Something most folks never consider but just as important -- Intangible Costs

Well truth be told they really aren't intangible costs. They can be quantified, calculated, and categorized. I have heard them called soft cost, built-in cost, or hidden cost. All sorts of names charaterize this phenomena and they are rarely considered in the end-cost of a product. They really should but as it turns out they are never until it is too late.

So I propose a slight paradigm shift. How about including this intangible cost into the total cost of your product?

In my experience packaging is ALWAYS the last thing considered. Everything is focused on the content which is a good thing. These sort of truisms can be dishearting to a packaging salesman but you roll with the punches and play the hand you're dealt. Consider altering your vision to include this additional cost so when the tally sheets are in you can honestly say you squeezed a few more dollars back into your pocket.

Any marketing guy/gal will tell you that the industry we are in -- Entertainment -- is impulse driven. If you have a sexy looking package it will sell and typically the customer or end-buyer will accept the package you provide for him so long as it's functional.

What I am trying to do here is provide some additional insight to any burgeoning hot shot customer who has this brilliant idea and is looking to turn that idea into a physical reality. Now tell me if you find yourself in the same position as a customer I recently spoke to -- Let's call him "Customer A" for the purposes of this case study.

Customer A calls me up and says, "I don't understand why I have so many product returns. They leave the factory OK but as soon as it is shipped to my client and they ship it out to their customers they typically receive damaged product."

I ask as any good packaging professional would ask, "What sort of damage?"

His response, "Mostly the disc just comes off the hub. The disc looks OK and can certainly play but it makes a sound when the box is closed like a 'rattle' and they automatically assume it's broken; so they return it."

Now lets consider the costs here. Customer A charges lets say $1000 for a project that ships out 1000 packaged units ($1 per unit for reasons of simplicity.) -- all nice and pretty in its cigarette wrapped case with the pretty artwork and inlay cards with a pretty disc in 4-color art.

Customer A ships that product to his client -- Customer B. It's shipped in bulk so all he has to do now is open a master carton and ship each unit to their customers or ship the whole master carton to their Customer C who sells it to the end customer -- Customer D.

Here is a little stick diagram so I hopefully will keep you interested.

Customer A -> Customer B -> Customer C

or

Customer A -> Customer B -> Customer C -> Customer D.

Let's simplify this model further so we are only considering one stream from Customer A to Customer C, where the "->" represents freight and handling.

Now here are some assumptions. Out of 1000 units shipped you will experience 5-10% failure due to damage from shipping and handling. Let's assume the better percentage of 5%. So out of 1000 units shipped you get 50 + 47.5 units or 97 units suffering from failure of one thing or another. ( (1000 x 5% = 50) + (950 x 5% = 47.5) =97.5 units or 97 units)

If you assume everything was shipped out by some kind of Less-than-Truckload or per piece common carrier like UPS shipping a package -- any package -- would cost on average around $4-5. So now if you or your customer's customer issue a Return Merchandise Authorization you end up paying freight to go from Customer A to B to C then back to B to A or (4 trips x $4 = $16). But it doesn't end there, now you have to add in the replacement shipping cost of shipping it from A to B and back to C (2 trips x $4= $8). I mean total you're spending $24 just to replace ONE product and you could have up to 97 pieces that are bad so you could spend upwards of $2328 just in shipping costs. Great for companies like UPS and FEDex because you (whoever you is) has to pay for the shipping cost. But serioulsy, who is going to pay for all that freight? Customer A? Customer B? Customer C? It's an honest question. Even if you cut it in half ($1164) do you necessarily want to spend that much money on a project that cost you only $1000 initially?

Now I am just talking shipping cost. You have to also consider replacement cost of the product. So really you're spending an additional $97 on replacement product. Spending a total $2261 ($1000 + $1261) on a project that initially cost you $1000. Getting kind of crazy isn't it? Now let's throw in some frustration expense which you can only truly gauge on repeat business. If your end customer is unhappy about receiving a damaged product, is it necessarily going to help you if you save on skimping on packaging?

I know it's a tough nut to swallow but consider this.

What if you added lets say an additional $0.10-0.15 yes, 10 to 15 cents to your packaging format so for a 1000 project you add an additional $100-150 to the project but do not increase the shipping weight of the product using one of my boxes like the ACE Classic -- a single DVD/CD disc case. Using our case I can honestly say you will improve your product's survivability from 5% to say a manageable 1-3%. Let's assume just 3%.

So using the same calculations and assumptions on cost.

1000 units x 3% = 30 units
970 units x 3% = 29.1 units
Total Assumed damaged: 59.1 -- let's say 60 units.

Calculating the shipping costs now you get:
(4 trips x $4) = $16
(2 trips x $4) = $8
Total shipping costs for replacing 1 unit = $24

Now we calculate the total cost
60 units x $24 = $1440
and we divide it by half like we did for the previous example we get $720 total replacement cost. Now we add this to the additional cost of packaging of $150 ($150 + 720) we get $870 for a grand total of $1870 cost all-in.

What does this mean? It means I can ultimately provide you a minimum savings of $391. Now isn't that a suitable trade off? PLUS I put money back in your pocket. Isn't it at least worth considering? I mean getting a really good price for a job is great BUT being penny-wise; pound-foolish here is self defeating.

This is my dilemma. I sell a premium case. It works great. It provides protection but upfront it is rather expensive -- 15% more expensive. If you sell the product you make your savings on the back end and folks for the most part only see the horse and not the cart. Personally I like riding but the smoother the ride the better. And only a few customers get it before it is too late. Typically I am there to do damage control and save their bacon.

Now the question here is after reading this and digesting the numbers are you willing to make that leap of faith and trust a packaging professional to provide you a package as good as mine and take a small hit on the total cost to save both these hidden costs and customer frustration? What if you add packaging on the back end so you double wrap everything or use bubble wrap. Great it only adds say $0.10 per unit but it also adds to the total weight of the product not to mention you spend more in fulfillment costs of kitting the project.

Only you can honestly say.

What I offer you is a way to justify a small additional cost upfront; that will pay dividends. And all that in a day's work. Not bad if you ask me.