Landed cost is the complete cost of getting a product from the supplier into your sellable inventory. It goes beyond the invoice price by including freight, insurance, duties, customs charges, payment costs, inland delivery and other expenses required before the item is ready to sell.
If you price products using only the supplier’s unit price, your apparent margin can look healthy while the real order loses money. A reliable landed-cost calculation gives you a defensible cost per unit before you set a retail price, accept a wholesale deal or launch a promotion.
Landed cost formula
A practical formula is:
Total landed cost = product cost + international freight + insurance + duties and tariffs + non-recoverable import taxes + customs and brokerage fees + port or inspection charges + inland delivery + receiving and preparation costs + currency and payment costs
Then calculate the unit amount:
Landed cost per sellable unit = total landed cost ÷ number of sellable units received
Use sellable units, not merely ordered units. If some products arrive damaged, fail inspection or cannot be sold, the remaining good units must absorb the shipment’s cost.
A landed-cost example
Imagine an online seller imports 500 units with these costs:
- Supplier invoice: $5,000
- International freight: $1,100
- Cargo insurance: $80
- Duties and tariffs: $550
- Customs broker and clearance: $220
- Port and documentation charges: $150
- Delivery from port to warehouse: $300
- Payment and currency conversion costs: $100
- Receiving, labelling and preparation: $200
Total landed cost is $7,700. If all 500 units are sellable, the landed cost is $15.40 per unit.
If 20 units are damaged and only 480 can be sold, the calculation becomes:
$7,700 ÷ 480 = $16.04 per sellable unit
That difference matters when products have tight margins or high return rates.
Start with the true supplier cost
Use the amount actually paid for the goods, including setup charges, moulds, samples, product customisation and supplier-side packaging when those costs belong to the shipment.
Discounts and credits should reduce product cost only when they are confirmed and connected to the order. Do not base pricing on a hoped-for future rebate.
If the supplier invoice contains several products, keep each SKU’s quantity and purchase value separate. This makes it easier to allocate shared freight and import costs fairly.
Add freight, insurance and delivery
Freight can include pickup from the supplier, export handling, air or sea transport, destination handling and final delivery to your warehouse or fulfilment centre. Include each cost only once, and check which stages are already covered by the supplier’s quoted shipping terms.
Large but lightweight cartons may be charged by dimensional weight rather than scale weight. Before approving packaging or comparing carriers, use the Dimensional Weight Calculator. The guide to dimensional-weight shipping costs explains why a box can cost more to ship than its actual weight suggests.
Cargo insurance may appear small compared with freight, but it is still part of getting the inventory safely into the business. Add the premium and any policy or handling charge tied to the shipment.
Include duties, tariffs and import charges
Import costs depend on the product, origin, destination, declared value and current customs rules. Possible charges include customs duty, additional tariffs, import taxes, brokerage, inspections, disbursement fees and storage caused by clearance.
Use the actual classification and documentation for the shipment. Do not copy a duty rate from a different-looking product or assume a small parcel will always qualify for an exemption. Rules can change, as explained in the SellersNest article about de minimis changes and online-seller pricing.
Recoverable taxes generally should not remain in product cost if the business can legitimately claim them back. Non-recoverable taxes and charges should be included. Confirm the treatment with a qualified customs or tax professional for the countries involved.
Do not forget currency and payment costs
A supplier may quote one amount while your bank account shows another. Add foreign-exchange spreads, transfer fees, card charges and intermediary-bank costs.
For planning, use a cautious exchange rate rather than the best rate seen during the month. After payment clears, replace the estimate with the real local-currency amount. If a deposit and final balance are paid at different rates, record both.
Allocate shared costs across products
When one shipment contains several SKUs, dividing every shared cost equally by unit can distort the result. Choose an allocation method that reflects what caused the cost:
- By value: useful when duties, insurance or risk follow product value.
- By weight: useful when freight is mainly driven by physical weight.
- By volume: useful for bulky products and container space.
- By quantity: suitable only when units are similar in size, weight and value.
- Direct assignment: use when a fee clearly belongs to one SKU.
A blended approach is often more accurate. Allocate duty by customs value, freight by chargeable weight or volume, and labelling by the number of units handled.
What landed cost does not include
Landed cost ends when stock is ready for sale at the intended location. Costs that happen after that point usually belong elsewhere in your pricing model, including:
- Marketplace commission and payment-processing fees
- Outbound pick-and-pack and customer delivery
- Advertising cost per order
- Customer returns, refunds and chargebacks
- Store subscriptions and general overhead
- Profit
These costs still matter; they simply should not be confused with landed inventory cost. After finding the landed unit cost, add selling expenses and test the proposed price with the Profit Margin Calculator.
Turn landed cost into a profitable selling price
Suppose the landed cost is $16.04 per unit. Selling that item for $32 does not automatically create a 50% net profit margin. Marketplace fees, customer shipping, packaging, advertising, returns and overhead still reduce the amount kept.
Start with landed cost, add the variable costs of making a sale, then calculate the contribution margin. The break-even point guide for online sellers shows how contribution margin covers monthly fixed costs before profit begins.
Also avoid confusing markup with margin. A 100% markup on a $16 cost produces a $32 selling price, but that is a 50% gross margin before later selling expenses. Review markup versus margin if those percentages are being used in supplier or pricing discussions.
Estimate first, then replace estimates
You may need a preliminary landed cost before the shipment arrives. Create an estimate using supplier quotes, freight estimates and expected duties, but mark each input as estimated.
After delivery, reconcile the calculation with the final freight invoice, customs entry, broker statement, bank transaction and receiving report. The actual cost should replace the estimate in inventory records. Keep the difference visible so future purchasing forecasts become more accurate.
Account for damaged and unsellable inventory
If 3% of a shipment is normally damaged, rejected or lost, include a realistic allowance during planning. Once the shipment is inspected, divide the final total by the actual number of sellable units.
Do not hide damaged inventory by spreading the loss indefinitely across future orders. Record what happened, investigate the cause and use the corrected usable quantity for the shipment.
Build a simple landed-cost worksheet
Create one row for each shipment and track:
- Purchase order and supplier
- SKU and quantity ordered
- Product invoice value
- Freight and insurance
- Duties, taxes and customs fees
- Port, inspection and storage charges
- Inland delivery and receiving
- Currency and payment fees
- Units received and units sellable
- Estimated and actual landed cost per unit
Attach supporting invoices or reference numbers so the result can be checked later. Consistent SKU codes make this process easier; see how to create SKU numbers for inventory.
Common landed-cost mistakes
- Using the supplier price as the complete unit cost
- Ignoring bank and foreign-exchange charges
- Dividing by ordered quantity after units were damaged
- Allocating all shared costs equally across very different products
- Counting the same freight or customs charge twice
- Leaving estimated costs unchanged after final invoices arrive
- Adding recoverable and non-recoverable taxes together without checking
- Forgetting destination handling and warehouse preparation
Final takeaway
Landed cost is the foundation of accurate product pricing. Add every cost required to move inventory from the supplier into sellable stock, allocate shared charges sensibly and divide by the units you can actually sell. Then add marketplace, fulfilment, marketing and overhead costs before deciding whether the price produces enough margin. Reconcile each shipment after arrival so the next purchase decision is based on real numbers rather than a supplier quote alone.