Packaging minimum orders: jars, bottles, labels, boxes

A minimum order forces you to choose between paying more per unit and buying more than you need. To decide, compare three things at each quantity: the real cost per unit including shipping, the cash that leaves your account that day, and how many months the stock will last. If the total saving does not make up for the idle cash, the storage space and the risk of changing your packaging, buy the smaller quantity even though each unit costs more.

Why the unit price is not enough

Suppliers show you a price ladder: 150 bottles at one price, 1,000 at less, a pallet at much less. It is tempting to look only at the bottom rung. That number leaves out three things that also cost you:

• Shipping, which is spread over the units in the order. On a small order it adds a lot per bottle.
• Cash tied up. What you pay today for bottles you will fill over two years is money you cannot spend on chillies, the market stall fee or a big wholesale order. The guide on inventory and cash flow walks through that cost in full.
• Space and risk. A pallet of glass takes over a room. If bottles break, get dusty or you decide to change size, that stock turns into waste.

It is the same logic as buying ingredients in bulk, with one difference: packaging does not go off, but it can go out of date.

The three numbers for each quantity

For each rung of the supplier's ladder, work out:

1. Cost per unit = (unit price × quantity + shipping) ÷ units that arrive usable.
2. Cash out today = unit price × quantity + shipping.
3. Months of stock = quantity ÷ units you use per month.

With those three columns the decision becomes visible. If you are comparing several pack sizes or suppliers, the unit price comparison tool puts them all on the same footing.

Worked example: bottles for hot sauce

You sell hot sauce in 150 ml glass bottles and fill 200 bottles a month. Your packaging wholesaler quotes this ladder, with shipping charged per order:

Going from 150 to 1,000 is easy: you drop from $1.12 to $0.74 per bottle, $0.38 less, and the stock lasts five months. That is 200 × 0.38 = $76 a month less on bottles. You spend $740 instead of $167.50, but the difference comes back within a couple of months of sales.

Going from 1,000 to a pallet of 5,000 is a different question. Do the sum for the same 5,000 bottles:

• Ordering 1,000 at a time: 5 orders × $740 = $3,700
• Ordering 5,000 at once: $2,690
• Saving: 3,700 − 2,690 = $1,010, spread over 25 months

To earn that $1,010 you have to pay $2,690 today instead of $740, which is $1,950 more up front. And you have to store a pallet of glass for two years. If that $1,950 would let you buy chillies in season, pay a supplier on time or take on a big order, the saving is not worth it. If you have spare cash, a dry clean space and you are sure the bottle will not change, it might be.

A rule you can set for yourself: do not buy more packaging than you will use in the time you are confident the product and its presentation will stay the same. For a new product that might be a month. For your best seller it might be six.

Labels: the minimum order you lose most often

Labels carry more risk than bottles, because a label goes out of date the moment you change anything: the recipe, the weight, your address, the design or a warning you have to add. A bottle is still a bottle; an old label is scrap.

Stay with the same hot sauce. The printer offers two options:

• A run of 2,000 labels at $0.08 each: $160
• A digital run of 300 labels at $0.25 each: $75

At first sight the big run costs a third as much per label. At 200 bottles a month, 2,000 labels last 2,000 ÷ 200 = 10 months. Now suppose that after four months you change the recipe and need new labels:

• Labels used: 200 × 4 = 800
• Labels thrown away: 2,000 − 800 = 1,200
• Real cost per label used: 160 ÷ 800 = $0.20

You paid close to the small-run price, and had more cash out of your account for four months. Before ordering a long run, ask how sure you are that the label will not change while it lasts. The guide on label and barcode costs per unit shows how to spread design and reprints too.

Boxes, bags and things that get damaged

Cardboard boxes, kraft bags and plastic tubs have another problem: they crush, get damp and get dirty if you have nowhere good to keep them. If you buy 1,000 boxes and 80 end up bent or stained, your real cost is worked out over 920, not 1,000.

So in the "units that arrive usable" column, put what you actually use. If you have never measured how much you lose, count how many you throw out until your next order is used up. That number is yours, and it is the one that belongs in your costing.

How to negotiate a minimum order

Minimum orders are not always fixed. Things worth asking your supplier:

• Big order, staged delivery. You pay the 5,000 price but they ship 1,000 at a time. You get the lower unit price without filling a room. Some suppliers will also take staged payment.
• Split the order. If another producer uses the same bottle or box, order together and split the shipping.
• Stock packaging. A catalogue jar or box usually has a lower minimum than one printed with your logo. Put your brand on the label, a sleeve or a sticker, which are cheaper to change.
• Ask about the next rung. If you need 900, ask the price for 1,000. Sometimes the gap is small enough that going up makes sense.

Put the packaging into your loaded cost

Once you have chosen the quantity, the number that goes into your costing is the real cost per unit with shipping and losses, not the list price. In the example, ordering 1,000 at a time, the bottle costs $0.74 and the label $0.20 or $0.25 depending on the run. Those go into your packaging cost per unit and from there into your loaded cost.

For packaged products as a whole, the packaged food guide brings it all together: ingredients, packaging, labels, labour and the margin each channel leaves you.

Do it with the calculator

In the food cost calculator, enter the real cost of the bottle, cap and label as the packaging for your recipe; if you move from 150 to 1,000 bottles per order, update those amounts and you will see right away how much your cost per bottle and your margin change.