The CPG Make vs. Buy Decision: When to Build Your Own Manufacturing

It was 2:00 AM. The power went down at Suja's plant.

We had orders to fill. A transformer on the roof. And a landlord who was asleep and not picking up. So one of our production workers found a tree next to the building, climbed it, and jumped from a branch onto the roof to reconnect the circuit himself.

No playbook for that. No Stages and Gates process. Just a guy who gave a damn about the product and didn't wait to be told what to do.

That story says everything about what manufacturing ownership actually means. It's not just capital allocation. It's culture. It's commitment. It's the difference between people who treat a problem as someone else's and people who climb the damn tree.

But here's what I want to talk about today: whether you should own manufacturing at all. Because the decision to make versus buy is one of the highest-stakes strategic calls you'll make as a CPG founder, and most people get it wrong in both directions.

Most Founders Default to Co-Manufacturing. That's Fine.

Let me be clear: co-manufacturing is a smart default for most early-stage brands. Lower capital requirements. Faster to market. Flexible capacity. When you're pre-$10 million in revenue, the last thing you probably need is to tie up $3-5 million in equipment and a lease you'll be paying whether or not you have orders to fill.

At Nika Water -- one of my earlier companies -- we co-manufactured everything. Made sense. We were focused on building brand and distribution, not process engineering. The product was straightforward enough that a co-packer could execute it reliably.

With Suja, we made a different bet. A harder one.

We went vertical almost from the start. Cold-pressed HPP juice is a complex, sensitive product. Shelf life dictates everything in this business -- your route to market, your inventory risk, how far you can ship, whether major retailers can even carry you. In 2012, our shelf life was 24 days. By the time we exited, it was over 100 days. That improvement didn't happen at a co-manufacturer. It happened because our team was in the plant every single day, iterating and learning.

The Number That Changes Everything

Let me give you the number that made the argument for me.

Co-manufacturing typically runs you somewhere between 30-40% of your retail price in production cost, depending on category and complexity. If you're doing $9.99 juice, you might be paying a co-man $3.00-$3.50 per unit to produce. That's before your freight, before your trade spend, before slotting, before marketing. By the time you get to gross margin, you're fighting for scraps.

We started Suja at 28% gross margins. Not great. But as we scaled, filled capacity, and drove down unit costs through volume, our margins climbed toward 50%.

That improvement didn't come from raising prices. It came from owning the process.

"Gross margin determines destiny." I mean that literally. The most capital-efficient way to improve your business -- more so than any marketing campaign, any new retailer, any influencer partnership -- is relentless focus on gross margin improvement. And if you're manufacturing something where proprietary processes and scale advantages are real, vertical integration is often your fastest path there.

The Kombucha Lesson

Here's a story that lives in my head.

Suja launched kombucha. We were technically good -- we'd actually solved an alcohol consistency challenge that plagued the category. But we outsourced production. Kombucha was running at roughly 12% gross margin. Twelve. Percent.

Meanwhile, we had our wellness shots, produced internally. Sixty percent gross margin.

When we made the decision to exit kombucha and double down on shots, our company-wide gross margin moved from around 32% to around 40%. In one product mix decision. That's roughly $8 million of margin improvement on $100 million in revenue.

Not from a new sales rep. Not from a trade show. From product mix and manufacturing discipline.

CPG is a "Penny Profit" business. The pennies matter. And the pennies are made or lost in the plant.

Speed Is the Argument Nobody Talks About Enough

In 2015, Coca-Cola invested $90 million in Suja. Wonderful validation. But here's what also happened: Coca-Cola introduced us to their "Stages and Gates" innovation framework. A process that typically takes 16-18 months to get a new product to shelf.

We could take a new juice idea from concept to shelf in 6 weeks.

In 2019, Trader Joe's spotted the celery juice trend -- The Rachael Ray Show had given it a moment. They called us. Trader Joe's typically prefers private label, and that process would have taken them months. First call to product on shelves nationwide: less than 6 weeks.

That speed is only possible when you control your own manufacturing. When you're dependent on a co-packer's scheduling window, their minimum run requirements, their formulation capabilities... you're slower. And in CPG, "slow" means watching someone else take the shelf space.

Innovation is not churn if it improves turns. But you can only move fast enough to test and learn if you own the kitchen.

So When Do You Make the Switch?

Here's how I think about the decision:

Under $10M in revenue: Stay with co-manufacturing. Your job is to prove the brand concept, not to run a plant. Capital is precious. Flexibility matters. Overhead is your enemy.

$10M-$25M: Evaluate honestly. Ask yourself: Is manufacturing a competitive advantage in our category? Is our gross margin chronically constrained by production costs? Are we losing speed-to-market opportunities because we're dependent on co-man schedules? If the answer to two of three is yes, it's worth running the numbers.

$25M and above: Seriously model it. At this scale, the operating leverage of owning capacity starts to become compelling. You're likely running enough volume to fully utilize a line. And the innovation speed advantage becomes more strategically important as your category gets more competitive.

A few tactical questions to get specific:

What percentage of your COGS is direct labor and production overhead at a co-man versus what it would be if you owned those same costs?
Does your product have meaningful process complexity that's hard to teach a third party?
How often are you losing innovation windows or market speed because of co-man lead times?
Do you have the management bandwidth to run operations? (Hiring slow, firing fast applies to operations leadership too.)

The Rule of Twos is real here. Building manufacturing capability will take twice as long and cost twice as much as you think. Plan accordingly.

What Most People Miss About the Transition

The hardest thing about vertical integration isn't the capital. It's the culture shift.

When you own your manufacturing, you're not just a brand company anymore. You're an operations company. You need people who wake up at 2:00 AM to climb trees. You need a QA team that takes batch yields personally. You need a supply chain lead who can negotiate ingredient contracts as well as your best sales rep negotiates shelf space.

We scaled Suja across 7 manufacturing locations in 5 years. Some of those transitions were rough. The first time you run a facility at 30% utilization -- burning through fixed costs before the volume catches up -- it's painful. "In the early days, hustle can compensate for inefficiency. In scale, it can't."

But once capacity fills? The operating leverage is extraordinary. Every incremental unit of volume drops to the bottom line at a much higher rate than when you were paying a third-party markup on top of your production costs.

The Bottom Line

Most brands should use co-manufacturers early and not apologize for it.

But if you're building something where the product has meaningful process complexity, where innovation speed is a real competitive advantage, where gross margin is structurally constrained by third-party production costs -- you should be modeling vertical integration seriously, and running toward it with a plan.

"Revenue without margin is ego." You can grow revenues impressively while running a business that's fundamentally broken on the economics. I've watched founders with $40 million in revenue who couldn't get to profitability because their gross margin structure was underwater at the production level.

Manufacturing isn't glamorous. Nobody puts "owns 7 manufacturing facilities" in their investor pitch headline.

But it's where gross margin lives. And gross margin determines destiny.

If you're working through the make vs. buy decision for your brand -- or trying to improve gross margins across your operation -- I cover this in depth in the CPG Founders MBA program. And if you need to move fast on the fundamentals right now, the 90-Day Breakthrough is designed to get you traction on exactly these kinds of operational and financial questions.