"Landed cost" is the true, fully-loaded cost of getting one unit of product from the factory into your hands (or your fulfillment center), ready to sell — not just the price your supplier quotes. Pricing off the factory's quoted unit cost alone is one of the most common ways new sellers end up with a margin that looks fine on paper and turns out to be thin or negative once everything else is accounted for.
The components of landed cost
- Unit cost — the price your supplier quotes per unit, under whatever Incoterm applies (see Incoterms Explained — this matters because it determines what's already included).
- Freight — ocean or air freight cost to move the shipment, allocated per unit (total freight cost ÷ number of units in the shipment).
- Duties and tariffs — calculated based on the product's HS code, country of origin, and declared value; rates vary significantly and change with trade policy, so always confirm current rates.
- Customs broker / clearance fees — the broker's fee for handling classification and documentation, allocated per unit.
- Insurance — cargo insurance cost for the shipment, if not already included in the Incoterm (e.g., not included under FOB, typically included under CIF).
- Port and handling fees — charges at origin and/or destination ports (terminal handling, documentation fees) that aren't always itemized clearly in a freight quote.
- Domestic delivery — the cost of moving the shipment from the port or airport to your actual warehouse or fulfillment center.
- Any packaging, labeling, or compliance testing costs not already included in the unit price.
The basic formula
Landed cost per unit = Unit cost + (Total freight ÷ units) + Duty (as a % of declared value, per unit) + (Broker fees ÷ units) + (Insurance ÷ units, if applicable) + (Port/handling fees ÷ units) + (Domestic delivery ÷ units)
A worked example
An order of 2,500 units at a $2.40/unit FOB quote:
| Component | Total cost | Per-unit allocation |
|---|---|---|
| Unit cost (FOB) | $6,000 | $2.40 |
| Ocean freight | $1,800 | $0.72 |
| Duty (at an example 6% rate on declared value) | ~$360 | $0.144 |
| Customs broker fee | $175 | $0.07 |
| Cargo insurance | $60 | $0.024 |
| Domestic trucking to warehouse | $250 | $0.10 |
| Total landed cost/unit | ≈ $3.46 |
Against a $2.40 factory quote, the real landed cost is roughly 44% higher once freight, duty, and the various fees are added — a gap that, left unaccounted for, quietly erodes margin on every unit sold. This is exactly the calculation the Landed Cost Calculator (in development) is designed to automate; in the meantime, a simple spreadsheet with the rows above, updated per shipment, does the job.
Why this differs shipment to shipment
Freight rates fluctuate with fuel costs, carrier capacity, and season; duty rates can change with trade policy; and per-unit allocations shift with order size (a larger order spreads fixed costs like broker fees over more units, lowering the per-unit landed cost for those components specifically). Don't treat a landed cost calculated for one shipment as permanently valid for future ones — recalculate for meaningful changes in order size, freight rates, or duty rates, and at minimum revisit it periodically even for a stable, recurring order.
Using landed cost correctly in pricing
Landed cost is your true cost basis — it should feed directly into your margin and pricing calculations (see Understanding Landed Cost, Margin, and Markup and the Product Profitability Calculator), not sit alongside the factory quote as a separate, informational-only number. A price that looks profitable against the factory's $2.40 quote but thin or negative against the real $3.46 landed cost is a pricing mistake waiting to surface once the first invoice for freight and duty actually arrives.
Common mistakes
- Pricing based on the factory's quoted unit cost, discovering the real landed cost only after the shipment invoice arrives.
- Using a landed cost calculated for one order size or shipment and assuming it holds for a differently-sized future order.
- Forgetting to include domestic delivery from the port/airport to the actual warehouse as part of landed cost.
- Not updating duty-rate assumptions when trade policy changes for a specific product's HS code or country of origin.
Checklist
- I've itemized every landed cost component (unit cost, freight, duty, broker fees, insurance, port/handling, domestic delivery), not just the factory quote.
- I've allocated shared costs (freight, broker fees) per unit based on the actual shipment size.
- I've confirmed current duty rates for my specific HS code and country of origin rather than assuming an older rate still applies.
- I've fed the true landed cost, not the factory quote, into my pricing and margin calculations.