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How to Calculate the Cost of Packaging

March 08, 2018

What Determines the Cost of Packaging?

Cost of Packaging

Many components influence and impact the cost of packaging. From the obvious costs (such as raw material and labor) to the hidden (such as warehousing and obsolete inventory), it’s important to take a step back and consider all of the factors when calculating the cost of packaging to your business.

 

Hard Costs

Hard costs are those that have a direct price associated with them. These are the things that you pay for out-of-pocket during a packaging project and are relatively easy to itemize and tabulate at the end of the day. Hard costs include:

  • Structural Design
  • Graphic Design
  • Custom Manufacturing
  • Supplies
  • Shipping

Let’s take a look at each of these in detail.

 

Structural Design
Depending on your specific product and application, the structural design for your packaging may be conceived by your packaging manufacturer or an outside agency that specializes in packaging development. The cost of creating your design and converting it into a CAD file that is ready for the manufacturing process will vary – it may or may not be included in the services provided by your chosen design partner. You should ask for a quote up front, what is included, and the anticipated timeline to develop your design before embarking on any packaging project.

Be aware that if you bring an existing file to your packaging manufacturer, they may still need to make adjustments to ensure it will work with their machinery and operations.

 

Graphic Design
The application of graphics to packaging varies greatly depending on the project. Perhaps you are applying a simple 1-color version of your logo to the outside of a brown shipping box, or you might be developing a highly customized retail experience that hinges on eye-catching appeal. Based on the complexity of your graphic design needs, you may be able to simply provide your packaging manufacturer with a logo file in the appropriate color profile and resolution, or you may need to contract a professional graphic designer or branding firm to develop print-ready graphics for you. Whichever route you take, the graphic design process is similar to that of structural design, and you should ask for a quote, timeline, and terms up front.

 

Custom Manufacturing
Once your structural design and graphics are finalized and combined into a manufacturing-ready format, you are ready to begin custom manufacturing. The cost of this process depends on material, size, run volume, print method, tooling/setup charges, and labor. Another consideration is whether or not you choose to offshore your project.

A key component to the success of any packaging project is to bring your manufacturer into the picture early on. Partnering with your Packaging Advisor as early as the product design stage will deliver insight during the formative development phases (structural and graphic design) that will ultimately optimize your packaging outcome, including your total cost. You don’t want to spend several weeks or months and top dollar with an expensive branding firm to develop your new packaging concept only to discover once you’re ready to start manufacturing that your box has not been optimized for structural integrity or shipping costs. Similarly, you don’t want to send your freelance graphic designer down a creative path that ultimately won’t work for the print method that your packaging will use or your manufacturing budget. It is far better to have these discovery sessions and discussions as early on as possible and with the manufacturer in the room.

Your packaging manufacturer should provide a quote that breaks down the cost to produce your packaging by unit, as well as any additional tooling, setup, and delivery fees.

 

Supplies
Some or all of the components of your packaging project may be stock items or supplies that must be factored into your cost. These can include primary packaging (such as bottles, tubes, and bags), void fill (such as air pillows or paper packaging), packing tape, labels, stretch wrap, and more. Take a look at your packaging supply chain from beginning to end and include your stock product purchases into your packaging cost calculation.

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Shipping
In today’s logistics-driven environment, the cost of shipping will continue to play a significant role in your total cost of goods. This has potential implications to the cost of packaging on both the front and back ends of your project. You may pay a shipping surcharge for the delivery of your finished packaging to your warehouse or fulfillment center, and you will pay again when shipping your packaged product to the end user. The size, shape, and material choice of your packaging affect its weight and assembled dimensions, and thus impact the cost of shipping – adding even more incentive to involve an experienced Packaging Advisor early on in the packaging development process.

 

Additional Cost Considerations

After tabulating the hard costs of packaging, you must take into consideration any underlying hidden costs to paint the full picture.

 

Storing Unused Inventory
All companies look at the cost of inventory and storage differently. Cost for space can vary widely from region to region. Anyone that’s faced a desire to grow their business or add a new product line but lacks the space to do so due to “supply inventory” understands that buying packaging at the next quantity break to save on cost per unit isn’t always a winning equation. If your packaging’s minimum run volume is larger than you can keep on-hand, partner with a supplier who can accommodate just-in-time delivery.

Packaging Warehousing

An additional risk of surplus inventory is obsolescence. With today’s demand for fast paced changes to product labeling requirements, certifications, and customization to reach target audiences, it’s important to run right sized packaging quantities. This way, your money is not tied up in overstock inventory that is at risk of becoming out-of-date every day that it remains unused. Tossing out old inventory is the same as throwing away money.

 

Assembly Time = Labor
A successful packaging design should take into consideration the full use lifecycle of the package, including the labor required to assemble and load product into each unit. There are tools available to speed up manual folding, as well as automated solutions to maximize your assembly line.

Product Fulfillment and Pack Out

 

A professional Packaging Advisor can conduct time studies of your current operations to determine what solutions your business might leverage. Automation can potentially be integrated into your packaging design, equipment, or both. Your Packaging Advisor will determine if new equipment or a revised package design that reduces handling could improve your costs.

 

Making Sense of the Dollars

To accurately account for the cost of your packaging you must look at the big picture. Evaluating aspects beyond the hard costs will reveal areas of improvement and opportunities to improve your business operations and your bottom line.

 

If you’re need help evaluating your current packaging costs, get in touch with one of our trained Packaging Advisors today!

 

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