on packaging design, provide regulatory consultation, and other more “turnkey” services. There has been a huge trend over the last few years for vendors to expand their service offering to attempt to be a one-stop shop for brands that may not have such extensive teams in-house.
What to consider when selecting a contract manufacturer.
I am often asked this question: how do you select what vendors you work with? If I am working for a brand within a larger corporation, the corporation must pre-approve vendors before you are allowed to work with them. They complete extensive audits of possible manufacturers including their GMP status, required certifications, capabilities, track record, financial situation and, today more than ever, any ethical violations. So large corporations have preferred pre-approved vendors that product developers are encouraged to use.
If you are a smaller brand, my feeling is that the feeling you get from the vendor and its sales team can make or break the decision of who I use. There are some vendors I have worked with for 15 years. Sometimes I don’t give them business for a long time but they are always there when I need them. I probably value this the most. I recently met with a possible new vendor. Immediately after our meeting the brand I am consulting for was sent a credit application and very detailed messages asking for quantities, timelines, and other information. The brand founder and I found this very off-putting and we will not be using this vendor. On the other hand, a manufacturer that offered similar-type products who we also met with had a more exploratory conversation with us, provided samples, and reinforced that they were available when we were ready to continue the conversation. We have not given them business yet, but I am certain we will use them in the future.
A huge consideration for emerging brands is MOQs (minimum order quantities). Small brands usually launch with smaller quantities, often under 5,000 units. Many contract manufacturers won’t take you seriously (because you won’t make them enough money) if your quantities are low. I always favor manufacturers who are willing to take a chance on brands and hope to share in the potential future success if and when the brand takes off. This pays off hugely for everyone involved. So, I seek vendors who are willing to start small but still provide dedicated attention and will be able to scale up with brands as they grow. Many of the huge contract manufacturers out there will not entertain such arrangements so I don’t even approach them for smaller projects.
Implementing a new relationship with a manufacturing partner.
Once a brand has identified the manufacturing partner you would like to work with, establishing a good relationship with them is the foundation to a long-term partnership. If you are a brand that hasn’t launched yet, or if you are just entertaining the possibility of creating products, contract manufacturers will consider you a high-risk client. If you are lucky, some vendors will not charge you development fees to formulate a product. In that case, you should really be respectful of the time they are devoting to your project at their expense.
In other cases, contract manufacturers charge development fees. This often means that they will be more responsive and dedicated to your development. You should still be respectful of their time and efforts but you have the right to be more demanding and expect them to prioritize you.
In all relationships with possible vendors, make sure to ask all the right questions about the relationship up front: submission timing, minimums, other surcharges, formula ownership, etc. The best advice I can give anyone is to do your homework. Understand the marketplace, your competitors, competitive products, competitive claims, ingredients, sizes, packaging, and textures—and do so before you start the conversations. Once you are ready to start actual development, please, please, please put together a detailed product brief. List all the claims you want, specific ingredients, fragrance, color, texture, quantities and, very importantly, the cost target. The worst thing you can do is not establish all those details from the start. You can get very far along in development and be ready to approve a formula and then get the quote from the vendor and realize that you can’t afford it. If you are transparent with your contract manufacturer from the start you establish that you are both working towards the same goal.
Lastly, I recommend always working with multiple vendors. Even if you’re a huge conglomerate, you often dual-path development of products. There are many things that can go wrong with a project from natural disasters, to loss of key employees, to materials shortages, to many other things that can come up. Besides that, even if you know exactly what product you want to make, having several interpretations of a product coming from different contract manufacturers can sometimes open you up to innovation.
