Import Margin Calculator

The maths behind it

Import margin is gross margin calculated from landed cost rather than from the supplier's invoice price: (price − landed cost) ÷ price. The whole point of the calculation is that the two produce very different answers.

Landed cost includes freight, duty, unrecoverable taxes, clearance and inland delivery. Excluding any of them overstates the margin by whatever was left out, and on imported goods the total commonly runs 25% to 40% above the invoice price.

Putting numbers to it

1,000 units at $18 invoice, landing at $22.77 after freight, duty and clearance. Retail price $58.

Margin on invoice price: (58 − 18) ÷ 58 = 69.0%. Margin on landed cost: (58 − 22.77) ÷ 58 = 60.7%.

Eight and a third points of margin, or $4.77 a unit. On 12,000 units a year that is $57,240 of gross profit that exists in the spreadsheet and not in the bank, which is the gap that makes importers wonder why a business with 69% margins has no cash.

Where it is unreliable

Even landed-cost margin is only gross margin. Advertising, fulfilment, returns and overheads still come out of it, and an import business with 60% gross margin can easily net single digits once those are counted.

Currency movement between order and sale also erodes it invisibly. Goods ordered when the exchange rate was favourable and sold after a 6% adverse move have a landed cost 6% higher than the one used to set the price, and nothing in the reporting flags it.

How to act on this

Recalculate landed cost at every shipment and update the product cost in the system. A catalogue running on last year's landed cost is reporting margins that no longer exist, and the drift is always in the same direction.

Then set the target margin higher for imported goods than for domestically sourced ones. The additional risk: currency, freight volatility, tariff changes, lead time, has to be paid for, and a uniform target across both sources systematically underprices the imports.

Building a margin buffer for import volatility

The four variables that move landed cost after a price is set are currency, ocean freight, tariff rates and supplier prices. Each has moved by double digits within a single year in the recent past, and they do not offset each other reliably.

A practical response is to price against a landed cost that includes a contingency, commonly 5% to 10%, rather than against the best-case figure. That is not conservatism; it is recognising that the number used for pricing has to hold for the months between the pricing decision and the sale.

The alternative is repricing frequently, which is possible for a direct-to-consumer business and much harder for one selling through retail or on published price lists. Businesses in the second group need the larger buffer, because their ability to respond is slower, and that asymmetry is worth building into the target margin explicitly rather than discovering it during a bad quarter.

Whether import VAT is recoverable transforms this calculation and depends entirely on registration status. A VAT-registered business reclaims it and should exclude it from the margin model; an unregistered one bears it as a real cost. Modelling a margin without stating which case applies produces a figure that is wrong by the VAT rate for half its readers.