A packaging budget built only on material cost will be wrong, because packaging spends money in six places: materials, the storage it occupies, carriage, pack labour, damage and waste. Budget the six together and the number is defensible; budget the first alone and the rest arrive as surprises.
The six places packaging costs money
Almost every packaging budget is built from one number - what the materials cost - and almost every packaging overspend comes from one of the other five. They are not minor adjustments either; on a parcel-heavy operation carriage alone frequently exceeds the entire materials spend.
| Cost area | Where the number comes from | Commonly missed because |
|---|---|---|
| Materials | Supplier invoices | It is the only one usually tracked |
| Storage | Racking or floor space occupied | Nobody charges packaging rent |
| Carriage | Carrier invoices by band | It is treated as a carrier cost |
| Pack labour | Seconds per pack x order volume | It sits in the wages line |
| Damage | Credits, replacements, return carriage | It is logged as a claim |
| Waste | Disposal and recycling charges | It is a facilities cost |
What to put in a packaging budget, and where the number comes from.
The point of listing them is not completeness for its own sake. It is that these six interact: a cheaper box raises damage, a smaller box raises protection, fewer sizes speed the bench and ship more air. A budget that only moves one line will be beaten by reality.
Building the number from the bottom up
- Take twelve months of usage by line, not a forecast. Usage shows what is actually consumed rather than what was specified.
- Classify each line as continuous, seasonal or occasional. The three behave completely differently and should be budgeted separately.
- Price the continuous lines at a run quantity that makes sense, not at what you currently order.
- Add the storage those run quantities would need, or remove it by assuming call-off. See packaging stockholding.
- Pull carrier invoices and work out the band distribution. That is where right-sizing shows up as money.
- Add a line for damage based on last year's credits, not on zero.
Budget printed and bespoke work as projects with their own timing, not as monthly consumables. They carry setup and lead time, and treating them as a running cost is what produces short, expensive reorders.
What a packaging budget should not contain
It should not contain a savings target expressed as a percentage before anybody has looked at the operation. A figure like that sets the conversation up to fail: it either gets hit by buying something that does not work, or it gets missed and the whole exercise is judged a failure.
It should also not assume that consolidating suppliers saves money by itself. Consolidating helps when it shortens the line list and makes the whole picture visible. Moving the same badly-specified list to one supplier changes the invoice and nothing else.
A worked structure for the number
The structure below is the one we use when building a budget with a business. It is deliberately boring: the value is in having all six areas in the same document rather than in any clever modelling.
| Line | Basis | Review when |
|---|---|---|
| Continuous consumables | 12-month usage at run-quantity pricing | Quarterly, against actual consumption |
| Standard outers | Order profile x ladder, not catalogue size | Whenever the product range changes |
| Protective materials | Damage history by format | After any damage spike |
| Printed and bespoke | Project cost with setup and lead time | Per run, not per month |
| Storage | Space occupied, or nil if held on call-off | When run quantities change |
| Carriage attributable to packaging | Band distribution from carrier invoices | After any format change |
| Damage and credits | Last 12 months actual, never zero | Monthly |
| Waste and disposal | Facilities charges | Annually |
A packaging budget laid out so the interactions are visible.
Two rules make it hold up. First, never move one line without checking what it does to the others - a cheaper outer that raises damage is not a saving. Second, keep printed and bespoke work out of the monthly figure, because treating a project as a consumable is what produces short, expensive reorders.
Three measurements that reset a budget
Before the first number goes into a spreadsheet, three measurements will tell you whether the existing budget is roughly right or badly wrong. None of them needs a supplier involved and all three can be done in an afternoon.
- Empty volume. Take ten typical despatches and estimate what proportion of each pack is air. Consistently above a third and the carton range is the problem, not the price of the cartons.
- Band distribution. Pull a month of carrier invoices and count how many despatches sit in each size band, and how many sit just over a threshold. That second number is recoverable.
- Components per pack. Count how many separate items a packer picks up to build one despatch. Every one of them is seconds multiplied by annual order volume.
A budget built after those three measurements will look different from one built before them, usually with less in the materials line and a realistic figure where there was previously a blank next to carriage and damage. That is the whole point: the budget should describe the operation rather than last year's invoices.
The short version
- Budget six areas, not one: materials, storage, carriage, labour, damage and waste.
- Build from twelve months of actual usage rather than a forecast.
- Separate continuous, seasonal and occasional lines - they behave differently.
- Treat printed and bespoke work as projects with setup and lead time.
- Do not set a savings percentage before anyone has looked at the operation.
Frequently asked questions
What should a business spend on packaging?
There is no useful benchmark, because the right number depends entirely on what you make, how it travels and what damage costs you. Any figure quoted as a percentage of turnover is a guess dressed up as a standard.
Should carriage be in the packaging budget?
At least the part of it that packaging controls. Parcel and pallet carriers charge on volume as well as weight, so pack dimensions directly set which band a despatch falls into. Budgeting them separately hides the connection.
How do we budget for printed packaging?
As a project rather than a monthly cost. Print carries a setup spread across the run, so the sensible quantity is larger than the monthly consumption and the budget needs to reflect timing as well as amount - see custom printed packaging.
How much should we allow for damage?
Whatever last year actually cost in credits, replacements and return carriage. Budgeting zero is the most common error, and it guarantees that any damage looks like an overspend rather than a specification problem.
Can you help us build the number?
That is essentially what a packaging review produces. Send the material list with usage, a sample of carrier invoices and your damage figures.