What is landed cost?

A supplier's price often covers the goods alone, before they travel. Landed cost shows what they cost you by the time they are on your shelf, which is the number you need to price from.

Why landed cost matters

If you price from the factory cost alone, the margin you think you have may not be real. Freight, duties and fees can turn a comfortable margin into a thin one, especially on heavy, bulky or low-value goods.

Importers, distributors and exporters all use it. An importer needs it to set a resale price. An exporter quoting delivered terms needs it to see what delivery really costs. Landed cost also shows whether one supplier is genuinely cheaper than another once shipping is added.

How landed cost works

The formula is a sum:

Landed cost = product cost + freight + insurance + duties and import taxes + customs and handling fees + other costs

Typical components:

• Product cost: the price paid to the supplier.
• Freight: sea, air or road transport.
• Insurance: cover for the goods in transit.
• Duties and taxes: import charges, which depend on the product's classification and country. See HS code.
• Fees: customs brokerage, port charges, inspection, documents, unloading.
• Other costs: inland delivery, storage, currency conversion.

Which of these you pay depends on the Incoterm you agreed. See Incoterms. A buyer on FOB terms pays the main freight; a buyer on DDP does not. This is a general explanation, not customs or tax advice.

Landed cost per unit

Divide the total by the number of units. That per-unit figure is the cost to compare with your selling price.

An example from product sales

Say a distributor buys 1,000 kg of an additive at $5.00 a kg, which is $5,000. Sea freight and insurance cost $400. Import duty is 5% of the goods value, which is $250. (Here duty is charged on the goods alone; some countries charge it on a value that includes freight and insurance.) Port and brokerage fees are $150. Inland delivery to the warehouse is $200.

Landed cost = 5,000 + 400 + 250 + 150 + 200 = $6,000, or $6.00 a kg.

If the distributor priced at $5.50 a kg, working from the supplier's price, it would lose $0.50 on every kilo. To make a 25% margin on the selling price, the price needs to be $6.00 divided by 0.75, which is $8.00 a kg.

Related terms

• Incoterms: decide who pays for which part of the journey.
• HS code: used to look up the duty rate.
• Gross margin: what is left after the cost of goods.
• Lead time: longer routes add cost and time.

How PromptLab handles it

Work landed cost out in your sheet or ERP, then enter each product's landed cost per unit as its cost price in PromptLab. A quote picks products and a customer price list, with line discounts, and shows the margin on each line against that cost, so a thin margin is visible before the quote goes out. The margin and markup calculator on this site is a quick check.

Frequently asked questions

What is included in landed cost?

The product price plus everything spent to get it to your location: freight, insurance, duties, taxes, customs and handling fees, and inland delivery. Some businesses also include storage and currency costs.

How do you calculate landed cost per unit?

Add all the costs, then divide by the number of units. The result is the cost of one unit delivered, which you compare with the selling price.

Is landed cost the same as the cost of goods sold?

No. Landed cost is the cost of getting the goods to you. Cost of goods sold is the cost of the units you actually sold in a period, and landed cost usually feeds into it.

Why does the Incoterm change landed cost?

Because the Incoterm decides who pays for each leg. Under EXW the buyer pays almost everything, and under DDP the seller does, so the same goods have a different landed cost for each party.