Did you know that small contract packaging projects cost more than larger ones? That may seem odd at first sight, but it's the truth.
You are probably asking yourself, why do small contract packaging projects cost more than larger ones? After all, typically, if you buy a larger version of something, it will be more expensive than a smaller variation.
So what is it about contract packaging that flips this equation on its head?
Several variables play into the higher costs of smaller contract packaging projects. But what are these variables that drive up the cost of contract packaging when it comes to producing smaller operations?
What items of consideration do you need to think about when trying to understand the cost differentials between large and small contract packaging projects?
This article will explain why smaller contract packaging projects cost more than larger contract packaging projects and what variables play into these differences in price points.
Why Small Contract Packaging Projects Cost More
When entering into a contract packaging project with a copacker, there are many different things you need to take into consideration.
From the contract packaging project's total cost to the length of your product runs, there are many moving parts and items of consideration that you need to think about before entering into a relationship with a copacker.
But, one of the many things you need to think about is the higher cost per package you will pay when doing smaller contract packaging projects rather than larger ones.
It may be confusing at first glance when you read the sentence above. Still, when you understand the elements that generate a cost per package for your product for a contract packaging project, you will understand where this higher cost comes from.
The section below will review why smaller contract packaging projects have higher price points than larger ones.
With Contract Packaging Projects, Variety Kills Efficiency
The statement above may be considered a universal truth for every manufacturing company, whether you are a small mom-and-pop shop or a goliath multi-million dollar company. And this is also true for contract packaging projects.
When you're dealing with a small contract packaging project, you're stopping one project and getting into something else for a minimal period.
With any contract packaging project, there's a learning curve. With a small contract packaging project, your copacker will have downtime due to changing over from a larger project to setting up your smaller project.
These changeovers will include required actions such as moving a team of physical laborers onto a new packaging line, setting up new packaging lines with different equipment and many other actions that will be based on the needs of your small contract packaging project.
These same changeovers will cost your copacker money and quite a large amount of money in some instances. This is one of the reasons your smaller project will result in a higher price point per package.
Every time a contract packaging company needs to stop a larger project and shut down machinery and packaging lines to switch over to a smaller project, they stop generating revenue, which isn't good.
Next, your copacker will need to get new machinery set up and running to be able to complete your project. During this process, there's always the need to make slight tweaks or alterations to the packaging line to ensure everything is running correctly.
This takes additional time away from your copacker's other projects, which in turn incurs another cost to them. To cover this cost, your copacker will need to pass a portion of this cost on to you to make your smaller contract packaging project profitable for the company while negating the cost of the downtime required to complete the smaller project.
Setting Up New Contract Packaging Projects Is Like Riding A Bike For The First Time
To illustrate this concept more efficiently, think about riding a bike for the first time.
You don't just hop on your bike and take off. First, you fall down a couple of times. Then, you get back up and change a couple of things. Next time around, you get a little bit better at it.
This goes on for a while as you continue to tweak your balance process. Then, after a time, you hit your speed, and you become better at it.
It's the same thing with setting up a new contract packaging project. You're copacker is going to have to continually make minor alterations to the equipment to get the package looking correctly.
These alterations will continue to get all of the metrics where they need to be. These metrics include things like the weight, size, and shape of your final packaged product.
To get it right, or rather to get the product looking the way the customer wants it, your copacker has to play with the dynamics of the line to get things perfect.
Once they are done playing with it, your copacker will hit the proper rhythm to complete your project. Suppose your copacker can work this rhythm for a day, a week, a month, and they can just keep that line going as it is set up. In that case, that rhythm will only improve and get better and faster over time.
So with smaller contract packaging projects, you're copackers opportunity to hit the optimal rhythm is so small that you're going to have to pay significantly more for your smaller project.
To reiterate, all of this takes a lot of time and effort. And, when your copacker has to shut down another (often more prominent, more profitable project) to set up a new line that will only run for a short period, it is very costly.
For your contract packaging company to justify the cost, your cost per package will be notably higher than a larger, longer-running variation of the project.
How Is A Small Contract Packaging Project Defined?
After reading the section above, you are probably wondering, what exactly is considered a small contract packaging project?
What is the cutoff that would indicate your project is going to be so small, that it will likely incur a high cost per package as it would not give your copacker enough work to justify the project otherwise?
Generally speaking, a small project is defined as any contract packaging project that will require less than two full weeks, with two full shifts running every day for that time period.
Suppose your contract packaging project does not result in your copacker filling two shifts of labor for two at least two weeks. In that case, this means that your contract packaging project will be small and costly from a price-per package standpoint.
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Is Your Small Contract Packaging Project Worth The Investment?
You are likely trying to figure out if it makes sense for your business to move forward with your small contract packaging project.
You wonder if the investment makes sense for your business and if it is a profitable, worthwhile endeavor to continue moving on with.
But, how can you tell if your small contract packaging project actually makes sense for your business? In order to decide that, you have to answer a question.
And that question is, "what do you want to get out of this contract packaging project?"
If you are in a position where you need to get a small trial run of products (say one thousand units) to market to see if they will sell and be a profitable product, and you are confident that they will be, then it may make sense for you to move forward with your project.
You must understand that your project will not be your copacker's primary concern. For them to justify the downtime and related high costs of taking on your business, your price for this project will be extremely high.
From a customer standpoint, you must understand what you're trying to get out of your project.
Suppose outsourcing this project is your only way to get your product to market. You are confident your probability of success is high. In that case, it could be worth the investment to move forward.
Are you currently doing your own packaging in-house on a tiny scale in your basement, home, or in a very small warehouse?
Are you a team of only a few people working a ton of overtime on packaging your product? Are you struggling because it's not your natural area of expertise? Would you prefer to be off growing your business?
Are you willing to pay a premium to take all of this off your plate and focus on growing your brand?
If you answered yes to all of the questions above and are willing to pay a super-premium for your project to move forward to grow your business, it would be worth your time and money to proceed.
With that being said, you don't want to be the guy who says, "I just need a thousand of these things. I don't care what it costs". You have to understand that when you go to a copacker with a small project, you're not going to be their top priority.
You're not going to be their most significant player when you show up, and you're going to have to grow into that if that is something you want to develop in the future. So you're going to be paying more.
If you're entering a new market and you have never done this before, you will pay the most. If you're doing it and you're just running out of time, space, and related elements, but you're not at the point where you could fill up weeks of run time, you're going to be paying more as well.
If you find yourself in one of the two scenarios above, then proceeding with your small contract packaging project will likely be worth your while.
A Final Thought On Small Contract Packaging Projects
Do you find yourself in the scenario mentioned above in which you're the business that's currently doing packaging in your basement or a mall warehouse space?
Suppose you answered yes. In that case, you need to consider that once you transition from that process over to a copacker, it's important to remember that you're not just paying only for the packaged good.
You are also taking up somebody else's warehouse space, labor, and related assets. So when you look at your costs, your costs will be mirrored within that transition.
And then that mirror that you're now being charged for also needs to build profit. So when you look at it, you can't look at it like, "wow, it's cheaper to do it in my place than it is to outsource it."
It will always be cheaper to do it under your umbrella than it will be under somebody else's. Scalability is really the main driver of outsourcing. Once you scale your project to a larger threshold (which should happen if your product is successful), you will decrease costs as your projects get bigger.
Do You Need A Copacker?
After reading this article, you should know if outsourcing your small contract packaging project makes sense for your business or not.
Do you want to outsource your contract packaging? If so, Industrial Packaging may or may not be the right copacker for you.
If you are interested in getting a quote for your contract packaging project, please contact one of our packaging specialists. They will be able to help you with your project or find another vendor who can.
