How to calculate landed cost

Purchase price is not what you paid

When a business sources goods from an overseas supplier, the purchase price on the supplier invoice is the most visible number and the least useful one for margin calculations. By the time the goods arrive at the warehouse ready to sell, the true per-unit cost is often 20–40% higher than the invoice price — sometimes much more.

This gap between invoice price and landed cost is where margin quietly disappears. Businesses that price their products against invoice cost, rather than landed cost, are often selling at far slimmer margins than they realise — or at a loss on some SKUs they believe are profitable.

What landed cost actually includes

Landed cost is the total cost to get a unit of product sitting in your warehouse, ready to sell. It includes everything the goods incur between leaving the supplier and arriving on the shelf.

Product cost — the invoice price from the supplier. For most imports this is quoted in the supplier’s currency, so the effective cost in your reporting currency depends on the exchange rate at the time of payment.

International freight — ocean or air freight charges from the supplier’s port to yours. Depending on the Incoterms agreed, this may already be included in the invoice price or charged separately.

Insurance — marine or transit insurance covering loss or damage while the goods are in transit. Often a fraction of a percent of cargo value, but it is real and frequently overlooked.

Duties and tariffs — import duties calculated as a percentage of the declared value, plus any anti-dumping duties or special tariffs applicable to the product category and country of origin.

Broker and customs fees — customs brokerage fees, customs clearance charges, port handling, and documentation processing.

Inland freight — the cost of moving the goods from the arrival port to your warehouse. Often a surprisingly significant share of total landed cost for bulky or heavy items.

Handling and unloading — terminal handling charges, container unloading, and receiving labour at your warehouse.

Financing cost — the cost of capital tied up from the moment payment leaves your account to the moment the goods arrive and can begin to be sold. For long transit times, this can be material.

Currency cost — if payment is made in a foreign currency, any hedging costs or adverse exchange movements between order and payment.

The components most businesses forget

Of the list above, the components most commonly omitted in landed cost calculations are:

Transit insurance — small per-shipment but consistent across every shipment. Forgotten because it’s sometimes bundled into freight quotes and sometimes charged separately.

Broker fees and customs processing — visible on the customs invoice but often booked to a general overhead account rather than allocated to specific SKUs.

Inland freight from port to warehouse — often substantial, particularly for businesses located far from ports, but regularly excluded from per-unit cost calculations because it’s paid separately from the supplier invoice.

Capital tied up in transit — 30–60 days between payment and sale-ready stock is common for ocean freight. At a 10% cost of capital, that’s 1–2% of invoice value just in financing cost, silently compounding across every shipment.

Duty correctly allocated — applied to the right tariff code, including any product-specific surcharges. Misclassification both under-counts duty and exposes the business to reclassification risk.

How landed cost affects margin

Consider a product purchased at $10 per unit. The intuitive margin calculation is: sell at $15, make $5 margin (33% gross margin).

Once landed cost is properly calculated, that $10 invoice price might become $13.50 delivered: $10 product + $1.20 freight + $0.05 insurance + $0.80 duty + $0.15 broker + $0.60 inland freight + $0.40 handling + $0.30 financing. The real margin at $15 is now $1.50, or 10% — not 33%.

Businesses that price on invoice cost instead of landed cost systematically under-price, leaving margin on the table on profitable SKUs and selling loss-makers at a loss without realising it.

Building landed cost into pricing

The discipline is straightforward once landed cost is calculated per SKU:

1. Calculate landed cost for every SKU using actual shipment data.
2. Price based on landed cost, not invoice cost.
3. Re-calculate at least quarterly — freight rates, exchange rates, and duty regimes change.
4. Allocate shipment-level costs (freight, insurance, broker) across SKUs proportionally by value or volume, depending on what drives the cost.

Businesses that move to landed-cost-based pricing typically discover several SKUs that look profitable on paper but lose money once properly costed — and conversely, some SKUs with modest invoice margins that are actually highly profitable once landed cost is understood.

Next steps

Use our landed cost calculator to compute true per-unit cost including product, freight, duty, insurance, broker, and handling fees. If you’re weighing faster but more expensive shipping against slower modes with more capital tied up in transit, our shipping cost comparison calculator factors in both transport cost and the financing cost of goods in transit.