Contributor Jackie White provides information on how would-be new businesses can remain competitive by looking early at how packaging will affect their over-all costs.
April 19, 2018
by Jackie White, Contributor
Staggering statistics show that small businesses employ 8.2 million people in Canada which is over 70 percent of the total (private) workforce overall.
Interestingly, however, 30 percent of small businesses fail within the first five years. Experts point to a variety of factors to blame for this failure, but amongst the most important is a lack of planning. Advanced planning is key to accurately estimate costs. One cost that is often overlooked is that of packaging. Small businesses can research what the cost of packaging will be by visiting trade fairs but until they actually get started it can be difficult to estimate what the actual price will be.
Working Out What It May Cost
A general rule of thumb for most businesses is that packaging will cost between one and 10 percent of your product. This is a very big range, especially if you need to see a bank or other lender to raise necessary finances. If you have to move a tough product around the figure drops to less than two percent of price. When you introduce branding or fragility into the mix the figure starts to be around seven to eight percent of the price. This is a large chunk of profit to be losing if you haven’t accounted for it in the cost of your product. Loss of profit at any time is bad for business but at the beginning it can be fatal.
Other Reasons For Failure
Does your business stand out from the rest? Is it at least 10 percent better than your nearest competitor?
If the answer is no you could be setting yourself up for failure.
What will be your average revenue per customer? Will you make enough from each sale or encounter to justify any costs you’ve spent?
This is where packaging plays a part, if you haven’t counted the cost of packaging within the cost of sale, then each sale will fail to make you enough to succeed.
Are you trying to grow too quickly? Scaling up is costly and requires investment. If you are unable to scale in a smooth way you will end up paying through the nose for additional costs (such as packaging) when you could be applying economics of scale. Alternatively you may end up investing in higher volume production and then not have the sales to justify it.
Small businesses are inherently fragile and there is no room for any miscalculations. The cost of something as simple as packaging may seem insignificant when you are calculating price, but if you don’t take it into account it can eat into your profits significantly.