Calculating Cost Savings with Multipacks: A Step-by-Step Guide
In today's competitive business landscape, every dollar counts. One often-overlooked area for potential cost savings is purchasing goods in multipacks. While the upfront investment might seem higher, the long-term benefits can significantly impact your bottom line. This guide provides a comprehensive, step-by-step approach to accurately calculating the potential cost savings of purchasing multipacks for your business.
Why Multipacks?
Multipacks offer several advantages beyond just a lower per-unit price. They can streamline your procurement process, reduce administrative overhead, and ensure you always have essential supplies on hand. However, to truly understand the value, you need to move beyond simple price comparisons and consider all relevant costs.
1. Identifying Relevant Costs
Before you can calculate the savings, you need to identify all the costs associated with purchasing goods, both individually and in multipacks. This goes beyond just the purchase price. Consider these factors:
Purchase Price: This is the obvious one – the cost of the item itself.
Shipping Costs: How much does it cost to ship the item? This can vary significantly depending on the quantity purchased and the supplier's location.
Ordering Costs: This includes the time spent researching, comparing prices, placing the order, and processing the invoice. These costs are often hidden but can add up significantly over time.
Receiving Costs: The time and resources required to receive, unpack, and inspect the goods.
Storage Costs: The cost of storing the items, including warehouse space, shelving, and climate control (if required).
Handling Costs: The labour involved in moving the items from storage to the point of use.
Waste and Obsolescence: Consider the potential for items to expire, become damaged, or become obsolete before they are used.
2. Calculating Unit Costs vs. Multipack Costs
This is where the real analysis begins. You need to calculate the true cost per unit for both individual purchases and multipack purchases.
Calculating Individual Unit Cost
- Determine the total cost of purchasing a single unit: This includes the purchase price, shipping costs (allocated per unit), ordering costs (allocated per unit), and receiving costs (allocated per unit).
- Formula:
`Individual Unit Cost = (Purchase Price + Shipping Costs + Ordering Costs + Receiving Costs) / Number of Units Purchased`
Example:
Purchase Price: $10
Shipping Costs: $5 (for a single unit)
Ordering Costs: $2 (allocated per unit)
Receiving Costs: $1 (allocated per unit)
Individual Unit Cost = ($10 + $5 + $2 + $1) / 1 = $18
Calculating Multipack Unit Cost
- Determine the total cost of purchasing a multipack: This includes the purchase price of the multipack, shipping costs, ordering costs, and receiving costs.
- Formula:
`Multipack Unit Cost = (Multipack Price + Shipping Costs + Ordering Costs + Receiving Costs) / Number of Units in Multipack`
Example:
Multipack Price: $80 (for a pack of 10)
Shipping Costs: $10 (for the multipack)
Ordering Costs: $2 (allocated to the multipack)
Receiving Costs: $1 (allocated to the multipack)
Multipack Unit Cost = ($80 + $10 + $2 + $1) / 10 = $9.30
Comparing the Costs
Now, compare the individual unit cost with the multipack unit cost. In our example, the individual unit cost is $18, while the multipack unit cost is $9.30. This represents a significant saving per unit.
`Savings per Unit = Individual Unit Cost - Multipack Unit Cost`
In our example: $18 - $9.30 = $8.70 savings per unit.
3. Accounting for Storage and Handling
While the per-unit cost might be lower with multipacks, you also need to consider the potential impact on storage and handling costs.
Storage Costs
Space Required: Multipacks typically require more storage space than individual units. Calculate the additional space required and the associated cost.
Storage Equipment: You might need additional shelving or other storage equipment to accommodate multipacks. Factor in the cost of this equipment.
Climate Control: If the items require specific temperature or humidity levels, the cost of maintaining these conditions for a larger quantity should be considered.
Handling Costs
Movement: Moving larger quantities of items can require more labour and equipment (e.g., forklifts, pallet jacks). Estimate the additional handling costs.
Inventory Management: Managing a larger inventory can be more complex and require more sophisticated inventory management systems. Consider the cost of these systems.
Adjusting the Calculation
If storage and handling costs are significant, you need to adjust the multipack unit cost to reflect these additional expenses.
`Adjusted Multipack Unit Cost = Multipack Unit Cost + (Additional Storage Costs + Additional Handling Costs) / Number of Units in Multipack`
This adjusted cost provides a more accurate picture of the true cost savings.
4. Considering Volume Discounts
Often, suppliers offer additional discounts for larger volume purchases. These discounts can further enhance the cost savings of buying in multipacks.
Negotiating Discounts
Leverage your purchasing power: If you purchase large quantities of goods, use this as leverage to negotiate better prices with your suppliers.
Explore different suppliers: Compare prices from multiple suppliers to find the best deals.
Consider long-term contracts: Committing to a long-term contract can often secure better pricing.
Incorporating Discounts into the Calculation
When calculating the multipack unit cost, be sure to factor in any volume discounts you receive.
`Multipack Unit Cost with Discount = (Multipack Price - Discount + Shipping Costs + Ordering Costs + Receiving Costs) / Number of Units in Multipack`
This will give you the most accurate representation of your cost savings.
Multipack can help you source the best deals on bulk purchases, streamlining your procurement process and maximizing your savings. Learn more about Multipack and our services to see how we can help your business thrive.
5. Measuring Long-Term Savings
The true value of purchasing multipacks is realised over the long term. To accurately measure these savings, you need to track your purchases and compare the costs over time.
Tracking Purchases
Maintain accurate records: Keep detailed records of all purchases, including the quantity, price, shipping costs, and other relevant expenses.
- Use inventory management software: Implement inventory management software to track your stock levels and monitor your purchasing patterns.
Calculating Total Savings
- Determine the total cost of purchasing the goods individually over a specific period (e.g., one year).
- Determine the total cost of purchasing the goods in multipacks over the same period.
- Subtract the total cost of purchasing in multipacks from the total cost of purchasing individually.
`Total Savings = Total Cost (Individual Purchases) - Total Cost (Multipack Purchases)`
This will give you a clear picture of the total cost savings you have achieved by purchasing in multipacks.
Reviewing and Adjusting
Regularly review your purchasing strategy and adjust your approach as needed. Factors such as changes in demand, supplier pricing, and storage costs can all impact the cost-effectiveness of purchasing multipacks.
By following these steps, you can accurately calculate the potential cost savings of purchasing multipacks for your business. This will enable you to make informed purchasing decisions and optimise your spending. Don't forget to check our frequently asked questions for more information. Understanding what we offer can further enhance your savings and efficiency. Remember, a well-informed purchasing strategy is a key ingredient for long-term business success.