When importing goods, knowing the total cost is vital for your business. We call this total cost, i.e., the landed cost. It includes the purchase price and all extra fees to get the product to your warehouse.
This article explains what landed cost is. It explains why it is essential and how to calculate it well. Read along!
What is landed cost?
Landed cost is the total price for shipping goods from your supplier to your doorstep. It encompasses all the costs of moving your products until they reach you, including insurance, transportation fees, duties, taxes, and other related expenses.
Why is it important to estimate the landed cost?
Picture this: You’ve purchased products from China using a China sourcing service to find top suppliers. They’re shipped to your home country at a fair price. However, upon arrival, taxes and additional fees stack up, resulting in unexpected costs that eat into your profit margins.
Not factoring in the landed cost leaves you unaware of the total expenses. Understanding these costs accurately is crucial for maintaining profit margins.
In addition, it helps you set competitive prices, manage inventory effectively, make smarter supplier selections, and comply with accounting regulations.
What makes up the landed cost?
1) Buying price
2) Transit insurance costs
3) Transportation and freight expenses
4) Taxes and import duties
5) Processing and handling charges
6) Foreign exchange rate impacts
7) Surcharges and miscellaneous costs
Real-life example: How do you calculate landed cost?
Let’s do a few practical calculations. They will show how to calculate the landed cost.
A standard formula for landed cost is:
Landed Cost = Product Price + Inland Transportation + Export Packing + Insurance + Duties & Taxes + Bank Charges + Port Handling Charges
Suppose you break down the costs of importing 500 coffee makers:
Product price: $30 per coffee maker (total $15,000)
Inland transportation: $300
Total ocean freight rates: $2,000
Insurance charges amount to 2% of the total value: $346 (calculated based on $15,000 + $2,000 + $300)
Duties & taxes assume 12% on CIF value: $2,071.20 (calculated on $15,000 + $2,000 + $346)
Bank charges: $75
Port handling charges (origin & destination): $400 (assumed $200 each)
Step 1: Calculate cost of goods landed (CIF)
First, calculate the CIF (Cost, Insurance, and Freight):
CIF = Total goods price + inland transportation + ocean freight + insurance
CIF = $15,000 + $300 + $2,000 + $346 = $17,646
Step 2: Calculate landed cost
Add duties, taxes, bank charges, and port handling charges to the CIF value:
Landed Cost, which is: CIF + Duties & Taxes + Bank Charges + Port Handling Charges
Landed Cost becomes $17,646 + $2,071.20 + $75 + $400 = $20,192.20
Thus, the landed cost per coffee maker is:
$20,192.20 (total landed cost) ÷ 500 coffee makers = $40.38 per coffee maker
Final thoughts
Understanding and calculating the landed cost correctly is a skill. It gives an advantage to any importer. It ensures you have a complete picture of all fees. As a result, you can set fair prices and make smart business choices.
At Airsupply, we offer transparent and all-inclusive pricing quotes to help you calculate your landed cost easily. Furthermore, we support DDP shipping terms to assist you in clearing customs duties and taxes.
