• Increasing profitability in terms of unit economics is only possible if you decrease your cost while maintaining the price.
• Gaining insights about your product's cost drivers helps you quickly reveal unused saving potential.
• A clear understanding of your cost structure puts you in the driver's seat when negotiating deals with your packaging suppliers.

Here’s a truth about packaging: not having a complete view of the numbers is a common issue. You are probably sourcing your packaging from various contractors, working with and handling different suppliers simultaneously. Suppliers are inherently different regarding their machine setup and individual capabilities, which in turn define cost-efficiency and pricing. Do you know how much you spend on each packaging component? 

Everyone talks about turning businesses more profitable, but are you aware of the easy wins regarding packaging? Taking time to sit down and challenge your status quo regarding packaging cost structure is essential. And here's why.

A cost structure usually includes both variable and fixed costs. The variable expenses are a major factor when wanting to understand what drives the price for each product sold. The cost for your packaging is a combination of various decisions made beforehand. Let's name a few. For example, the choice made on materials for your product's primary, secondary and additionally transport packaging. But also regarding the selection of material quality and thickness of materials used. In addition to that, the total number of components and its complexity heavily influence your packaging's cost structure. And, finally, order quantities determine whether you can make use of economies of scale.

It's time to challenge your current structure today because increasing your profitability is only achievable if you decrease your cost while maintaining the same product price. There's no way around reducing the cash outflow to earn more on each product sold. 

Really understanding all the factors that influence your cost structure regarding packaging can  immediately help to reveal unused saving potential. Think about all the things that are impacting the final price. Think of the branded stickers and labels for your primary and transport packaging. That option could be pricier than having a direct print on the packaging or mailing box itself. And has your packaging material been the same for a couple of years now? Recycled materials have dropped in price by 50%. This option could benefit your packaging cost and come with a more sustainable aspect.

This actually demonstrates the room for improvement very well. You might find your new cardboard price already at the market's lower end. But comparing it with alternatives like recycled materials might reveal even lower prices at the same quality and higher sustainability. There are always great chances to show new cost-saving opportunities when aware of cost drivers for packaging.

After you've assessed your cost structure, you'll be in the driver's seat when negotiating with suppliers. Put yourself into the shoes of your packaging supplier now. You'll see very fast why it is economically more efficient for him to sell packaging materials and other components with a more significant margin. However, is there a serious need on your side, or is your supplier’s upselling rather a nice-to-have for your business? Now that you are aware of and understand your cost drivers, you're ready to make a more educated decision on factors such as whether it's worth investing in a premium print, or using uni-colored basic print instead. 

At Packmatic, we encourage you to reveal and understand the factors impacting your packaging cost structure. Create a mind map and get started today. And once you are there, it becomes the right time to optimize each factor.

So what do we conclude from this article? For your business, the primary solution is always to reduce the variable unit costs first while maintaining the same product price. To decrease the variable costs of packaging, it's necessary to fully understand each factor that impacts the cost. And from there, you're ready to make more advanced decisions when negotiating with suppliers in the future.

Need help reviewing your current packaging cost structure? Schedule a free call with our team of packaging and procurement experts today!