Guide

What Is Landed Cost, and How Do You Work It Out?

Landed cost is what a product has cost you by the time it is on your shelf and ready to sell. It is the number every price and every profit figure should start from.

What goes into it

The unit cost: what the supplier charges for one. Freight: what you pay to get the shipment to you, shared across the units it carried. Duty and import charges, if the goods cross a border. Packaging and anything else you add to each unit before it can be sold.

A worked example

You buy 200 candles at $3.00 each. Freight for the shipment is $120, so $0.60 a candle. Duty is 5% of the unit cost, so $0.15. Each box and label costs $0.45.

Landed cost is $3.00 plus $0.60 plus $0.15 plus $0.45, which is $4.20. That is 40% more than the price on the supplier's invoice.

Why it matters

If you set a price from the $3.00, a $7.50 price looks like a 60% margin. Measured against the real cost of $4.20, the margin is 44%. The difference comes out of your profit on every sale.

Landed cost also gives you the true value of the stock you are holding, and the true cost of the goods you have sold.

What to leave out

Costs that do not belong to a unit: rent, software, advertising and your own time running the business. Those are overheads. They are paid out of your margin, so count them in your monthly profit instead.