SellerCalcs

What Is Landed Cost? (And How to Calculate It)

Landed cost is the number your pricing should be built on, and the one most sellers do not know. This guide explains what goes into it, how to calculate it per unit and what happens to margin when you price from the supplier invoice instead.

Quick answer: Landed cost = goods + freight + insurance + duty + brokerage + handling, divided by the number of units. A 500-unit order at $6.80 with $420 freight, 6.5% duty and $180 handling lands at $8.44 per unit — 24% above the invoice price.

The formula

Total landed cost = goods cost + freight + insurance + import duty + customs brokerage + port and terminal charges + domestic delivery + any preparation needed to make stock sellable. Landed cost per unit = total ÷ units in the shipment. Shipping to customers is not part of it; that is an operating cost recorded after the sale.

What belongs and what does not

Include anything spent to get the goods into your warehouse, sale-ready. Exclude anything spent after the sale. The boundary matters because gross margin is calculated against landed cost: putting outbound shipping inside it understates margin, and leaving inbound freight out overstates it.

  • Include: supplier price, inbound freight, insurance, duty, brokerage, port fees, last-mile to warehouse, labelling and repacking
  • Exclude: outbound shipping to customers, marketplace fees, payment processing, advertising, storage after arrival
  • Judgement call: recoverable import VAT (usually excluded for registered businesses), non-recoverable taxes (include)

A worked example

500 units at $6.80 is $3,400 of goods. Air freight with fees comes to $420, duty at 6.5% on the goods value is $221, and brokerage plus handling is $180. Total landed cost is $4,221, or $8.44 per unit. A price list built on the $6.80 invoice figure is 24% optimistic — the exact gap between a comfortable 55% margin and a barely viable 40% one.

How landed cost sets your price

Once you know landed cost, pricing to a target margin is one division: price = landed cost ÷ (1 − target margin). An $8.44 unit at a 60% target margin prices at $21.10. Skip this step and the target margin is a hope rather than a plan, because the denominator is wrong before any fee or ad is considered.

Duty and the CIF base

Many customs authorities charge duty on the CIF value — cost, insurance and freight — not the goods value alone. That makes freight dutiable, and on freight-heavy, low-value shipments it raises the duty bill by 5–10%. Check whether your destination uses CIF or FOB before you finalise a landed cost model.

Recheck it every quarter

Freight is the most volatile line in landed cost; rates on the same lane can move 30–50% in a year. A $2 per kg increase on a 0.4 kg product adds $0.80 to every unit, which is often more than the supplier's annual price increase. Rebuild the model each quarter and whenever a rate changes materially.

Frequently Asked Questions

Is freight included in landed cost?
Yes — inbound freight and insurance to your warehouse are core components. Outbound freight to customers is not.
Is VAT part of landed cost?
Recoverable VAT normally is not, because you reclaim it. If you are not VAT registered, or the tax is not recoverable, include it.
How do I spread freight across units?
Divide the total shipment freight by the number of units, or allocate by weight if the order mixes heavy and light items. The calculators here spread by unit; for mixed orders, weight-based allocation is fairer.
Does landed cost include storage?
Storage before the goods are sale-ready (port storage, demurrage) yes; warehouse storage after arrival is an operating cost, not part of landed cost.

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