Why the factory quote isn't your real cost
A factory or supplier quote is usually FOB (Free on Board) — the cost to get the product to the port of origin, loaded onto a vessel/plane. Everything after that — international freight, insurance, duties/tariffs, customs brokerage, inland freight to your warehouse, and any per-unit packaging or prep — is real cost that a per-unit price built on the FOB number alone will miss entirely.
The full landed cost formula
Landed cost per unit = Unit cost (FOB) + Freight and insurance (allocated per unit) + Duties/tariffs + Customs/brokerage fees (allocated per unit) + Inland freight to your location (allocated per unit) + Any per-unit packaging, labeling, or prep cost
Worked example: allocating a shipment's costs across units
You order 1,000 units at $4.00/unit FOB ($4,000 total). The shipment costs:
| Cost line | Amount |
|---|---|
| Unit cost (FOB), 1,000 units × $4.00 | $4,000 |
| Ocean freight + insurance | $900 |
| Duty (8% of FOB value + freight, per your product's HS code) | $392 |
| Customs brokerage fee | $150 |
| Inland freight (port to warehouse) | $310 |
| Total landed cost | $5,752 |
Landed cost per unit = $5,752 ÷ 1,000 = $5.75 — 44% higher than the $4.00 FOB quote. Pricing against $4.00 instead of $5.75 would understate your true cost by $1.75 on every single unit.
Allocating freight and fees when a shipment has multiple SKUs
If one container carries several different products, allocate shared costs (ocean freight, brokerage) proportionally — usually by volume (cubic space) or weight, whichever the freight was actually billed on, rather than splitting evenly by unit count. A bulky, light SKU and a small, heavy SKU take up freight capacity very differently; splitting shared freight cost evenly across units regardless of size or weight will overstate the landed cost of your smallest/lightest SKUs and understate it for your bulkiest ones.
Simplified example: A shipment carries 600 units of Product A (small, light) and 400 units of Product B (bulky) sharing $1,000 of freight. If Product A takes up 30% of the container's volume and Product B takes up 70%, allocate $300 of freight to Product A's 600 units ($0.50/unit) and $700 to Product B's 400 units ($1.75/unit) — not $1,000 ÷ 1,000 total units = $1.00/unit for both, which would overcharge Product A and undercharge Product B.
Don't forget the smaller add-ons
- Per-unit packaging or labeling (poly bags, inserts, barcode labels) purchased or applied before the unit is sellable.
- Any prep-service fee paid to a freight forwarder or 3PL for labeling/prep before it reaches a fulfillment center.
- Currency conversion cost or spread, if your supplier is paid in a foreign currency and your bank/payment provider takes a spread on the conversion.
- Sampling and tooling costs, amortized across the units they apply to if not treated as a one-time sunk cost.
Once you have a true landed cost
Run it through the Margin & Markup Calculator or Product Profitability Calculator — landed cost is the base of every pricing decision downstream, including The Full Cost Stack of a Marketplace Sale, which adds marketplace fees, fulfillment, and ad spend on top of it.
Mistakes
- Pricing off the FOB quote and being surprised when real profit is much thinner than expected.
- Splitting shared shipment costs evenly per unit regardless of size/weight, distorting the true cost of your smallest and largest SKUs.
- Forgetting to re-calculate landed cost when freight rates or duty rates change — these aren't fixed for the life of a product.
- Ignoring currency conversion spread on international supplier payments.
Checklist
- Have the supplier's FOB unit cost.
- Have the actual freight and insurance invoice (or a firm quote), not a rough estimate.
- Confirmed the duty/tariff rate for the product's correct HS code.
- Allocated shared shipment costs by volume or weight, not evenly by unit count, for multi-SKU shipments.
- Included per-unit packaging/labeling/prep costs.
- Re-run this calculation whenever freight, duty rates, or supplier pricing changes.