How to Build a Should-Cost Model for Packaging: A Step-by-Step Procurement Template
Most packaging RFQs are still evaluated on quoted price alone, procurement teams compare three supplier numbers and negotiate within that range, with no independent baseline for what the item should cost. A should-cost model changes that. It breaks a packaging item down into its underlying cost drivers, material, conversion, tooling, freight, overhead, and rebuilds the cost from the ground up, independent of any supplier's quote.
Our should-cost modelling fundamentals guide covered why this matters for packaging categories specifically and where the biggest cost-recovery opportunities tend to sit. This guide is the companion piece: a practical, line-by-line template that procurement and packaging teams can populate this week, whether you're preparing for a supplier renegotiation or building a should-cost capability as part of a broader Packfora’s packaging procurement consulting engagement.
What Is a Should-Cost Model for Packaging?
A should-cost model is a bottom-up cost estimate that breaks a packaging item into its material, conversion, tooling, yield, freight, and overhead components to calculate what the item should cost to produce, independent of any supplier quote. Packaging procurement teams use should-cost models as a negotiation baseline, comparing the modelled cost against supplier quotes to identify, quantify, and discuss cost gaps before negotiating.
Why Build a Should-Cost Model Before Your Next Supplier Negotiation
Packaging suppliers quote a single number, but that number is a bundle of seven or eight underlying cost components, most of which the buyer never sees broken out. Without a should-cost model, procurement teams are negotiating against a black box: they can push on the total, but they can't identify which component of the cost is inflated, or by how much.
A should-cost model converts that black box into a line-item breakdown. It doesn't replace the supplier relationship or assume bad faith, it gives both sides a shared, defensible basis for the conversation, and it gives the buyer a way to prioritise where to focus negotiation energy.
Why This Matters Now
In our review of FMCG and consumer goods packaging RFQs, the gap between a bottom-up should-cost estimate and the quoted price typically runs 8–18%, and it is rarely concentrated where buyers expect. Material cost is usually well-understood on both sides, the largest unexplained variances tend to sit in conversion overhead, yield/waste allowances, and freight, three components that suppliers rarely itemise in a standard quote.
The 6-Step Should-Cost Model Framework
The framework below works for any packaging substrate, corrugated, rigid board, flexible film, moulded plastic, because the cost categories are universal even though the inputs differ. Each step builds on the previous one, so the model only takes as long as your data collection.
1. Define the packaging specification baseline. Start from a locked specification, dimensions, materials, print finish, and tolerances. Every cost component below is calculated against this baseline, so an unstable spec produces an unstable model. This is the most common reason should-cost models fail in practice: teams build a cost model against a spec that's still changing. A spec-driven cost inputs approach, where the specification is version-controlled before costing begins, removes this failure mode entirely.
2. Break down material costs by component. Cost out each material layer separately, substrate, adhesives, inks, coatings, against current commodity indices or mill price sheets rather than last year's purchase price. For multi-material constructions, this step alone often reveals which layer is driving cost volatility.
3. Model conversion and manufacturing costs. Estimate machine time, labour, and processing steps (printing, die-cutting, lamination, forming) using standard run-rate assumptions for the equipment class involved. This is where design decisions made early, number of colours, finishing steps, structural complexity, show up directly in cost, which is why design-to-cost engineering decisions made upstream have such a large downward effect on this line item.
4. Add tooling, yield, and overhead allocations. Amortise tooling and mould costs across expected production volume, and apply a yield/waste allowance based on typical reject and trim rates for the substrate and process. These are the components most often missing from a first-pass model, and the ones suppliers are least likely to volunteer.
5. Apply freight, logistics, and supplier margin benchmarks. Add inbound and outbound freight based on weight, volume, and lane, then apply a benchmarked SG&A and margin figure for the supplier category, not the margin implied by their quote, but a category-norm figure from procurement cost intelligence.
6. Compare against the supplier quote and flag variances. Lay your should-cost total side by side with the quoted price, line item by line item where possible. Variances under 5% are typically noise; variances above 10–15% on any single component are where negotiation conversations should focus first.
Should-Cost Model Template: Core Line Items
The table below is the working template, seven cost components that apply across most packaging categories, with the data source for each and a worked example using a standard corrugated shipping carton. Replace the example column with your own item's figures to build a first-pass model.
| Cost Component | What It Captures | Data Source | Worked Example (Corrugated Carton) |
|---|---|---|---|
| Raw Material Cost | Cost of the material itself (board, resin, film, etc.) at current market index pricing, by weight or volume. | Supplier quotes, commodity indices, mill price sheets |
Corrugated board: ₹/kg × board weight per carton |
| Conversion / Manufacturing Cost | Labour, machine time, and processing cost to convert raw material into the finished packaging component. | Supplier cost breakdowns, internal manufacturing benchmarks | Printing, die-cutting, and gluing cost per carton run |
| Tooling & Amortisation | One-time tooling, dies, or moulds, amortised across expected production volume. | Supplier tooling quotes, historical amortisation schedules | Die-cutting tool cost ÷ expected annual carton volume |
| Yield / Waste Allowance | Expected material loss from trim, setup waste, and rejects, expressed as a % of material cost. | Supplier yield data, internal QA reject rates | Typically 3–8% of material cost for corrugated |
| Freight & Logistics | Inbound material freight and outbound finished-goods freight, based on weight, volume, and lane. | Freight rate cards, logistics provider quotes | Cost per carton based on truckload utilisation |
| Packaging & Handling Overhead | Secondary packaging, palletisation, and warehouse handling associated with the item. | Internal logistics cost allocations | Pallet and stretch-wrap cost per carton batch |
| Supplier SG&A and Margin | Benchmarked supplier overhead and profit margin, based on category norms rather than the quoted figure. | Category benchmarks, procurement cost intelligence | Typically 8–15% of total cost for packaging converters |
Sum the seven components and you have your should-cost figure. The value of the template isn't the total, it's that every component is now visible and individually negotiable, rather than buried inside a single quoted number.
Reading the Gap: Should-Cost Model vs. Supplier Quote
Once you have a should-cost total, the comparison against the supplier's quote tells you where to focus, not just whether the price is “high” or “low”. A quote that's 12% above your should-cost figure but driven almost entirely by the tooling amortisation line is a very different conversation from one where the gap sits in supplier margin.
This is also where should-cost models earn their keep beyond the immediate negotiation. If the gap consistently traces back to conversion cost or yield assumptions for a particular substrate or construction, that's a signal for the next design cycle, which is the connection between should-cost modelling and design-to-cost engineering: cost gaps identified through should-cost analysis become inputs into how the next iteration of the packaging is specified.
Common Mistakes When Building a Packaging Should-Cost Model
The framework above is straightforward in principle. In practice, most should-cost models lose credibility, with suppliers or with internal stakeholders, for a handful of avoidable reasons:
- Costing against an unstable specification. If dimensions, materials, or finishing are still under discussion, the should-cost figure will be wrong before the conversation starts, and suppliers will (correctly) dismiss it.
- Using last year's commodity pricing. Material costs for board, resin, and film move with commodity indices. A should-cost model built on stale pricing data will systematically misrepresent the material cost line, undermining the rest of the model.
- Treating the should-cost figure as a hard target, not a benchmark. A should-cost model is a structured estimate, not a guaranteed achievable price. Presenting it to suppliers as a non-negotiable floor, rather than a starting point for a line-item conversation, tends to shut the conversation down rather than open it.
- Building the model once and never updating it. Commodity prices, freight rates, and supplier overhead benchmarks all move. A should-cost model built 18 months ago is a historical document, not a current negotiation tool.
- Skipping the yield and overhead lines. These are the components suppliers are least likely to itemise, which makes them the easiest to omit from a first-pass model, and also the most likely source of the “unexplained” cost gap.
How Often Should You Update Your Should-Cost Model?
As a working rule, refresh material and freight cost inputs quarterly, these are the two components most exposed to commodity and logistics market movement. Refresh the full model, including conversion benchmarks, tooling amortisation schedules, and supplier overhead figures, annually, or whenever there's a material change to the specification, supplier base, or production volume.
Teams that treat the should-cost model as a living input, reviewed on a fixed cadence rather than rebuilt from scratch before each negotiation, see the largest gains. The model becomes a standing reference for category cost behaviour, not a one-off negotiation prop.
Frequently Asked Questions
You need a locked packaging specification, current commodity pricing for the materials involved (board, resin, film, etc.), manufacturing run-rate assumptions for the relevant process, tooling and amortisation schedules, yield/waste benchmarks for the substrate, freight rates for the relevant lanes, and a category benchmark for supplier overhead and margin.
How is a should-cost model different from a quote?
A supplier quote is a single bundled price set by the supplier. A should-cost model is an independent, bottom-up estimate built by the buyer (or their consultant) from underlying cost components, material, conversion, tooling, yield, freight, and overhead, calculated separately and then summed. The should-cost figure is used to evaluate and discuss the quote, not to replace it.
What are the most common mistakes when building a packaging should-cost model?
The most common mistakes are costing against a specification that's still changing, using outdated commodity pricing for materials, treating the should-cost figure as a hard negotiation target rather than a benchmark, omitting yield and overhead line items that suppliers rarely itemise, and building the model once without a process for updating it.
How often must, should-cost models be updated?
Material and freight cost inputs should be refreshed quarterly, since these are the components most exposed to commodity and logistics market movement. The full model, including conversion benchmarks, tooling schedules, and supplier overhead figures, should be refreshed annually, or whenever the specification, supplier base, or production volume changes materially.
Packfora builds should-cost models as part of its packaging procurement consulting engagements, from first-pass templates like the one above to fully benchmarked, category-specific cost models used in live supplier negotiations. If you're preparing for a renegotiation or want a should-cost baseline for a packaging category, speak with the Packfora team.
