The formula
Total landed cost = goods cost + freight + insurance + import duty + customs brokerage + port and terminal charges + domestic delivery + any preparation needed to make stock sellable. Landed cost per unit = total ÷ units in the shipment. Shipping to customers is not part of it; that is an operating cost recorded after the sale.
What belongs and what does not
Include anything spent to get the goods into your warehouse, sale-ready. Exclude anything spent after the sale. The boundary matters because gross margin is calculated against landed cost: putting outbound shipping inside it understates margin, and leaving inbound freight out overstates it.
- Include: supplier price, inbound freight, insurance, duty, brokerage, port fees, last-mile to warehouse, labelling and repacking
- Exclude: outbound shipping to customers, marketplace fees, payment processing, advertising, storage after arrival
- Judgement call: recoverable import VAT (usually excluded for registered businesses), non-recoverable taxes (include)
A worked example
500 units at $6.80 is $3,400 of goods. Air freight with fees comes to $420, duty at 6.5% on the goods value is $221, and brokerage plus handling is $180. Total landed cost is $4,221, or $8.44 per unit. A price list built on the $6.80 invoice figure is 24% optimistic — the exact gap between a comfortable 55% margin and a barely viable 40% one.
How landed cost sets your price
Once you know landed cost, pricing to a target margin is one division: price = landed cost ÷ (1 − target margin). An $8.44 unit at a 60% target margin prices at $21.10. Skip this step and the target margin is a hope rather than a plan, because the denominator is wrong before any fee or ad is considered.
Duty and the CIF base
Many customs authorities charge duty on the CIF value — cost, insurance and freight — not the goods value alone. That makes freight dutiable, and on freight-heavy, low-value shipments it raises the duty bill by 5–10%. Check whether your destination uses CIF or FOB before you finalise a landed cost model.
Recheck it every quarter
Freight is the most volatile line in landed cost; rates on the same lane can move 30–50% in a year. A $2 per kg increase on a 0.4 kg product adds $0.80 to every unit, which is often more than the supplier's annual price increase. Rebuild the model each quarter and whenever a rate changes materially.