What Is Landed Cost and How To Manage It for Your Ecommerce

Landed cost is a term associated with international shipping. It is a sum of all the costs it takes to ship products across borders. Landed cost directly influences the profitability of your e-commerce business so it is crucial to account for landed costs properly when you do your accounting.

Landed cost is the total amount of money it costs the retailer to get the product from the manufacturer to the customer. Basically, landed cost is the total price of a shipment once it has arrived at a customer's doorstep. Total landed cost includes various costs such as shipping costs, value-added taxes, customs duties, and insurance fees.

How to calculate landed cost of imported goods? How to calculate landed cost per unit? The formula of landed cost is the following: product + shipping + customs + risk + overhead = landed cost.

Let's say you're an e-commerce business in the United States importing 100 gadgets from China. You need to calculate the total cost of these gadgets, including all expenses incurred to get them to your warehouse.

1. Product Cost (FOB China): $1,000. This is the cost of the gadgets at the factory gate in China.
   
   
2. Shipping Costs:
   
   
   • Freight Cost: $500. The cost of shipping the gadgets from China to the US.
   • Customs Duties and Taxes: $300. Import duties, taxes, and customs fees paid to US Customs for importing the gadgets.
   • Freight Forwarder Fees: $200. Fees for services provided by the freight forwarder.
3. Insurance: $50 The cost of insuring the shipment during transit.
   
   
4. Miscellaneous Fees: $100 This includes any additional fees like handling charges, broker fees, or storage fees.
   
   

Now, add up all these costs:

• Product Cost + Shipping Costs + Insurance + Miscellaneous Fees
• $1,000 + $500 + $300 + $200 + $50 + $100 = $2,150

So, the total landed cost for your 100 gadgets is $2,150. This is the actual cost you incurred to get the gadgets to your warehouse, and it's crucial for pricing decisions, profit calculations, and inventory management. Keep in mind that landed cost calculations can get more complex when dealing with a variety of products, suppliers, and shipping methods.

It is important to calculate each cost accurately and include it in your accounting sheets. First of all, if you don't know how much it will cost you to ship merchandise internationally, you can't calculate your profit margins correctly. Accounting for manufacturing and shipping costs only is not enough. It may happen that all of the profit is wiped out altogether just by the landed costs. No customer wants to be surprised with unexpected extra costs upon receiving an order from abroad; not showing landed costs at checkout will likely result in a bad customer experience and feedback when the order is fulfilled.

The fees included in the total landed cost can vary depending on domestic taxes, import duties, and optional costs such as insurance fees.

Calculating landed cost depends on the country of export and import. Not all costs are obligatory, and not all products require an export license or port charges.
To calculate the landed cost you need to include the cost per unit and then add the margin. The calculation should include costs for raw materials, manufacturing, customs duties, taxes, transportation, and shipping. An example of landed cost calculation may look like this:

(Shipping Cost + Customs Duty + Insurance + VAT + Import License) x 10% = Landed Cost

It is important to display accurate landed costs to customers at checkout when selling online internationally. Please note that this landed cost formula serves only as an example.

Customs Process is a process of getting shipment across the borders. Each country has an assigned governmental agency overseeing the whole customs process, especially if the shipments meet the international trade laws. Only the destination country can say if the shipments are legally allowed to enter the country. Make sure you have the necessary import license for the destination country.

The calculation can be tricky sometimes, especially if the shipping rules vary from country to country. Automatization of the Landed Cost feature allows you to customize, display, and hide the landed costs depending on the country of origin or product description for more shipping flexibility. The Landed Cost feature is available for all major carriers when using international shipping. The Landed Cost displays the international costs to your customers at checkout.

For more information have a look at our International Shipping feature which explains the landed cost functionality. Sign up for our free trial to test our Landed Cost calculator to estimate your monthly expenses and see if Calcurates is suitable for your E-commerce. Calcurates extension is available on Magento 2, Shopify, and WooCommerce.