What is landed cost, and how do you calculate it?
The price on your supplier's invoice is not what a product really costs you. Landed cost adds everything you paid to get it to your door, so you can price for a real margin.
The landed cost formula
Landed cost = product cost + freight + insurance + duties and tariffs + brokerage and port fees + handling
Divide the total by the number of units to get landed cost per unit. Duties are usually calculated per product, as a rate on the customs value. Freight, insurance and brokerage are usually billed for the whole shipment, so you need a fair way to split them across products.
Tariff rates have changed often. Check current rates with your customs broker or the official tariff schedule before you rely on an estimate.
A worked example
One container holds two products. Shared costs for the shipment are $1,200 of freight, $100 of insurance and $250 of customs brokerage: $1,550 in total.
| Product A | Product B | |
|---|---|---|
| Units | 500 | 250 |
| Supplier cost | $4,000 ($8.00 each) | $6,000 ($24.00 each) |
| Duty | 5% = $200 | 2.5% = $150 |
| Weight | 300 kg | 200 kg |
Three ways to split shared costs
By value. Product A is $4,000 of the $10,000 shipment (40%), so it takes $620 of the $1,550. Product B takes $930.
By weight. Product A is 300 of 500 kg (60%), so it takes $930. Product B takes $620.
By quantity. Product A is 500 of 750 units (two-thirds), so it takes $1,033.33. Product B takes $516.67.
| Method | Product A per unit | Product B per unit |
|---|---|---|
| By value | $9.64 | $28.32 |
| By weight | $10.26 | $27.08 |
| By quantity | $10.47 | $26.67 |
Each per-unit figure is supplier cost + duty + its share of the $1,550, divided by units. Product A's true cost is about 20% to 31% higher than its $8.00 invoice price, depending on the method.
Which method should you use?
- Weight or volume usually fits freight, because carriers charge for space and weight.
- Value fits insurance and other value-based fees.
- Quantity works when products are similar in size and price.
You can mix methods, for example freight by weight and insurance by value. What matters is a sensible rule applied the same way to every shipment.
Landed cost in your books
For goods you hold for sale, landed costs are generally added to inventory, not expensed when you pay them. They become part of cost of goods sold as the products sell. See how to calculate COGS.
Freight and broker invoices often arrive weeks after the goods. When they do, add them to the cost of the shipment they belong to. Don't book them as a general expense in the month the bill happens to arrive.
Run your own numbers in the free landed cost calculator, which also estimates trucking costs from dated national freight-rate benchmarks.
Common questions
Is outbound shipping part of landed cost?
No. Landed cost covers getting products to you. Shipping orders to customers is a selling or fulfillment cost.
What if I buy from a domestic supplier?
The same idea applies without duties: add any inbound freight or delivery charges to the product cost.
Keep your books this way without the busywork
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This guide is general education, not tax, legal or accounting advice. Rules vary by business and location, so confirm your situation with a qualified professional.