A contract manufacturing business model is based on an agreement called the Manufacturing Services Agreement (MSA). The hiring firm selects a number of candidate production companies and approaches them with a request for quotation (RFQ) on their product. Manufacturers then provide their price offers for all components involved, and a fixed price is negotiated for a set quantity of produced goods.

This is based on the CM’s available personnel, equipment, materials, tooling, and shipping options. If agreed upon, the CM may also outsource the manufacturing of some parts of the bill of materials (BOM) to subcontractors. In essence, working with a contract manufacturer is a way to hire an off-site factory.