It’s the little things in life that make a big difference and the same is true in business. Small factors can influence profitability and those who account for seemingly minute costs often achieve the greatest success. As such, it is important to know the total landed cost of all of the goods that you ship. Our guide will help you understand how to calculate your total landed cost! No accounting degree is required.
What is Landed Cost?
Landed cost represents the total cost of a product on its journey from the factory floor to your buyer’s door. It includes the price of goods, shipment costs, insurance fees, customs duties, and any other charges incurred along the way.
Understanding and effectively managing landed cost is indispensable for running a successful global business in today’s competitive landscape. It serves as a compass for making informed decisions, helping businesses determine the right pricing strategies, optimize their supply chain operations, and ultimately enhance their profit margins. By comprehensively factoring in all the associated expenses, companies can identify areas where cost savings are possible, negotiate favorable terms with suppliers and carriers, and make strategic decisions about market expansion or product lines.
In a world where supply chains are becoming increasingly complex and unpredictable, having a firm grip on landed cost is not just a financial imperative but a strategic advantage that can spell the difference between success and stagnation in the global marketplace.
Why is Landed Cost Necessary?
There are both obvious and hidden costs associated with getting any product to your customers. Sometimes the true cost of the products you sell may seem opaque, but knowing your landed cost can bring clarity.
Knowing your landed cost will also allow you to assess how your business is performing, maximize your pricing, and ensure that you know exactly how much you are paying for your inventory.
It also provides you the opportunity to analyze your supply chain and determine where you can cut costs.
Finally, this information lets you calculate whether or not you will be able to make a profit on your products – or even if your business model is sustainable.
However, calculating landed cost can be difficult if you don’t know your full expenses or can’t anticipate how high the additional fees will be.
The key is to have the right set of tools to be able to anticipate and estimate a value that is as close to your actual costs as possible.
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How to Calculate Landed Cost
Figuring out your landed cost can be tricky. Estimate too high and you may lose out on sales because of your pricing. Estimate too low and your profits could suffer. That is why it is necessary to have the right tools.
Freightos.com provides two calculators designed to efficiently compute your landed costs, empowering you with essential tools to optimize your financial planning and logistics management.
Remember: your initial estimate is just that. An estimate. Our calculators are a great way to get a solid idea of your costs, but you should always perform another landed cost calculation once you have your final numbers.
Landed Cost Formula
This is the basic equation that you will be calculating:
Shipping + Customs + Risk + Overhead = Landed Cost
There is more to shipping than boxing your goods and putting them on a boat (or plane, truck, train, etc.).
There are costs associated with every aspect of the process, including crating, packing, handling, and freight.
You should always understand exactly what you are getting in your contract with a freight forwarder, as there are many different options of varying seller responsibility and liability.
Every country has its own authority for monitoring the flow of goods into and out of its borders.
These agencies are also responsible for collecting any duties, tariffs, value-added tax (VAT), brokers fees, and harbor fees.
The costs of avoiding risk can add up, but not covering them can be even more costly.
Insurance, compliance, quality, and safety stock inventory are all vital considerations.
Operating costs are the final part of the landed cost equation.
Purchasing staff, due diligence costs, travel, and exchange rates are included in overhead.
Landed Cost Example
Suppose you are looking to import 100 units of a product from Shanghai to Los Angeles. The per-unit cost is $50. The freight cost for the shipment is $1000 and it represents one-quarter of the shipment. The duty charge is set at 5%.
Per Unit Cost + Freight Cost + Duty Charge = Landed Cost Per Unit
$50 + ((1000 * 25%) / 100) + (5% * $50) = $55 Per Unit
Now let’s throw a curveball into the equation. Let’s say your goods are held at customs for three days and you are charged $100 for each day:
Per Unit Cost + Freight Cost + Duty Charge + Additional Charge = Landed Cost Per Unit
$50 + ((1000 * 25%) / 100) + (5% * $50) + (($100 * 3) / 100) = $58 Per Unit
The unforeseen cost added an additional $3 to your landed cost per unit. With this information in mind, you may choose to adjust your pricing model.
These examples may seem like a bit of a simplification of the concept, but Freightos users enjoy this kind of no-hassle math with every shipment.
Our marketplace is free to try, but you may prefer to begin with our freight rate and import duty calculators.
Landed Cost Calculator
To get an idea of what your landed cost will be, first use the freight rate calculator. Enter the dimensions and weight of your shipment, or alternatively, select the Container tab for a full container load. Next, just choose your origin and destination.
How To Calculate Landed Cost Of Imported Goods
If you are importing into the United States, you can use our import duty calculator by specifying your Importing to and Exporting from locations, followed by the type of product you are importing. Once you have an estimate, add this to your freight rate and other costs to get an idea of the total landed cost.
Note: The customs authority determines the actual rate of duty applied to shipments. For professional advice, consult a qualified customs broker.
Freightos offers all of the tools you need to ensure smooth shipping. You may also want to check out our chargeable weight calculator. And don’t forget to check out our Ultimate Guide to Choosing a Freight Forwarder.