Total Cost of Ownership (TCO) goes beyond the initial purchase price by considering all costs throughout the entire lifecycle of a packaging solution. By including hidden costs such as damage, maintenance, logistics, and inefficiencies, businesses can make more sustainable and cost-effective decisions.
Summary of this article
When you’re looking at industrial packaging solutions, the first thing that probably springs to mind is the purchase price. That makes sense, as it’s the figure you see straight away on the invoice. But that price is far from the whole story. Total Cost of Ownership (TCO) shows what you actually pay for your packaging over its entire lifespan.
Cheap packaging can ultimately end up being much more expensive than a more robust solution that lasts for years. By taking all costs into account, you can make better decisions for your supply chain, operations and budget.
That is also how Faes approaches industrial packaging. For us, TCO is not only a financial calculation, but part of the way we develop packaging for technical, industrial and mission-critical applications. By combining packaging development, engineering, production, assembly and testing, we help organisations look beyond the purchase price. The aim is to create packaging that protects the product, fits the operational process and helps reduce avoidable costs in handling, transport, damage, downtime and replacement.
Total Cost of Ownership for packaging solutions is the sum of all costs incurred from the moment of purchase until the end of your packaging’s lifespan. This includes not only the purchase price, but also operational costs, maintenance, repairs and any replacement costs.
TCO gives you a realistic picture of what a packaging solution actually costs you. It helps you look beyond the sticker price and factor in all hidden costs when making your decision. With industrial packaging, the difference between the purchase price and the total cost can be enormous.
A good TCO analysis looks at the entire lifecycle: from first use to the point at which the packaging can no longer be used. This can span years for high-quality industrial solutions, or just a few uses for disposable packaging.
Hidden costs in packaging TCO include storage costs, insurance, staff training, repairs, replacements due to damage, and costs resulting from product damage caused by insufficient protection. These costs are often not immediately apparent, but can amount to 60–80% of the total costs.
Consider, for example, the space required to store empty packaging. If you use disposable packaging, you need a constant supply. Reusable packaging also takes up space, but for a longer period. Both scenarios incur costs in the form of warehouse space.
Training is another often-overlooked cost. Your team needs to know how to use the packaging correctly, especially with more complex industrial solutions. Incorrect use leads to damage and replacement costs.
Insurance and compliance costs are also significant. For valuable or hazardous goods, you pay a premium based on the risk. Better packaging often means lower insurance premiums.
Operational costs influence packaging TCO through labour costs for packing and unpacking, transport costs due to weight and volume, storage costs, and costs arising from delays in your supply chain. These costs recur with every use and can quickly exceed the purchase price.
Labour costs are often the biggest operational factor. Complex packaging that takes a long time to pack costs more labour time. But sometimes that extra time is worth the investment if it prevents damage. It’s all about finding the right balance.
Transport costs are determined by the weight and volume of your packaging. Lighter, more compact packaging saves money on every shipment. Over hundreds or thousands of shipments a year, this can add up significantly.
Storage costs recur at every stage of your supply chain. Not just for you, but also for your customers. Packaging that stacks or nests efficiently saves space and therefore money.
Cheap packaging has a low purchase price, but can lead to high replacement and damage costs. Cost-effective packaging may have a higher purchase price, but lower total costs due to durability, reusability and better protection of your products.
The difference lies in the time horizon. Cheap packaging may seem attractive for your monthly budget, but can cost you much more on an annual basis. Cost-effective solutions require an upfront investment, but pay for themselves.
An example: a cardboard box might cost €2 and is thrown away after a single use. A reusable plastic crate costs €50, but lasts for 100 uses. Per use, you pay €0.50 instead of €2. What’s more, it offers better protection for your product.
Cost-effective packaging also takes into account indirect benefits, such as brand image, customer satisfaction and sustainability targets. These are difficult to quantify in monetary terms, but they are valuable nonetheless.
You calculate packaging TCO by adding up all the costs—the purchase price, operational costs per use, maintenance, storage, insurance and replacement costs—and dividing that by the number of usage cycles. This gives you the actual cost per use over the entire lifespan.
Start with the purchase price and add all recurring costs to it. Multiply this by the expected number of times you will use the packaging. Don’t forget to factor in inflation and the time value of money for long-term investments.
A practical formula is: TCO = (Purchase price + (Operating costs × Number of usage cycles) + Maintenance costs + Storage costs) ÷ Number of usage cycles. This gives you the cost per use.
Distinguish between direct and indirect costs. Direct costs can easily be attributed to the packaging. Indirect costs, such as administration or general storage costs, are more difficult to quantify but no less important.
Packaging TCO is important for supply chain efficiency because it helps you make the right investment decisions, identify bottlenecks and optimise costs across your entire logistics chain. It prevents you from making short-term savings that end up being more expensive in the long run.
A good understanding of TCO helps you choose supply chain partners who truly add value. Not just the cheapest, but those who offer the best overall solution. This leads to more stable relationships and better performance.
TCO analysis also reveals where your biggest cost drivers lie. You may discover that labour costs for packing are much higher than you thought, or that damage costs are a major issue. With that knowledge, you can implement targeted improvements.
For companies working with high-tech, medical or defence products, TCO is particularly important. The costs of product damage can far exceed packaging costs. Investing in better packaging is therefore not a cost item, but risk management.
At Faes, we help companies carry out these TCO analyses and develop the right packaging management strategy. We look at your specific situation and help you gain clarity on the total costs, so you can make better decisions for your supply chain.
Review your packaging TCO annually or whenever significant changes occur in your supply chain, such as volume increases, new products, or shifts in operational costs. Market conditions, material prices, and transportation costs can fluctuate, affecting your total cost calculations and potentially changing which packaging solution offers the best value.
The biggest mistakes include underestimating labor costs for handling, ignoring storage space costs, failing to account for product damage rates, and not considering the full lifecycle of reusable packaging. Many companies also forget to include training costs, insurance premium differences, and the impact of packaging on customer satisfaction and brand reputation.
Start by tracking all packaging-related costs for 3-6 months to establish a baseline. Document direct costs (purchase price, labor, storage) and indirect costs (damage rates, customer complaints, handling time). Then compare 2-3 packaging alternatives using the same cost categories to see which offers the best long-term value for your specific operation.
Yes, TCO analysis provides concrete financial data to support sustainable packaging decisions. While eco-friendly options may have higher upfront costs, they often deliver savings through reduced waste disposal fees, lower transportation costs due to lighter materials, improved brand reputation, and potential regulatory compliance benefits that can be quantified over time.
Quantify intangible benefits by measuring customer satisfaction scores, return rates, repeat purchase rates, and premium pricing opportunities. You can also calculate the cost of negative publicity or customer complaints related to poor packaging. While challenging to measure precisely, these factors can be estimated based on historical data and industry benchmarks.
Standardization significantly reduces TCO by enabling bulk purchasing discounts, simplifying training requirements, reducing inventory complexity, and improving operational efficiency. Using fewer packaging types also reduces storage space needs, minimizes handling errors, and allows for better supplier relationships through higher volumes and longer-term contracts.
Factor seasonal variations into your TCO by calculating weighted averages based on actual usage patterns throughout the year. Consider peak season storage requirements, potential rush shipping costs for packaging materials, and how seasonal volume changes affect per-unit costs. This ensures your TCO reflects real-world operational conditions rather than average scenarios.
Thijs Canjels is Business Innovation Manager at Faes and specializes in packaging management and supply chain optimization. In his blogs, he shares insights on efficiency improvements, cost savings and the strategic role of packaging in modern supply chains.
More articles by Thijs CanjelsGood packaging doesn’t just happen by chance. Using a tried-and-tested approach, our specialists guide you step by step from the initial idea to the finished product.
