When it comes to budgeting, pricing of packaging often gets little attention. It is a common notion that custom packaging is for companies with big budgets. In order to validate your customer's purchase, your packaging needs to be attractive and functional.
This does not mean it needs to blow a hole in your wallet. While there is no set cost range for packaging, it is a good practice to make it a part of your product cost. Typically, companies spend 10-40% of the product’s retail price on packaging. For example, if the product sells $100, then the company might spend anywhere between $10-$40 on the packaging.
Pricing and packaging are interconnected aspects of a product's go-to-market strategy. They must be thoughtfully coordinated to ensure that the perceived value matches the cost for the consumer.
Components of packaging include design and prototypes, materials, production, labor, volume, freight, and shipping. The easiest way to procure packaging is to find a custom packaging supplier who would be able to make the process of ordering and receiving packaging painless.
One of the factors to consider before ordering packaging is the volume. Your volume is one of the key indicators of the price. With this blog post, we aim to equip you with the basics of costing, how quantity affects the prices of packaging, and how your brand can determine what quantities work for you.
Fixed costs are those costs that your manufacturer incurs no matter what the production output or volume is. Whether you order a small volume or large volume of packaging, these fixed costs will be constant. Fixes costs include, but are not limited to:
The ratio of fixed costs to the number of units produced goes down as the number of units increases.
Variable costs are costs that vary depending on the production output. Smaller volume orders would mean a smaller variable cost, and larger volume orders would mean a larger variable cost. These costs include, but are not limited to:
Variable costs increase as the number of units produced increases.
Fixed costs and variable costs combine to make up the total cost of your packaging. While the graph above is a simplistic example, you can see how at lower volumes, fixed costs make up a majority of cost compared to variable costs.
You might have noticed that your supplier gives you lower unit prices when you order a higher volume than when you order a lower volume. This is due to the principle called economies of scale.
Economies of scale reduces the per unit fixed cost because the fixed cost gets spread across more units the higher the quantity.
To illustrate, let's assume that the fixed costs are $100 (ignore the variable costs for now).
Ignoring variable costs, you can see that, ordering 1000 units yields a lower per unit cost.
Now, I’m sure you are thinking, "wouldn’t the variable costs offset the fixed cost reduction?" Here is a price breakdown to explain economies of scale in the bigger picture.
For simplicity, let's assume the total fixed cost is $100 and the variable cost per unit is $1.
Example 1: You order 100 units of boxes.
Example 2: You order 1000 units of boxes.
While this example may seem a bit textbook, in reality, the variable costs are also affected by economies of scale, as the expanded scale of production increases the efficiency of the production process.
With economies of scale comes the ability for your brand to use the reduced cost in other functions or to even step up your packaging with the inclusion of specialized printing such as embossing or better packaging materials that can act as your business’ competitive advantage.
Diminishing returns or diminishing marginal returns is the principle that occurs when the increasing volume in the short run reaches an optimal capacity. Prior to optimal capacity, the increase leads to smaller increases in price. At optimal capacity, it stops affecting the cost of production regardless of the increase and results in a near flat-lined graph.
We'll use the same assumptions as above, where the total fixed cost is $100 and the variable cost per unit is $1.
Example 1: You order 15,000 units of boxes.
Example 2: You order 20,000 units of boxes.
As you can see, while there is a somewhat large difference in volume of 5,000 units between the two examples, the difference in unit prices are only marginal.
In the above graph, the optimal capacity is at 15,000 units, and this means that anything above 15,000 units has little effect on the total price and does not result in a large decrease in the overall price.
The price of packaging is a crucial factor in overall product cost, often reflecting the materials used and the complexity of the design. It's a necessary investment for protecting the product and enhancing its marketability.
Having a good idea of your packaging budget and the costs for the different types of packaging allows you to make better decisions on what is required for your product and brand. Packaging should not be ignored when budgeting for your product.
Want to see how packaging prices scale across different volumes? Get an instant quote for popular custom packaging boxes.
Product packaging is an essential element of any business that sells physical goods. It protects products during transport, provides important information to consumers, and helps products stand out on store shelves. The true cost of product packaging is often much more than just the price of the materials used to create it. Packaging costs can add up quickly and significantly impact a company’s bottom line.
Brands must better understand how packaging costs can impact their business and how they can reduce their costs without sacrificing quality. This infographic provides an overview of the cost of product packaging, the factors that affect packaging costs, and tips for reducing packaging costs while still making the most of your packaging.
Packaging costs can vary widely based on factors such as the size and weight of the product, the type of packaging materials used, and the production process. Businesses need to understand the average cost of packaging to make informed decisions about their packaging solutions.
On average, packaging costs can account for at least 10% of a product’s retail price. However, the actual cost can vary widely depending on the product and its packaging requirements. The cost of packaging materials is also a major component of overall packaging costs.
Here are some examples of the average unit cost of common packaging types:
It’s important to note that these are general estimates, and the actual cost of packaging can vary widely depending on the specific requirements of each product. For example, custom packaging designs, high-quality materials, or specialized packaging solutions may come at a higher cost.
In addition to the direct cost of packaging materials, there are indirect costs to consider, such as storage, transportation, and environmental impact. By understanding the average cost of packaging and its associated costs, businesses can better choose packaging solutions that meet their budget and sustainability goals.
Many different factors can impact the cost of packaging. Some of the most common factors include:
Different materials have different costs associated with them, with plastic typically being less expensive than paper. Glass is also a common packaging material but can be more expensive due to its weight and fragility. Additionally, sustainable packaging materials, such as biodegradable or compostable materials, may be more expensive than traditional materials.
The quantity of packaging required is another significant factor in determining the cost of packaging. Typically, the more packaging that is needed, the higher the cost will be. However, many manufacturers offer bulk pricing discounts for larger orders, which can help to reduce the cost per unit.
Custom-designed packaging will generally be more expensive than pre-made, off-the-shelf packaging. This is because custom packaging requires additional design work and production time. Factors that can impact the cost of customization include the complexity of the design and the level of detail required.
Printing on the packaging, such as branding or product information, can add to the cost of the packaging. Factors that can impact the cost of printing include the number of colors used in the design, the size of the packaging, and the type of printing technology used.
The cost of shipping the packaging materials and the finished products can significantly affect the overall packaging costs. Factors that can impact shipping costs include the weight and size of the packaging, the distance between the manufacturer and the customer, and the shipping method used.
Some products may require specific types of packaging to comply with safety or environmental regulations, which can increase the cost of the packaging. For instance, products that are considered hazardous may require special packaging materials to prevent leaks or spills during transport.
Sustainability is becoming an increasingly important factor in packaging costs. Sustainable packaging materials such as biodegradable or compostable materials, may be more expensive than traditional materials. However, sustainable packaging can also provide cost savings in other areas, such as reduced shipping costs due to lower weight.
By understanding these factors, businesses can start to identify areas where they may be able to reduce their packaging costs. They may be able to reduce the cost of printing by using simpler designs, or they may be able to reduce shipping costs by sourcing materials from a closer location.
Reducing packaging costs is an important goal for any business looking to improve profitability, reduce waste, and enhance sustainability. Here are some effective strategies for lowering packaging costs without sacrificing quality or effectiveness:
One of the most effective ways to reduce packaging costs is to reduce the size and weight of your packaging. This can be achieved by using thinner or lighter materials or redesigning your packaging to be more compact and efficient. By reducing the size and weight of your packaging, you can save on material, shipping, and storage costs.
Many businesses use eco-friendly and sustainable materials, such as recycled paper, biodegradable plastics, or plant-based materials to reduce packaging costs. These options are often more cost-effective than traditional materials, especially in the long run.
Efficient shipping and handling can significantly reduce your packaging costs. Consider using standardized packaging sizes, automating your packing and shipping processes, and working with logistics partners to optimize your shipping routes and schedules. By streamlining your shipping and handling processes, you can reduce labor, shipping, and material costs.
Custom packaging design and printing can be expensive, especially for small businesses. Consider using pre-designed templates or simplifying your packaging design to reduce costs. You can also negotiate with printing vendors or consider in-house printing options to reduce costs further.
Working closely with suppliers can allow businesses to negotiate better pricing, access bulk purchasing discounts, improve packaging quality, and streamline their supply chain for more cost-effective packaging solutions. Consider partnering with a packaging supplier that specializes in your industry or product type and has a proven track record of providing quality services.
Businesses can significantly reduce their packaging costs while providing quality packaging that protects their products and enhances their brand image. It’s important to remember that lowering packaging costs should not come at the expense of quality or effectiveness. By finding the right balance between price and quality, businesses can achieve the optimal packaging solution that meets their needs and helps them achieve their goals.
While reducing packaging costs is essential, it’s also crucial to maximize the value of product packaging to achieve the best possible return on investment. Here are some effective ways to maximize the value of product packaging:
Product packaging is an integral part of the customer experience. Packaging that enhances the customer experience can improve customer loyalty, increase brand recognition, and drive sales. Consider using custom packaging designs, personalized messages or branding, or unique materials that reflect your brand values and identity.
Product packaging is an excellent opportunity to highlight the features and benefits of your product. Add product information or instructions, use high-quality product images, or use color and design to emphasize key selling points. By using product packaging to showcase the product’s unique features and benefits, businesses can increase customer interest and drive sales.
Product packaging should also prioritize product safety and protection. With high-quality materials and packaging design that effectively protects the product from damage or contamination, businesses can reduce product loss, improve customer satisfaction, and enhance brand reputation. Utilize tamper-evident seals, protective padding or inserts, or air-tight packaging for food or perishable products.
Sustainability is becoming increasingly important to customers, and businesses can use packaging to demonstrate their commitment to sustainability. Using eco-friendly materials, reducing packaging waste, and using recyclable or biodegradable packaging can attract environmentally-conscious customers and improve brand image.
To maximize the value of product packaging, businesses should measure and analyze packaging performance regularly. Tracking key performance indicators such as customer feedback, sales data, and packaging costs can help identify areas for improvement and optimize packaging strategies over time.
Product packaging costs extend beyond the direct expenses of packaging materials and production. Businesses must also consider the indirect costs, such as storage, transportation, and environmental impact. Implementing effective packaging strategies prioritizing cost savings and value maximization can help your brand achieve optimal packaging solutions that benefit your bottom line, customers, and the environment.
It’s time to optimize your product packaging and achieve cost savings while enhancing your customers’ experience. Talk to Meyers experts to learn how we can help you design, produce, and manage custom packaging solutions that meet your business’s unique needs.
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