A new company has just launched their first product. And everybody – from investors to pre-order customers – is excited.
But before the business can ship and get the product into customers’ hands, there’s one last detail to address. And it’s a BIG one…
The importance of packaging is often underestimated in new businesses, sometimes even left to the last minute. Considering packaging as an afterthought can dramatically impact the cost of packaging – and the overall profit margin as a result. But it can also affect the way consumers respond to a product, and their initial experience of it. When packaging is not considered during the initial phases of design, the whole product launch can suffer.
The bottom line is this; don’t underestimate your packaging. Make packaging design and pricing a fundamental element of your product strategy.
And make sure you account for all your costs before you set a retail value.
Packaging can change your product – for better or worse. If your product has a shelf life, the right packaging can improve it. If your product needs protection from light, moisture or physical impact, the right packaging can protect it.
But an ideal packaging solution does so much more. It adds to the experience of a product, and how your brand is perceived by the end consumer.
And to properly calculate the cost of packaging, you must consider all of this.
Calculating profit margins after packaging
Unfortunately, there’s no simple, easy answer or formula – because there are a lot of variables which we’ll cover. But as a general rule, to work out your profits after packaging, you’ll need to know…
The price you sell each unit for, MINUS:
- The production cost of each unit
- The cost of designing a packaging solution
- Material costs for packaging
- Production line modification costs
- Packaging labour costs
- Packaging supply line and bulk order costs
- Transport and storage costs
This is obviously in addition to energy, water, staffing, marketing and any other overheads you incur from producing your products. But, as always, things are a little more complicated. So, let’s take a look at what to consider in more detail.
What to consider when you calculate the cost of packaging
Cost of packaging materials
Whether you use cardboard or polythene packaging, your materials will come at a cost. And the type of packaging you need will vary depending on the product.
As we covered in our post, “Is Cardboard Better For The Environment Than Plastic?”, no single packaging system is the perfect, one-size-fits-all solution; you have to choose the right material or combination of materials for each task.
So, for electronics, this could mean a combination of polythene film or bags, void fillers or polystyrene inserts, and an outer corrugated cardboard box.
This balances protection, weight and cost, with each element meeting a specific packaging requirement.
For a single printed garment to be delivered by post, polythene bags for clothes would be ample packaging.
For dry foods, a sealable, food safe polythene bag might be enough. Extra protection for brittle or powdered foods might be desirable.
The type and combination of materials required must be considered at the design phase first, as it will feed into your production requirements.
Adding packaging to the production line
To streamline your production and packaging process, you may need to add a packaging line to your automated or manual processes as the very last stage.
How much will it cost to incorporate an automated or semi-automated packaging line into your production facility? Will you need to expand your facility – or will you rely on manual packaging?
Additional worker costs
Whether you use automated, semi-automated or fully manual packaging systems, you will incur new staffing costs. Automated systems don’t work without guidance and maintenance – and need experienced, skilled workers to keep them working and stocked.
Same goes for manual packaging lines, but you’ll come to rely entirely on your workforce for packaging each product. You’ll still need equipment and tools to make this fast and effective.
Read more: How to speed up your packaging operations
Even though a human worker can never outpace a packaging machine, sometimes they can be the best (or only) choice for certain tasks. The speed at which they can work is a factor; adding more materials or complex processes to the mix can increase the overall packaging time and cost.
Packaging supply line
We (packaging companies, that is) have our own costs to contend with – but we always do our best to minimise how much of our own costs get passed down to customers. To keep costs low, we advise buying in bulk over a longer lead time, which is generally going to reduce your overall spend.
By contrast, a small order with a short lead time – while perfectly doable – will cost more.
In the early stages, you might not know exactly what quantities you need, and will have to test the waters. Packaging costs may be higher in the early phase and pre-launch as a result.
Logistics and storage
The size and weight of your final packaged product will impact shipping and logistics, as well as on-site and off-site storage costs. Bigger, heavier packages cost more to move – and will need additional storage space at your production facility or warehouse.
All of this comes at a cost – so choosing your packaging wisely is vitally important.
Cost versus experience
Now, it’s fair to assume that most companies are looking for the cheapest possible packaging solution. But there are many that value the customer’s experience more highly than the cost of their packaging, and will purposely increase costs if it meets their branding goals.
This usually happens in the premium consumer market, across all categories from food to fashion, and electronics to homeware.
Apple products are elaborately packaged, and largely plastic-free. Samsung devices come in multi-textured, bespoke boxes with foil printing. Luxury foods come in similarly luxurious packaging, made with multiple materials. High-end cosmetics use intricate boxes that are far larger than the product itself, to become more attractive to customers.
Packaging in this way goes beyond efficiency and function; it becomes branding.
Luxury brands echo their status and symbolism in everything they do; from the core product, to the box or bag it comes in.
This adds to the cost of materials, design, printing – but also to the cost of shipping and storage, as well as production.
If experience is a non-negotiable branding trait, then this must be considered when you calculate the cost of packaging, too.
And if you need help with your packaging – whether it’s lowering costs or improving quality – we’re here to help.
NPF Packaging: your packaging specialists
Talk to the experts at NPF Packaging – and we’ll help you get your packaging costs under control. We’ll create packaging solutions that balance price with excellent finish and end consumer experience. Get a quote now, or call us on 01773 820415.