Course Module: The Economics of Small-Scale Production — From Test Batch to Wholesale

Hook: Turn confusion about scaling and margins into a classroom that teaches decisions, not just definitions

Business students and educators often face the same frustration: textbook spreadsheets explain unit economics but fail to show the messy decisions founders make when a test batch needs to become 1,500-gallon tanks and global buyers start calling. This course module uses the real-world arc of Liber & Co.—from a single pot on a stove to commercial tanks and worldwide distribution—to bridge theory and practice. You’ll get actionable tools for teaching and learning the economics of small-scale production, the hazards of scaling, and pragmatic distribution strategies that work in 2026.

Module snapshot: What students will learn first

Start with the most important outcomes up front: by the end of this module, students will be able to:

• Build a working unit economics model for a small-batch food or beverage product.
• Identify and mitigate the top five scaling hazards that break operations when moving from kitchen pilots to commercial production.
• Compare and choose the best mix of distribution channels (DTC, wholesale, foodservice, co-pack partners, international) for profitability and growth.
• Craft a go/no-go scaling decision supported by sensitivity analysis, cash flow forecasting, and channel margin math.

Why Liber & Co. is an ideal anchor for the case module

Founded from a stove-top test batch in Austin and now running 1,500-gallon tanks, Liber & Co. exemplifies the path many small producers seek: retain quality, expand capacity, and enter new channels without losing control of brand and margins. Their hands-on, DIY culture—handling manufacturing, warehousing, ecommerce, wholesale, and international sales—gives students a broad operational view rather than an isolated finance or marketing case.

"We didn’t have a big professional network or capital to outsource everything, so if something needed to be done, we learned to do it ourselves." — Chris Harrison, co-founder, Liber & Co.

Module components: syllabus, activities, and assessments

Syllabus (6 weeks / 12 sessions)

1. Weeks 1–2: Unit economics fundamentals + Liber & Co. origin story and data pack
2. Weeks 3–4: Scaling hazards lab — production, QA/QC, regulatory, and equipment
3. Week 5: Distribution strategies workshop — margin math across channels
4. Week 6: Capstone presentation — go/no-go decision with pro forma and execution plan

Core deliverables

• Unit economics model (spreadsheet with sensitivity sliders)
• Scaling hazard mitigation plan (SOP-style document)
• Distribution mix recommendation with margin analysis and projected cash flows
• Executive one-page investor / buyer summary

Assessment rubric (sample)

• Accuracy of unit economics and assumptions — 30%
• Feasibility and creativity of scaling mitigation — 25%
• Clarity and defensibility of distribution strategy — 25%
• Presentation and stakeholder communication — 20%

Unit economics: the formulas every student must master

Make these definitions actionable. Avoid vague statements—teach formulas and show how to populate them with data from a test-batch and a commercial run.

Key metrics and simple formulas

• Unit Cost (variable) = Ingredients + Packaging + Direct Labor per unit
• Allocated Fixed Cost per unit = (Rent + Equipment Depreciation + Overheads) / Units produced in the period
• Total Cost per Unit = Unit Cost (variable) + Allocated Fixed Cost per unit
• Gross Margin % = (Price - Total Cost per Unit) / Price
• Break-even Volume = Fixed Costs / (Price - Variable Cost per unit)

Worked example: translating Liber & Co. from pot to tank (illustrative)

Use a simplified, hypothetical example in class to make the mechanics transparent. Numbers below are illustrative—not Liber & Co.'s internal accounts—but mirror the scaling pattern small producers face.

• Test batch (stove): 200 bottles produced, ingredient cost per bottle = $1.25, packaging = $0.50, direct labor = $2.00 → variable cost = $3.75
• Small commercial run (1,500-gallon tank): variable cost falls due to bulk ingredient pricing and more efficient labor; ingredient per bottle = $0.95, packaging = $0.45, labor = $1.20 → variable cost = $2.60
• Fixed costs (monthly): rent + utilities + admin + equipment depreciation = $12,000. If the plant runs 5,000 bottles/month, allocated fixed cost = $2.40 per bottle.
• Total cost per bottle = $2.60 + $2.40 = $5.00. If wholesale price = $9.00, gross margin = 44%.

Teaching point: moving from $3.75 total (test batch ignoring fixed costs) to $5.00 total (commercial with fixed allocation) shows how scaling can lower variable cost but introduce material fixed-cost pressure if volume doesn't materialize.

Scaling hazards: what breaks (and how to teach mitigation)

Scaling isn't only about buying bigger tanks. Use these seven hazards as weekly case problems.

1. Consistency and quality drift — small recipe tweaks amplify at scale. Mitigation: invest early in QC protocols and batch records; pilot incrementally (e.g., 50L, 500L, 1,500L).
2. Supply fragility — single-source ingredients can stop production. Mitigation: dual suppliers and contract safety stock; negotiate volume discounts tied to lead-time SLAs.
3. Regulatory and labeling gaps — export requirements and allergen rules vary. Mitigation: maintain a regulatory checklist, budget for compliance testing, and include labeling lead times in launch plans.
4. Packaging mismatch — aesthetic packaging that works in small batches may not be cost-effective at scale. Mitigation: evaluate supplier tooling, run cost-per-unit comparisons for 5k vs 50k volumes.
5. Cash flow squeeze — paying for large raw-material lots while waiting on receivables. Mitigation: build rolling cash-flow models, negotiate payment terms, and consider factoring or purchase-order financing.
6. Equipment bottlenecks — one line can create a single point of failure. Mitigation: schedule preventive maintenance and plan capacity redundancy where feasible.
7. Channel misalignment — selling to wholesale requires different margins and packaging than DTC. Mitigation: design SKU and pricing strategies per channel and pilot each channel in parallel.

Class exercise: hazard prioritization matrix

Have student teams grade each hazard by probability and impact (1–5 scale) to produce a risk heatmap. Require a mitigation plan with costs and expected reduction in impact—students must decide which mitigations to fund first under a constrained budget.

Distribution strategies: channel math and strategic tradeoffs

Distribution decisions determine both top-line reach and bottom-line margins. Use this section to teach channel selection via margin stacks and execution complexity.

Channel profiles

• Direct-to-Consumer (DTC) — highest gross margin but higher customer acquisition cost (CAC), packaging for ship, and returns management.
• Wholesale (distributors & retailers) — lower per-unit price, but scale through existing buyers and lower CAC; expect 25–40% margin to cover distributor and retailer cuts.
• Foodservice & On-premise (bars, restaurants) — good brand-building and higher unit volumes per account but lower price per use and bespoke logistics.
• Co-packing & Private Label — lowers manufacturing overhead through utilization but can compress margins and shift focus away from core brand.
• International — opens growth but adds tariffs, labeling, and working capital for longer receivable cycles.

Margin math: an example split

Show students how a $12 retail bottle might flow through channels:

• DTC: price $12, cost per unit $5 → gross = $7 (58% margin) but CAC and shipping reduce net contribution.
• Wholesale: dealer buys at $6 (50% MAP), distributor & retailer margins remove $3 leaving $3 to the brand (25% margin).
• Decision: prioritize DTC early to prove brand and margins, while building selective wholesale accounts that increase volume and smooth manufacturing peaks.

Capstone: go/no-go scaling decision framework

Students must present a defensible decision. Provide a clear checklist and model they must satisfy to recommend scaling:

• Validated demand via pre-orders, LOIs, or repeat purchase cohorts (e.g., 3-month retention data)
• Sensitivity analysis showing range of outcomes at -20%, 0%, +20% volume vs plan
• Cash runway that covers increased working capital needs through break-even
• Regulatory clearances and packaging approvals for planned channels
• Confirmed suppliers with volume pricing and lead-time SLAs

2026 trends and why they matter for small-scale producers

Teach students the modern context. Late 2025 and early 2026 brought accelerations in three areas that change how small producers plan scaling:

• Regional co-pack networks expanded in 2025, lowering the upfront CAPEX barrier. Students should evaluate the trade-off between control and utilization.
• AI-driven demand forecasting is now accessible to small brands through affordable SaaS, improving inventory turns but requiring accurate historical data—something small producers must actively collect.
• Sustainability and traceability expectations from buyers and consumers have increased; investing early in transparent sourcing can unlock premium placements and B2B contracts in 2026.

Integrate these trends into assignments: require a vendor scan that includes co-pack marketplaces, a forecast using an AI-assisted tool, and a sustainability cost-benefit appendix.

Teaching tips: how instructors make this module memorable

• Use real numbers where possible. Provide a sanitized Liber & Co. data pack (sales by channel, ingredient costs, bills of materials) for students to model.
• Invite a founder or operations manager for a live Q&A to discuss tradeoffs and unknowns. Nothing beats founder experience for showing messy realities.
• Run a simulation where one team controls production and another controls sales—introduce supply shocks mid-week (ingredient delay, equipment downtime) and force negotiation.
• Require a “seller’s brief” as if presenting to a distributor—students must price for the channel, explain logistics, and show promotional support plans.

Advanced strategies for ambitious students

Once students understand basics, challenge them with advanced options often used by firms like Liber & Co.:

• Hybrid manufacturing: retain in-house for flagship SKUs and co-pack commoditized SKUs to optimize margins and capacity.
• Dynamic pricing by channel: use data to set promotional allowances for wholesalers while protecting DTC pricing through value-added bundles.
• Inventory as a service: partner with distributors who finance and warehouse inventory for a fee—reduces cash strain at the cost of margin.
• Offer micro-batches as testing grounds for international flavor variants to reduce risk before full-scale launches.

Case study deliverable: sample instructor brief

Provide faculty with a one-page case brief they can print and distribute:

• Background: Liber & Co. formed in 2011 from a stove-top experiment, now produces in commercial tanks, sells DTC and wholesale, and manages in-house operations.
• Challenge: deciding whether to expand to a second production line to fulfill a growing roster of national wholesale accounts while protecting DTC margins.
• Data provided: sample P&L, BOMs at two volume tiers, list of potential co-pack partners, three distributor LOIs, and a cash-flow statement.
• Expectations: students present a go/no-go with a 12-month operational plan and a 3-scenario sensitivity analysis.

Practical, actionable takeaways for students and instructors

1. Start with variable cost transparency. Track ingredient, packaging, and labor costs per batch before allocating fixed costs.
2. Build a scaling checklist. Require supplier SLAs, QA protocols, and compliance clearances before contracting equipment or co-pack capacity.
3. Model worst-case cash flows. Use a 3-scenario model (pessimistic, baseline, optimistic) to stress-test the decision.
4. Pilot channels in parallel. Reserve SKUs for DTC launches while testing wholesale in limited regions.
5. Use modern tools. Assess AI forecasting tools and regional co-pack networks that emerged in 2025 to reduce CAPEX and improve planning.

Instructor resources and further reading

Provide students with curated materials: a sanitized Liber & Co. dataset, a template unit-economics spreadsheet, an SOP checklist for QA/QC, and links to co-pack marketplaces and AI forecasting tools. Cite relevant industry write-ups such as the Practical Ecommerce profile of Liber & Co. for historical context.

Final assignment: present like a founder

Students must deliver a 10-minute pitch to an imaginary distributor and a 10-minute investor update—each with tailored messages, pricing rationale, and operational commitments. This dual-audience exercise highlights the different priorities of wholesale buyers and financial backers.

Why this module matters in 2026

As marketplaces, co-pack networks, and AI tools lower barriers for small producers, the real constraint becomes disciplined decision-making: knowing when to scale, how to price, and how to choose partners. Anchoring the learning in Liber & Co.’s trajectory gives students a living example of the tensions between craftsmanship and commercialization—and the playbook to manage both.

Call to action

Ready to teach or take this module? Download the complete case pack (sanitized financials, dataset, and instructor guide) or book a mentoring session with an operations coach who has scaled CPG brands. Visit themmentors.store to get the module kit and schedule a hands-on workshop—turn classroom theory into founder-grade decisions.

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