Landed cost

Landed cost is the total cost to get a unit of product into a business’s warehouse, ready to sell. It captures everything the goods incur between leaving the supplier and arriving on the shelf — the purchase price, all freight and shipping charges, insurance, customs duties, broker fees, terminal handling, and any financing cost on capital tied up in transit.

Why it differs from purchase price

The supplier invoice price is the most visible cost and the least useful for margin calculations. By the time the goods are warehouse-ready, the true per-unit cost is often 20–40% higher than the invoice price — sometimes far more for low-value, bulky items or distant supply chains.

A business pricing its products against invoice cost rather than landed cost is consistently under-pricing. Some SKUs that look profitable on invoice may actually be loss-makers once landed; some with thin invoice margins may be highly profitable once the full cost is allocated.

What landed cost includes

• Product cost — the supplier invoice in the reporting currency
• International freight — ocean, air, or road freight from origin to destination port
• Insurance — transit insurance against loss or damage
• Duties and tariffs — import duties, anti-dumping duties, and any product-specific surcharges
• Broker and customs fees — customs brokerage, clearance, and documentation processing
• Inland freight — moving goods from arrival port to warehouse
• Handling — terminal handling charges, container unloading, receiving labour
• Financing cost — capital cost of funds tied up between payment and sale-ready stock
• Currency cost — hedging costs or exchange movements between order and payment

How it interacts with Incoterms

The split between supplier-paid and buyer-paid components depends on the Incoterms under which the goods are sold. An EXW (ex-works) shipment leaves the buyer paying everything from the supplier’s factory door; a DDP (delivered duty paid) shipment has the supplier covering everything to the buyer’s warehouse. Two suppliers quoting the same headline price under different Incoterms can produce very different landed costs.

Why it matters

Landed cost is the right basis for product pricing, supplier selection, and margin analysis. Businesses that move from invoice-cost-based pricing to landed-cost-based pricing routinely discover SKU-level margin shifts of several percentage points in either direction, leading to better range curation and more accurate supplier comparisons.

The discipline is straightforward: calculate landed cost per SKU using actual shipment data, allocate shipment-level costs proportionally across SKUs, and re-calculate at least quarterly because freight rates, duty regimes, and exchange rates all move.