Retailers and manufacturers invest a significant amount of time and money to create a product that meets quality and performance goals. But, when this product gets damaged during transit or storage owing to poor quality packaging, it tarnishes their reputation and hurt their bottom line. Above all, not only they have to absorb the cost of returns and damages, but they end up losing the customers too.
Frankly, a large retailer could lose hundreds of millions of dollars because negative word-of-mouth can lead to a huge decline in sales. Plus, the costs can quickly soar if every function and process is included in the calculation.
So how can you evade this catastrophic situation? When considering packaging options, many companies tend to overlook quality. Instead, the sole aim is to find a low-cost packaging solution that can allow them to stay competitive. As a result, businesses end up missing the big picture.
To help you overcome this challenge, here we have identified six key areas (besides price) that every retailer and manufacturer should keep in mind when they are trying to avoid the mistakes that affect profitability.
Shipping Costs
This is the most obvious consideration when you are looking to improve your profitability. Businesses are well aware of the fact that when they receive a faulty or damaged product, not only they need to pay for shipping the item back but also sending out the correct item. For instance, if the average freight for a two-day residential shipment is $11.66, it could result in an expense of $23.32 (in case of receiving a damaged item and sending a replacement).
Replacement Costs
Once you have received the faulty items, it’s time to calculate the cost of these products. Because either you have to put in your time and labor to fix the product or send a new one as a replacement in a bid to keep the customer. Meaning, your cost can greatly vary because each product carries a different price tag, so you need to see what the final costs look like when it comes to replacing a product.
Customer Support Costs
When processing a return, customer service representatives spend at least five minutes on each call. But often they require more time to tackle this complex situation because a high percentage of customers simply want to vent. Considering the average rate, custom service labor costs a business roughly $13.01 per hour. However, this doesn’t include health benefits, training costs, compensations, uniforms, equipment, and other supplies. When you add these, the cost can go up to $23.25 for an hour.
Warehouse Labor Costs
Next in the line is warehouse labor expense. It consist of two different parts. First, when a damaged good comes in and your worker unboxes it to assess if the product can be fixed and reshipped to the customer, or it should be put aside. While in the second part, you are obligated to repeat the fulfillment process. So, we can presume that the average cost would be around $13.45 per hour.
Packaging Costs
Sending out a replacement means your packaging cost will also double as you require the container to encase and ship the product. If the previous packaging solution didn’t work for you, it means you either have to craft one or find a packaging company like The Legacy Printing that could produce appealing and sturdy custom gift boxes for your items. Why custom gift boxes? To turn unhappy customers into lifelong patrons, you need to make them feel heard. And if your customers are frequently complaining about inadequate packaging, there is no better way to surprise them, then sending the replacement items in exorbitant custom made gift boxes. But this can cost you an arm and a leg if you fail to choose your packaging partner judiciously. Mind you, not all packaging companies offer quality custom printed gift boxes at affordable prices. And there are only a few manufacturers in the US that offer free design and shipping services.
Loss of CLV
Customer lifetime value (CLV) is the most critical metric in this equation. According to a study by Packaging InSight, a whopping 73 percent of the participants stated they wouldn’t buy again from a company that ships them damaged goods. This statistic alone reflects the significance of product protection. The research also showed that product protection tops the list of 80 percent of the people when shipping goods to their final destination.
Conclusion
We hope the next time when you consider your packaging options, you will use this analysis to choose the right type of packaging that meets your specific needs and business goals. An easy way out is to invite a qualified and professional packaging company that can suggest an ideal solution to minimize your returns and maximize your profitability.