Landed cost is the total cost of a product delivered and ready to sell: unit price plus freight, duties and tariffs, insurance, handling, and any inspection or rework. Margin calculated from unit price alone overstates profitability, and the gap is widest on exactly the imported goods where margins are thinnest.
In more detail
The reason this matters more than it sounds is that pricing decisions get made from it. A product costing 8 that lands at 11 has a very different floor from one costing 8 that lands at 8.40, and treating both as 8 sets prices that look profitable and are not.
Allocation is the fiddly part. A shipment carrying several products has to have its freight and duty spread across them somehow, and the method changes which lines look profitable. Allocating by value favours cheap bulky items; by weight or volume favours expensive small ones.
Pick a method, write it down, and apply it consistently. Consistency matters more than theoretical correctness, because the comparison between products is what you actually use the number for.
How it is calculated
Landed cost per unit = (unit price + freight + duty + insurance + handling) ÷ units
Worked example
You order 500 units at 8 each, so 4,000. Freight is 900, duty is 320, and customs handling is 80.
Total is 5,300 for 500 units, a landed cost of 10.60 rather than 8. A retail price of 16 is a 50 per cent markup on unit cost and about 34 per cent on the cost you actually incurred, which is the only one that pays your rent.
The figures above are invented to make the arithmetic legible. They are not a benchmark and should not be cited as one.
Where people get it wrong
- Pricing from unit cost. The most common and most expensive version of this mistake.
- Ignoring duty because it arrives on a separate invoice weeks later.
- Allocating freight evenly per unit when a shipment mixes heavy and light items.
- Not recalculating when freight rates move. A landed cost from two years ago is a different number now.
Common questions
What is included in landed cost?
Unit price, freight, duties and tariffs, insurance, handling and customs fees, and any inspection, rework or repackaging before the item is sellable.
How do I allocate freight across products?
By value, by weight or by volume. Each favours a different kind of product, so pick one, write it down and apply it consistently. Consistency matters more than which you choose.
Why does landed cost matter for pricing?
Because margin calculated from unit price alone overstates profitability, and the gap is largest on imported goods where margins are usually already thin.