For startup businesses, packaging costs are one of those often-overlooked pitfalls that most people don’t see. Whether you’re paying the postal service or the people at the packaging plant, it’s a service that requires payment. Fortunately, this is not a complex matter. As such, we should be able to clear this one up for you with relative ease.
How Much Should My Packaging Cost?
According to all the sources that we can find, your packaging costs should amount to 1-3% of the product’s retail price. You could go higher than this, of course, but it would probably be a waste of money. The only exceptions to this rule would be products that require delicate handling and conditions (like dangerous chemicals or explosives, for instance). In those cases, the exceptional need for safety outweighs any concern for profit.
How To Calculate Your Packaging Costs
With a small range of 1-3%, we can neatly divide packaging costs into three levels. Products can be assigned to one of these levels based on their fragility. Once you know which category it belongs in, you will know exactly how much you should be spending to ship that item.
Level One: Cheap And Durable Items: Spend 1% Of Total Retail Price
These are the items that present the least risk to both the seller and buyer. An example of this would be items made entirely of steel. Such items are unlikely to break under normal circumstances, so you can get away with putting these items in a small envelope or a bag. Smaller items are the ones that are most commonly used with level one packaging.
Level one packaging will usually consist of a bag or an envelope. These are just the easiest containers to mass-produce, and that makes them the cheapest containers to mass-produce. Of course, liquid products are usually not sold in a bag (though there are exceptions). Powdered products often are sold in bags, as are gels and pellets of various sorts. Sometimes, small and thin-walled boxes might be cheap enough to be included in this category as well. These boxes are usually referred to as “paper board,” and they offer a good low-cost solution for many smaller items.
This kind of packaging is also very appropriate for small, consumable items. For instance, let’s say you sell small bags of peanuts. Those packages don’t have to last very long once purchased, so it would be wasteful to spend the full 3% on packaging costs. In general, these are the containers you use when you aren’t particularly worried about crushing or breakage.
Level Two: Semi-Durable Items/Promo Containers: Spend 2% Of Total Retail Price
This is the middle category, and this kind of packaging might include boxes, bags, or bottles. Obviously, the fragility of the product is the main determining factor here. Any bags or sleeves in this price range should be thicker and stronger and should be equipped with a zipper for easy opening and closing. Boxes in this range should be about average as far as size and thickness are concerned.
Boxes in this category should normally contain some kind of stabilizing device. This can be as simple as a fixed piece of cardboard that holds the items in place. If you need to save a few bucks, you can simply wrap fragile items in paper or bubble wrap. Either way, this category would apply to items with some potential for breakage. If you just toss it in a box and send it on its way, the odds are not in your favor.
This price category will also include boxes, bags, and bottles that are heavily branded. These packages tend to be colorful so that they can grab the eye, and they always feature the name and logo of the company in a prominent way. Of course, such packages are slightly more expensive to produce due to the printing costs involved. The good news is that printing costs don’t tend to be all that steep, but even a penny can become significant when you multiply it by the total number of products made.
Blister packaging usually falls into this category. If you don’t recognize the term, blister packaging usually consists of a flat piece of cardboard with a plastic “bubble” or “blister” that contains the item. For instance, think about the package that is used for a tube of superglue. The main advantage of this type of packaging is the way that it prominently displays the item. These packages are also very easy to produce.
Level Three: Fragile Items/Special Handling: Spend 3-4% Of Total Retail Price
At this level of shipping, you are dealing with very fragile items. Products made out of glass or other breakable materials will obviously be at the top of this list. Ceramics also tend to be very brittle and vulnerable to impact, so they should also be packed more carefully.
For one thing, fragile items have to be packed firmly in place so that no movement can occur. This is even more important when shipping multiple items in the same container, as fragile items can be knocked against one another and break. For another thing, fragile items have to be shipped separately from normal items, and this always equals a higher shipping cost. That may not be a direct result of the packaging, but it still affects your bottom line.
Clamshell packaging is some of the best that you can get. It displays the item very prominently (much like a blister package), but it also offers a much higher degree of theft resistance. While a thief can simply tear the plastic bubble from a carded blister pack, a clamshell package will require a blade and a lot more time. These packages also do a great job of resisting water, and they are usually made of a plastic that is stiff enough to protect the product from light impact.
Hazardous materials or items that require special handling would also fall into this category. For instance, products that are highly acidic or alkaline will need containers that can reliably resist the corrosive nature of these substances. Another example of products that are appropriate for level three packaging would be luxury items. When a person has already paid a large amount of money for something that they don’t actually need, they probably won’t mind spending a little bit more to ensure that it reaches them in one piece.
We should also mention items that require a certain temperature. For instance, certain medicines need to be kept warm or cold. Vaccines, in particular, need to be kept below a certain temperature. Thus, you will need to include some kind of cold pack in the box when shipping medical items or other things that are temperature-sensitive.
Of course, cold packs have a limited duration, so that might not be the right method if the item has to travel a long way. They make special thermal boxes that are intended to keep the contents at a specific temperature, and these have been proven to be effective. Still, it’s a good idea to avoid shipping temperature-sensitive items over long distances when possible.
Once you start packaging large amounts of your product, you need to remember that you won’t be shipping all of them. You will need to store any excess product on your premises. For the most part, this isn’t a big problem. However, it can become a big problem if you choose the wrong packaging.
There are a lot of products that are perishable or semi-perishable. Most of these items will require an airtight container. Further, the container must be durable enough to remain airtight throughout the shipping and distribution process. If you are tempted to skimp on costs in the packaging department, you can probably get away with that…but only for durable and non-perishable products. If you use better packaging on perishable products, the shelf life will be extended. That alone can often pay for the costs of packaging by reducing waste.
Some items (like high-end electronics) will also need to be packaged with a desiccant like silica gel. Desiccants absorb moisture from the air inside the package. That’s a good thing because it means the moisture won’t be absorbed by the product. If such items are stored for a long time, you will eventually need to replace the silica gel. This creates a little bit of cost because you will have to purchase a large amount of silica gel, and you will have to pay people to replace the packets of your entire stock.
Consider The Cost Of Your Time
For this article, we are assuming that you are a small business owner who is taking care of most of your shipping with a handful of employees. So, when we talk about packaging, we should also talk about the time that it takes to pack your products for shipment. In general, this comes down to one simple principle: More complex packaging takes more time to prepare, and this adds even more to the packaging costs. If you have to pay someone to package these products, their pay will need to be included in your figures. Remember: If your shipping costs go over 3%, you are probably doing something wrong. If they go over 4%, you are definitely doing something wrong!
Depending on the results you want to obtain, it might be a good idea to hire someone to develop and produce your packaging. There are numerous third-party companies that will mass-produce your packages, and they tend to be pretty cheap when you buy their packages in large numbers. Thankfully, development costs for this kind of thing are pretty low. Still, it’s another expense that should be included in your calculations.
If you decide to do things yourself (which isn’t a bad idea), we would recommend that you begin by making a prototype. Rather than planning out the packaging and then manufacturing a thousand copies, just make one package and see how it works. Mail it to yourself or a close friend and see if it arrives intact. Drop it a few times to see how it deals with impact. In short, apply the scientific method and test the limits of the packaging. This way, any problems or issues can be identified and corrected before they become huge and costly.
Here is one concept that might be helpful to you at the development phase: Try to avoid all empty spaces. What we mean is that the package should be large enough to do its job, and no larger. Any excess space in the package creates the potential for jostling and moving, which can lead to breakage. Yes, you could use a filler material like styrofoam peanuts or wadded-up paper, but it’s cheaper and easier to eliminate that air space in the design phase.
If there’s one thing you can take from this article, it is the principle of quantified magnification. This is just a fancy way of describing a simple concept of business. Every penny, nickel, or dollar that you make or lose is magnified by the number of products manufactured. So, let’s say you make 100,000 products (which isn’t all that much, comparatively speaking) at a cost of $1.00 each. Now, let’s say that you find a way to save two cents on every product. You might think that two cents are insignificant, but when you multiply them by 100,000, you end up saving about $2,000 in total. So, two cents of savings becomes $2,000 of profit. That’s the principle of quantified magnification at its finest.
This principle is why your packaging costs are so important. Even though they aren’t the biggest concern for a fledging business, they will make a much bigger difference than most would believe. If we have made a believer out of you, feel free to fill out the contact form below.