Contract packing valuation starts with EBITDA—the cash profit your packing operation generates before interest, taxes, depreciation, and amortization. For a contract packer generating $8.0M annual revenue at 12% EBITDA margins, your EBITDA is $960K. Current market range for contract packers is 5.0x–10.0x EBITDA, translating to valuations between $4.8M and $9.6M. However, the multiple your operation commands depends entirely on six quantifiable value drivers.

Start by calculating EBITDA accurately. Use your last 3 years of tax returns and internal P&Ls, adjusting for one-time items (equipment downtime, customer losses, major repairs). Most contract packers report 10–14% EBITDA margins. If you're running <10%, investigate pricing, utilization, or labor cost issues. Many owners don't accurately allocate overhead to COGS, inflating apparent margins.

Second, analyze customer concentration ruthlessly. This is the single largest valuation driver. Segment customers by annual revenue, tenure, growth trajectory, and contract terms. Calculate the revenue percentage for each of top 10 customers. If customer #1 represents 35% of revenue and customer #2 represents 28%, you have severe concentration risk. Buyers will discount valuation by 2.0x–3.0x EBITDA because losing customer #1 crashes EBITDA. Ideal state: no customer >15% of revenue, top 5 <60% of EBITDA. If you have concentration, document mitigation: Are contracts multi-year with renewal rates >90%? Do customers depend on you for critical supply chain? Have you diversified into new verticals?

Third, conduct a capabilities audit. Document each production line: equipment type, age, speed (units per minute), changeover time, product types handled, and monthly utilization (actual runs vs. available capacity). Underutilized lines (running <60% of capacity) raise red flags because they suggest either customer concentration or poor sales. Over-utilized lines (>90% capacity) suggest growth constraints. Buyers stress-test utilization assumptions—if you're at 75% utilization with 3 major customers, losing one customer drops you below 50%, creating severe cash flow risk.

Fourth, document quality certifications. List all certifications (SQF level, organic, kosher, FDA compliance, ISO standards) with renewal dates and audit history. Missing SQF certification as a food packer is a valuation killer—face 1.0x–2.0x EBITDA discount. Conversely, holding SQF+organic+kosher adds 1.2x–1.8x premium.

Fifth, evaluate equipment age and condition. Conduct a forensic equipment appraisal. Document each line's original cost, acquisition date, book value, maintenance history, and estimated remaining useful life. Modern equipment (5–7 years old) retains 60–70% of replacement value; equipment 10+ years old retains 15–30%. Buyers will negotiate down EBITDA multiples if major equipment replacement is needed within 24 months. Equipment is 15–20% of valuation impact, not 50%, so don't overstate its importance—but don't ignore it either.

Sixth, evaluate management team stability. Document your top 3 operators/managers: tenure, compensation, and irreplaceability. If your VP of Operations has been with you 3+ years and has trained replacements, that's strong. If your operation depends entirely on one irreplaceable operator, that's a material risk.

Once you've quantified these drivers, map to multiples. A packer with: (1) no customer >15% of revenue, (2) 25–40 diversified customers, (3) SQF+organic certifications, (4) modern equipment (5–8 years old) at 75% utilization, (5) multiple production capabilities, and (6) stable management team, commands 8.0x–10.0x EBITDA. A packer with concentra tion >30%, single production capability, and aging equipment sees 5.0x–6.5x.

Calculate weighted drivers: customer diversification (40%), certifications (20%), equipment (15%), capabilities (15%), management (5%), industry focus (5%). Score each 1–10. If weighted average is 8.5+, target 8.0x–10.0x EBITDA; if 6.5–8.0, aim for 6.5x–8.0x; if <6.5, expect 5.0x–6.5x.

Understand buyer types. Strategic buyers (large CPG companies, contract manufacturing platforms) pay 7.0x–10.0x EBITDA because they add volume through existing customer base and improve margins through scale. PE buyers pay 5.5x–8.0x EBITDA with tighter underwriting on concentration and equipment. Consolidators pay 6.0x–9.0x depending on customer synergies.

Final validation: SDE-based comparisons. If you run your packer as an S-corp, calculate SDE by adding back owner compensation, benefits, and one-time items. EBITDA-based valuations are standard for contract packers; SDE-based valuations apply only if owner-operated. A $8.0M revenue packer at 12% EBITDA ($960K) valued at $8.0M (8.3x EBITDA) is 1.0x revenue—reasonable for a solid regional packer with good diversification.