Packaging cost per product is the total cost of getting one unit packed and out of the door: materials used per pack, a share of the pack labour, the carriage band the format falls into, and an allowance for damage and waste. Calculating it per format rather than per purchase order is what makes packaging decisions comparable.
Why per-purchase-order costing hides the answer
Most businesses know what they spent on packaging last quarter. Far fewer know what a single despatch costs, and that is the number every packaging decision actually turns on.
Spend tells you the size of the budget. Cost per order tells you whether a change is worth making, because it is the figure a new specification can be compared against.
The five components
| Component | How to work it out |
|---|---|
| Materials | Each item used per pack, priced per unit of use rather than per purchase |
| Labour | Observed pack time multiplied by your own loaded labour rate |
| Carriage | The band the format falls into, from your carrier rate card |
| Damage | Replacement cost multiplied by the damage rate for that format |
| Waste | Material discarded per pack, plus any disposal charge |
What goes into cost per pack, and where the figure comes from.
Materials is the component people already have. The other four are usually missing, and they are where the differences between formats show up.
Working it out, step by step
- Group by format, not by SKU. You do not need 400 calculations; you need one per pack format. Most businesses have between three and eight.
- List what goes into one pack. Carton, tape used, fill used, label, insert. Be specific about quantities - half a metre of tape, two handfuls of fill.
- Convert purchase prices into per-pack prices. A roll of tape at a given price divided by the number of packs it seals.
- Time a pack. Several, at a normal pace, by more than one person. Multiply by your loaded labour rate.
- Add the carriage band that format typically ships in.
- Add damage. Replacement cost multiplied by that format's damage rate - even a rough rate is better than leaving it at zero.
Leaving damage out of the calculation is the single most common reason a cheaper specification looks better on paper than it turns out to be in practice.
A worked shape, using your own numbers
Rather than invent figures, here is the arithmetic with placeholders. Fill in your own and the comparison becomes immediately usable.
- Carton: unit price
- Tape: roll price ÷ packs per roll
- Fill: price per litre × litres per pack
- Label and insert: unit prices
- Labour: pack time in minutes ÷ 60 × loaded hourly rate
- Carriage: band rate for that format
- Damage: replacement cost × damage rate for that format
Add them for format A and format B and you have a defensible comparison. That is what a supplier's quote should be tested against, rather than against the previous carton price.
What the number is for
- Deciding whether a bespoke format pays. Compare delivered cost per order, where a made-to-size carton usually gains on fill and carriage what it gives up on unit price.
- Pricing your own delivery. If you offer free or flat-rate shipping, this is the cost you are absorbing.
- Choosing which format to fix first. Multiply cost per order by order volume per format; the biggest number is where to start.
- Testing a supplier quote. A lower unit price that raises pack time or damage is not a saving.
Keeping it current
The calculation goes stale when the range changes, when a carrier re-rates, or when somebody quietly adds a box size. Re-run it when any of those happen rather than on a calendar.
If you would rather not build and maintain it yourself, it is part of what a packaging review produces - and packaging for fulfilment covers how it changes once somebody else packs your orders.
The short version
- Cost per format, not per purchase order, is the figure decisions turn on.
- Include materials, labour, carriage band, damage and waste.
- Convert purchase prices into per-pack prices.
- Leaving damage out is why cheaper specifications disappoint.
- Re-run it when the range changes or a carrier re-rates.
Frequently asked questions
Should I calculate this per SKU or per pack format?
Per format. SKU-level costing is far more work and rarely changes the decision, because the decision is about which formats to hold and how they are specified.
What labour rate should I use?
Your loaded rate - wages plus employer costs - rather than the headline hourly pay. If the packing is outsourced, use the pick-and-pack charge instead; see pick and pack services.
How do I estimate a damage rate per format?
Credits, replacements or complaints over a period, divided by despatches in that format. It will be rough. A rough number is far better than omitting the component entirely.
Does this include the packaging I throw away?
It should. Off-cuts, damaged cartons and over-ordered lines are real cost - see sustainable packaging for reducing it.
Can you produce this for our business?
Yes, it is part of a packaging review. Send a month of despatch data and your current line list and we will build it per format.