5 Effective Ways to Reduce Manufacturing Costs

5 Effective Ways to Reduce Manufacturing Costs

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2021 brought with it a significant price increase in all aspects of product manufacturing, whether it is product’s cost price, shipping, warehousing, and other related costs.

So how can we still maintain (or even increase) our profits, without compromising on product quality, reputation, or endangering jobs?
How do we make sure that our winning product stays a winner?

The common mistake most PRIVATE LABEL manufacturers who trade in e-commerce make is to think that a cheaper price from the factory equals a larger profit. So, they choose their supplier based on the cost price alone.

Most times, when we choose a factory by price, we get a product whose quality is not equivalent to the quality of the final product we wish to provide to our clients.

Here is an example

Let’s say I want to produce 1000 units, my supplier request $ 4 per unit to manufacture my product. If I can reduce the price per unit by 60 cents, I will save myself $ 600, a considerable amount that I can also channel to other expenses. Cool…

Another important point that should be taken into consideration is that I have just reduced the price by 15%, which is a significant reduction for my supplier/factory, most likely that he will also want to maintain his profit and as a result will lower the quality of my product.

I am sure we all understand that this can sabotage my sales and growth rate, cause me to lose a lot of money, and in some cases, I might even lose a lot more.

On Amazon, for example, our seller’s account is measured (among other things) according to the customer experience (voice of customer) which consists of customers feedback, the number of returns, and more. A seller with a low data index, exposed to have his listing and/or seller account suspended or even deleted.

Of course, the product price is an important factor in the total product production costs, but for most parts, reducing the product’s price by a dollar or a few cents is not necessarily the right strategy for saving expenses or increasing profits.

Remember! The manufacturing costs consist of the product’s price and also of ….. transportation, inspection, terms of sale, taxes, product certificates, storage, shipping, etc.

Instead of concentrating on the product’s cost, concentrate on the entire supply chain!!

Here are 5 Effective Ways to Reduce Your Manufacturing Costs

  1. Smart packaging

    Ask your supplier to produce the master carton according to the dimensions you set, and to pack the products according to the volume you have defined.

    Many times, factories use whatever available cartons they have and do not order special cartons, which creates an empty space.
    By properly packing your goods, you can reduce the volume of the carton, significantly reduce shipping and storage costs in third-party warehouses.

    For example,
    Suppose your supplier’s master carton can hold 50 units. With the right thinking and you guiding the supplier, you can put 80-100 units in it. This way, you are already saving close to 50% of the shipping costs (the shipping cost is about 25% of the total of the product, on average).
    With proper packaging, you save 15-20% on volume, which means saving a dollar per kilo!
    I am sure you can agree with me that this is already a much more significant discount than the 60 cents I wanted to save on the product’s cost 😊

  1. Check the possibility of purchasing several services from the same place

    Most service providers in the eCommerce industry provide a wide range of services that can benefit your business. It is possible that if you purchase more than one service from them, they will provide you with a complementary service “on the house”. 

    At GameOn Group, we provide for clients who outsource and manufacture their product with us, we provide a complete QC inspection service at no additional cost.
    Inspection costs $ 250, so if a product costs $ 3 per unit, 1000 units are produced, the cost of inspection is equal to almost 9% of the product cost. That means our customer saves 9%

  1. Choose the terms of sale that will suit you best

    FOB, EXW or DDP?

    When you compare shipping quotes or product prices, the difference between these 3 letters can be a 15% – 40% difference in the shipping or product costs.

    With FOB you save the cost of transportation to the port and export documents, which sometimes end up in hundreds of dollars.

    In some cases, maybe EXW + taking shipping services from a reliable company may be cheaper than FOB.

    DDP can be a great solution for both saving you headaches and money.
    You have one dedicated person who accompanies you from the moment of picking up your merchandise at the entrance of the factory until your products arrive at their destination.
    DDP saves transportation to the port, export costs, import, handling with permits, tax costs, transportation to fulfillment centers, and if you work with a professional and reliable company, then there is also no risk that your goods will disappear or get stuck for an indefinite time at customs.

    So before you decide, it is important that you compare the different terms of sale and check which method is most suitable and profitable for you.

  2. Product Package

    Be creative when designing and developing your product package.
    Anyone who sells on Amazon knows that in the past year, the company has raised its commission prices twice.
    Smart product package design is important not only in terms of branding and customers’ first impression, but it also affects our shipping cost and fees that we pay to eCommerce platforms, such as storage fees, pick & pack, etc.
    Consider using a ‘shrink’ or vacuum packaging method to save product’s volume. Is it possible to give up on printed insert that takes up space and increases the packaging dimensions, and use a printed QR CODE that will lead to a much more impressive and professional online guide instead? Maybe use another shape of carton/box?


  3. Use professionals help

    Many times we prefer to do things ourselves because we believe we will save a lot of money that way, and most of the time the opposite is the truth.
    For example, many factories have a MOQ that is higher than the number of units we want to manufacture.
    Using an outsourcing service can solve our problem since the company that provides the service has a lot of customers and it can order inventory at higher volumes. Due to that reason, chances are that we will also get a better price without compromising product quality.
    Another example is using a package designer for our product. It can significantly reduce our dimensions and thus save us hundreds of dollars on our shipping and storage.

    Open your mind… Ask for quotes, make your inquiries and calculations at ease, examine cost versus benefit and only then decide if you need the same professional or not, you are not committed to anyone, just to the success of your business!

Do you have more questions? Want to find out more about the services we can provide you?

Contact us and we will arrange a free consultation call

from all of us at GameOn Group, we wish you a successful 2022

*The content of this article is a collection of daily tips from the leading Facebook group

#Everyday Tip for E-Commerce – Amazon Alibaba eBay and everything in between


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