November 23, 2025

7 min read How to Diligence a CPG Firm Diligencing a consumer packaged goods (CPG) business has nuances that set it apart from pure software or marketplace investing. Whether you’re an angel investor, family office, or VC, evaluating a CPG company means diving into supply chain dynamics, product economics, brand strength, and more. Here’s a structured, risk-aware playbook to help you evaluate a CPG firm like a pro. 1. Understand the Business Model & Unit Economics Gross Margins and Cost Structure Ask for a breakdown of the cost of goods sold (COGS): raw materials, packaging, labor, and overhead. Determine how variable costs scale: Does margin improve with volume, or are there fixed costs that drag at low volumes? Verify whether the company’s pricing is sustainable in different sales channels (direct-to-consumer vs. retail). Lifetime Value (LTV) vs. Customer Acquisition Cost (CAC) If the company sells direct to consumers, evaluate repeat purchase behavior: what is the retention rate over 6- and 12-month cohorts? For wholesale distribution, calculate the per-customer margin and reorder frequency. Model LTV in each channel and compare it against CAC across those same channels. Pricing Strategy and Sensitivity How elastic is demand for their products? If costs rise or discounts shrink, how will that impact volume? What is their value narrative — are they competing on premium quality, sustainability, or price? That will shape pricing power. 2. Supply Chain & Manufacturing Risks Sourcing and Raw Materials Who are their suppliers, and how diversified is the supply base? Are there single-source risks? (e.g., only one supplier for a key ingredient.) What is the lead time for critical raw materials, and how volatile are their costs? Manufacturing Capacity & Scalability Where is the product manufactured? In-house, co-packer, or a network of partners? If they use co-packers, do they have contracts in place, and is there slack capacity for scaling? Are there quality control systems? Ask for defect rates, returns, or consumer complaints. Inventory Management What is their inventory turnover? High inventory on hand could indicate demand forecasting risk. How do they manage shelf life, especially for perishable or seasonal products? What’s the working capital tied up in inventory — is it a cash drag? 3. Go-to-Market Strategy Distribution Channels Where do they sell: DTC (direct-to-consumer), brick & mortar retail, grocery chains, or specialty stores? For retail distribution: what’s their push strategy? Do they have favorable slotting terms? What are their trade spend and promotional allowances? For DTC: analyze their customer acquisition channels (paid ads, organic, SEO, email), conversion rates, and cost per acquisition. Brand Strength & Positioning What is the company’s brand story, and how does it resonate with its target customer? Do they have customer testimonials or social proof (e.g., reviews or word of mouth)? How do they differentiate (taste, packaging, sustainability, health angle)? Is this differentiation defensible, or is it easily copied Marketing Efficiency What percentage of revenue is being reinvested into marketing? How efficient are their sales funnels? (e.g., Email open/click rates, ad ROAS, conversion from trial/sample to repeat purchase) Are there community or viral growth vectors (referral programs, user-generated content, influencers) 4. Regulatory and Compliance Considerations Food Safety & Quality Does the CPG company comply with relevant regulatory bodies (FDA in the U.S., local food safety authorities elsewhere) Request documentation such as HACCP plans, food safety audits, or third-party quality certifications (e.g., SQF or BRC). How do they handle product recalls, and what is their track record? Packaging & Labeling Are labels compliant with nutrition, ingredient, and allergen disclosure regulations? Does the firm use any sustainable or recyclable packaging? If yes, how does that impact COGS and supply chain risk? Environmental, Social, Governance (ESG) If ESG is part of their value prop (eco-friendly, local sourcing), verify their claims with evidence, such as supplier audits, lifecycle assessments, carbon impact assessments, etc. Are there sustainability-related liabilities (e.g., packaging waste, carbon offset obligations)? 5. Product & Innovation Evaluation Product-Market Fit Conduct a sensory evaluation: sample the product (if possible) or collect feedback from early customers. Analyze repeat purchase rates, product lifecycle (i.e., are customers buying again, or is it a “try once” product?). How broad is their SKU (stock-keeping unit) mix? Do they plan to expand into new SKUs or adjacent categories? Innovation Pipeline Do they have a roadmap for new flavors, size formats, or product lines? How much of their R&D or product development budget is allocated to innovation vs. core SKUs? Have they tested new products in pilot markets? What were the results? 6. Team & Operational Execution Founders & Leadership What is the founding team’s background? Do they have experience in consumer goods, manufacturing, or retail? Have they scaled a physical product business before, or is this their first CPG venture? Meet the team responsible for operations, supply chain, and quality — are they capable of handling scale? Organizational Structure How is the organization structured across procurement, manufacturing, sales, and marketing? Do they have robust systems for demand forecasting, production planning, and logistics? What is their talent strategy for hiring and retaining people in key roles? Execution Metrics Ask for KPIs such as yield rates, batch failure rates, on-time delivery, inventory shrinkage, and return rates. How quickly have they scaled since launch — both in production volume and sales? What evidence is there of operational discipline (e.g., documented SOPs, contracts with co-packers, audits)? 7. Financial & Capital Structure Historical Financials Request P&L statements, balance sheets, and cash flow for at least the past 2–3 years. Compare their burn rate vs. growth: are they reinvesting heavily, or burning cash without traction? Understand working capital needs: how much cash is tied up in inventory or accounts receivable (especially for retail customers)? Projections & Scenario Modeling Review their financial model: are their assumptions realistic around growth, margins, and cash needs? Run downside and base-case scenarios: what happens if growth slows, COGS rise, or customer acquisition costs increase? How much capital will they need to scale, and what is their runway? Cap Table & Funding History Ask for a full