Should You Include the Cost of Packaging in Your Cost Per Item?

When you're figuring out how much to charge for your product, packaging costs can sometimes be an afterthought. Yet, they play a crucial role in getting your product safely and attractively into the hands of your customers. Let's break down the different types of packaging and how to handle their costs so you can set prices that make sense for your business and your bottom line.

In a nutshell: When setting your product pricing, it's essential to include primary packaging costs as they directly impact your product's safety, freshness, and appeal. Secondary packaging costs are usually absorbed by manufacturers, while tertiary packaging costs may vary depending on your shipping arrangements. Including primary packaging in your total product cost ensures accurate pricing and simplifies your financial planning, helping you maintain profitability.

Primary Packaging: Yes, definitely

Primary packaging is what directly holds and protects your product. Think of the bottle for your homemade salsa, the box for your custom jewelry, the mailer bag that you pack clothes in, or the bag for your gourmet coffee. This packaging is essential for keeping your product fresh, safe, and appealing.

Why you should include the primary packaging cost:

It's not (usually) included in manufacturing costs: Unlike other packaging types, primary packaging costs are extra. Manufacturers often give you the product price minus the packaging, meaning you need to add this cost yourself.
It helps you make accurate pricing: Including the cost of primary packaging ensures you know exactly how much each product costs to make. This precision helps you set a price that covers your costs and leaves room for profit.
It simplifies your finances: By factoring primary packaging into your overall product cost, you streamline your financial calculations. This makes it easier to budget and plan, knowing you’ve covered all bases.

The best practice: Roll primary packaging costs into your total cost per item. This way, you have a clear picture of what it really takes to produce each product.

Secondary Packaging: Not really

Secondary packaging is what groups your products for easier handling and transport. This includes items like cartons and pallets.

Manufacturers usually absorb the cost of secondary packaging, so it’s already factored into the price you pay. This means you typically don’t need to worry about these costs when calculating your per-item cost.

Tertiary Packaging: It depends

Tertiary packaging is used for bulk shipments, like shipping containers or large crates. It’s what keeps your products safe during transit from the warehouse to the retailer or end customer. Sometimes, these costs are quoted separately, giving you a detailed breakdown. Other times, they’re included in an all-in-one shipping quote. It’s important to clarify this with your supplier or shipping company.

Should you include the cost of packaging in your cost per item? My professional take:

In my experience, the easiest way to handle packaging costs is to include primary packaging in your total product cost. This gives you a clear and complete picture of your expenses. For secondary and tertiary packaging, I usually add those costs to my Freight & Shipping expenses. This method ensures that I’ve accounted for all packaging costs without complicating my pricing strategy. By doing this, you’ll have a better grasp of your total costs and can set prices that cover everything from production to delivery, keeping your business profitable and competitive.

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