What is landed cost?
Landed cost is the true, all-in cost of acquiring a product, not just the price on the supplier’s invoice. That invoice hides freight, duties, and handling fees, so pricing off it alone loses margin on every unit you sell. The gap grows widest when you import, where customs charges stack up fast.
Because it captures the full cost of ownership, landed cost gives you honest inventory accounting and cleaner valuation. It becomes the number finance and operations can both trust.
Key characteristics
- Product cost: the price the supplier invoices for the goods themselves, and the starting point for the calculation.
- Freight and handling: transportation from the supplier to your warehouse, plus port, drayage, and handling charges along the way.
- Customs duties and fees: import duties plus U.S. government charges. For example, the U.S. merchandise processing fee is 0.3464% of a formal entry’s value. Separately, ocean cargo is charged a harbor maintenance fee of 0.125% of its value.
- Taxes and insurance: import taxes such as value-added tax (VAT), plus cargo insurance against loss or damage in transit.
- Measured per unit: divide total landed cost by units received to get the true per-unit cost that should drive pricing, which then feeds your cost of goods sold (COGS).
Example
Consider Koken USA, a Fishbowl customer that reported a 7% decrease in freight costs through optimized planning. Lower freight flows straight into a lower landed cost per item.
Now picture a craft cold-brew roaster importing 1,000 glass bottles at $4 each. Add $1,200 in freight, $400 in duty, and a $150 broker fee, and the real cost is $5.75 per unit, not $4.
Software can automatically calculate landed costs by spreading those freight, duty, and fee totals across every unit received.
Related terms
- cost of goods sold (COGS): the accounting figure that landed cost feeds into.
- delivered duty paid (DDP): a shipping term where the seller covers duties and delivery.
- inventory carrying costs: the ongoing cost of holding stock once it lands.
- cost of sales: the direct costs tied to the goods you actually sell.
FAQ
Is landed cost the same as cost of goods sold (COGS)?
No. Landed cost is the full acquisition cost to get a product onto your shelf, and it feeds into COGS while also capturing freight, duties, and fees that a bare product cost leaves out.
Can you recover any of the duties in your landed cost?
Yes, in some cases. Duty drawback can refund up to 99% of the duties, taxes, and fees paid on imported goods that are later exported or destroyed.
Why does landed cost matter for pricing?
Pricing off the supplier invoice alone ignores freight, duties, and fees, so you can underprice a product and lose money on every sale.