Landed Cost Calculator

How the number is derived

Landed cost is everything spent getting a unit into sellable stock: unit price + freight + insurance + duty + import taxes that cannot be reclaimed + customs brokerage + inland transport + handling, divided across the units in the shipment.

Duty is normally charged on the customs value, which is the goods value plus freight and insurance under CIF-based systems and goods value alone under FOB-based ones. Import VAT is then charged on the duty-inclusive figure, so it compounds.

The numbers, worked through

A shipment of 1,000 units at $18 each, $18,000. Sea freight $2,400, insurance $95, duty at 6.5% on the CIF value of $20,495 is $1,332. Brokerage $185, port and handling $340, inland delivery $420.

Total landed cost is $22,772, or $22.77 a unit, 26.5% above the invoice price.

Now the margin consequence. At $58 retail, margin on the invoice price looks like 69%; on the landed cost it is 60.7%. A business pricing from the invoice figure believes it has eight points of margin it does not have, on every unit.

What the number leaves out

Allocating freight evenly per unit across a mixed shipment loads cheap items with cost they did not cause. A container carrying $4 accessories and $180 products should allocate by value or by volume, and per-unit allocation makes the accessories look unviable while flattering the expensive lines.

Reclaimable taxes also belong out of the calculation. Import VAT that a registered business recovers is a cash flow item, not a cost, and including it overstates landed cost by the full VAT rate.

Turning it into a decision

Fix the landed cost at the point of receipt, when the freight invoice, the customs entry and the delivery note are all to hand. Reconstructing it three months later is theoretically possible and practically never happens.

Then re-run it whenever freight rates move materially. Ocean freight has swung by a factor of five within a single year in the recent past, and a catalogue priced against an old landed cost is quietly selling below target for months before anyone notices.

How the incoterm changes the number

EXW means you take on the cost from the supplier's door: inland transport in the origin country, export clearance, freight, insurance, import duty and delivery. FOB shifts origin inland transport and export clearance to the supplier. CIF adds freight and insurance to their side. DDP puts everything on them, including duty.

The quoted unit price is therefore not comparable between suppliers quoting on different terms. A $16 EXW price and an $18 FOB price may land at the same figure, and picking the lower number without adjusting for the term is one of the most common sourcing errors.

DDP looks attractive because it removes the work and it is usually the most expensive, since the supplier prices in the risk and takes a margin on the logistics. For a business importing regularly, FOB with your own freight forwarder is generally the best combination of cost and control, and it is the point at which landed cost becomes something you can actually calculate rather than something you are quoted.