Do you know what a damaged item is costing your business?

There's a question we ask at the start of almost every packaging audit, and it's the one that most often produces silence. What's your damage rate, and what does a damaged item cost you? Some businesses know the first number. Very few know the second. Almost nobody has multiplied them together, and when they do, the packaging conversation changes character entirely.

The national picture was set out in research commissioned by DS Smith and published at the start of this year. Nearly one in four UK shoppers, 23%, had received a damaged parcel in the previous twelve months, the equivalent of more than twelve million people. Retailers reported spending an average of £7,646 a month managing the replacements and returns that damage generates. The total annual cost to the UK was put at more than £2.5 billion, up from £2.3 billion the year before. Household goods, food and drink, and health and beauty were the categories most affected.

Those are the direct costs. The research also measured the indirect one, and it's the figure that should concern anyone who sells to the same customer more than once. More than half of consumers, 51%, said that receiving a damaged item would make them less likely to shop with that retailer again. Four in five understood that the damage might not have been the retailer's fault. They said they'd punish the retailer anyway.

Why nobody owns the number

Damage is expensive partly because it's invisible, and it's invisible because the cost is scattered. The customer service team logs the complaint. The warehouse picks and packs a replacement. Despatch pays to ship it, which means the product has now travelled twice and the original is coming back a third time. Finance raises a credit. Somebody files a claim with the carrier, which takes time whether or not it succeeds. Marketing, if they see it at all, see it as a one-star review with a photograph attached. Each department carries a sliver. No department carries the total, so the total is never reported, and a business can run a damage rate of 4% or 5% for years while everyone involved believes the problem is small.

The rate itself is misleading in a second way, which is that it sounds like a percentage of something trivial. 3% feels like rounding. 3% of 200,000 parcels is 6,000 damaged deliveries a year, which is more than twenty every working day, each one an unhappy customer and a chain of work nobody budgeted for.

What a single damaged item actually costs

The product is the obvious cost, and in many cases it's the smallest. Working through the handling with customers, we find the cost of dealing with one damaged item, before the value of the product is counted, is typically more than £20 once the customer contact, the replacement pick, the second delivery, the return, the credit and the claim administration are added together. For a low value product that handling cost can be several times the product itself. The DS Smith research put the average cost to the consumer at £82.30 per damaged item, which gives some sense of what's at stake on the other side of the transaction.

A worked example makes the point. Take a business shipping 200,000 parcels a year with a damage rate of 3% and an average product cost of £40. The product loss alone is £240,000. Add £20 of handling per incident and the figure is £360,000 a year. Then apply the finding that half of those 6,000 customers are now less inclined to order again, and the true cost is larger still, and largely unmeasured.

One operation we worked with shipped doors. Their damage rate was around 5%, which had been accepted as the cost of moving large, awkward items through a national network. When the number was finally valued it came to more than £200,000 a year. Nobody had been hiding it. It simply had never been added up, because a 5% rate on a spreadsheet doesn't look like a fifth of a million pounds.

Where the damage comes from

The instinct is to blame the carrier, and the carrier often deserves some of it. Parcels are dropped, thrown, stacked under heavier parcels and run through automated sortation that was designed for throughput rather than care. But the packaging was supposed to survive that. The job of a transit pack is to protect the product through the worst handling it'll meet, not the best, and when it fails the reasons tend to be the same few.

The box is too big, so the product moves inside it and every impact is transferred straight through. The board grade is too light for the product's weight or for the way it now stacks. The void fill is the wrong type or there isn't enough of it. Fragile items sit against the outer wall with nothing between them and the drop. And in a category that surprises people, branded outer boxes attract attention in the network, which is why some of the businesses with the lowest damage and loss rates print the brand on the inside of the box and leave the outside plain.

None of them costs much to put right, which isn't something that can be said for leaving them alone.

Working out your own number

You don't need an audit to get a first estimate, and it's worth doing before the peak season arrives rather than after. Count the incidents: returns coded as damaged, replacement despatches, credits raised for damage, and carrier claims submitted, over the last three months. Divide by parcels shipped to get the rate. Then cost a single incident honestly: product cost, outbound shipping twice, return shipping once, and an allowance for the time spent by everyone who touched it. Multiply through. If the result is uncomfortable, that discomfort is the most useful thing the exercise produces, because it's the number that justifies fixing the packaging.

The final step is the one most businesses skip, which is to work out which products and which routes the damage concentrates in. Damage is rarely evenly distributed. It clusters around a handful of SKUs whose packaging has drifted away from what they need, and those are the ones where a specification change pays for itself in weeks.

That's the work our packaging audit is built around. We walk the process from goods in to despatch, we look at each SKU's packaging against the product's weight, fragility and the journey it actually makes, and we come back with the damage cost quantified and a specification that addresses it. The audit is free and there's no obligation on the back of it. If you already know your damage rate, you're ahead of most. If you also know what it's costing you, and you're content with the figure, you're in a minority we'd like to meet.