How to Work Out Packaging Cost per Unit (Free Calculator)

To work out packaging cost per unit, list every piece of packaging one unit uses, including its share of the shipping carton and the tape. For each, divide what you paid for the pack by the number in it, multiply by how many one unit uses, and add a little for waste. Add them up, then add the freight you paid to get the packaging delivered. For a 5 oz bag of taro chips, that comes to 49 cents, which is more than a third of what the chips inside cost to make. Below is the method, both pack sizes worked through, and a free calculator.

The short version

• List everything that leaves with one unit: the container, every label, the lot sticker, a share of the carton.
• Price each = pack price ÷ units in the pack. A roll of 1,000 labels at $55 is 5.5 cents a label.
• Shared packaging divides by what it holds: a carton of 12 is a twelfth of a carton per unit.
• Add waste: the pouches that won't seal, the labels that go on crooked. Count them for a month.
• Add freight on the packaging, as a percentage of what it cost.
• Small packs cost more per ounce. Check before you add a smaller size.
• TaroStack treats packaging like any ingredient: bought by the case, used by the each, costed in every batch. More below.

The formula

Cost per unit = Σ (pack price ÷ units in pack) × used per unit × (1 + waste %)
              then × (1 + freight %)

Every piece of packaging gets its own line, because they're bought in different packs at different prices and wasted at different rates. Lumping them into one guessed figure is how a price goes out of date without anyone noticing.

The 5 oz bag, worked through

Windward Roots, the made-up taro business I use in these examples, sells taro chips in a 5 oz pouch, and ships them to a grocery chain in cartons of 12:

The waste rates come from counting, not guessing: on the last chip batch, 960 pouches went in to fill 952 bags, a little under 1%. Labels run higher because a crooked one gets peeled off and thrown away. The freight is what the packaging supplier charged to deliver: $14.40 on the $240 case of pouches is 6%.

The carton is the line people leave out. It's a dime a bag, a fifth of the whole packaging cost, and it's invisible if you only think about the bag a shopper picks up. The lot sticker matters for a different reason: it's what makes the bag traceable, as in the lot number on food packaging.

Against what's inside

The chips in a 5 oz bag are 355 g of taro, about 57 ml of coconut oil and a pinch of salt (from the bill of materials in the Shopify article). At $2.90 a kilo for the taro and $4.50 a liter for the oil, that's about $1.29. The packaging adds 49 cents, 38% on top of the ingredients. A price built on the ingredients alone would have been short by that much on every bag, before anyone touched labor or rent.

The smaller bag costs more per ounce

The same chips in a 3 oz pouch, with cartons of 24:

The labels cost the same on any size of bag, and the pouch doesn't shrink in price as fast as it shrinks in size. So the 3 oz bag carries a third more packaging per ounce. That's fine if it's priced for it; it's a slow leak if its price was worked out as three-fifths of the 5 oz bag.

Buying more to pay less

Packaging suppliers drop the price with quantity, and the temptation is obvious. Say 5,000 pouches would cost 19 cents each instead of 24. Windward Roots uses about 700 of the 5 oz pouches a week, so 5,000 is seven weeks of pouches: $950 paid now instead of $240 every ten days, for a saving of $250. Whether that's worth it depends on three things: the cash, the shelf space, and how sure you are the pouch won't change. A printed pouch with last year's address, or a nutrition panel you've since corrected, is scrap. Plain stock pouches with your own labels cost more each and keep you free to change the design next month.

Two things that aren't packaging cost, though people often fold them in: putting the labels on is labor (see how to compute labor cost), and shipping a customer's order is a selling cost, not part of the product.

Get the calculator

Download the packaging cost calculator. It has both bags component by component, the waste and freight, and the cost per ounce, with room for your own products: put the product's name on each of its rows and the totals add themselves up. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.

Price each      =pack price / units in pack
Cost per unit   =price each * used per unit * (1 + waste %)
Per product     =SUMIF(Components!A:A, "Chips, 5 oz", Components!I:I) * (1 + freight %)

Where this stops working

The calculator is right the day you fill it in. Then the pouch supplier puts the price up by two cents, the label printer adds a fuel surcharge, the carton changes from 12 to 10 because the chain asked, and nobody opens the spreadsheet. Packaging prices move quietly, on invoices that look like every other invoice, and because each change is small, the price list keeps describing packaging you stopped buying months ago. The other half of the problem is running out: printed pouches can take weeks to arrive, and a spreadsheet doesn't warn you until the shelf is empty.

How TaroStack does it

In TaroStack, packaging is an item like any ingredient. You receive the case of 1,000 pouches at the price on the invoice, with the freight spread across it, and use them one at a time: buy by the case, stock by the each, and the math is done for you. Each recipe lists its packaging next to its ingredients, a pouch, two labels, a sticker and a twelfth of a carton, with a scrap allowance for the pouches that won't seal. So every batch is costed with the packaging it actually used at the price you actually paid, and when the pouch price goes up, the next batch shows it. A price-creep report per supplier shows who's been nudging upward.

The running-out half is handled by the reorder list, in days of cover: the printed pouches with the long lead time show up while there's still time to order, and lead times are checked against how long deliveries really take (the arithmetic is in the lead time calculation formula). Batch records note which pouch lot went into which batch too, for the day a supplier recalls a packaging lot.

Packaging stock, receiving and the reorder list are on every plan, from $49 a month; recipes and batch costing are on Standard at $99. The first 30 days are free, and your items and suppliers import from a spreadsheet. If you'd like a hand setting up, ask, and we'll do it with you.

Questions people also ask

How do you calculate packaging cost per unit?

For each piece of packaging, divide the pack price by the number in the pack, multiply by how many one unit uses, and add a waste allowance. Add the pieces together, then add the freight you paid on the packaging.

Should shipping boxes be included in packaging cost?

The carton your product travels to a store in, yes, divided by how many units it holds. The box you mail a customer's order in is usually treated as a shipping or selling cost instead, so it doesn't change the product's cost.

What percentage of product cost should packaging be?

There's no right percentage; it depends on the product. Work it out per unit and compare it with what's inside: in the taro chip example, packaging is 38% on top of the ingredients, which is worth knowing before you set a price.

Is packaging part of cost of goods sold?

The packaging that goes out with the product, such as containers, labels and cartons, is generally part of the cost of the product. Ask whoever prepares your return how to treat it on yours.