How to Calculate Landed Cost

Landed cost is the number that decides whether an order works. It is the total cost of getting goods into your warehouse in sellable condition — not the price on the quotation, which is usually a minority of it.

Sellers who plan against unit price rather than landed cost tend to discover the difference after the goods arrive, when the options have run out.

The components

Component	Notes
Unit price × quantity	The only figure most quotes contain
Origin charges	Export clearance, documentation, origin terminal handling
Freight	Sea, air or courier; the single largest variable
Insurance	Included under some trade terms, not others
Duty and tariffs	Depends on classification code and country of origin
Import clearance	Broker fee, entry filing, destination terminal handling
Inland delivery	Port or airport to your warehouse
Financing	Cost of capital tied up in a deposit for weeks or months
Defect allowance	The share of the shipment you expect to write off

The last three are the ones most often omitted, and together they routinely explain the gap between forecast and actual.

The calculation

Landed cost per unit  =  Total of all components  ÷  Units that arrive sellable

The denominator matters more than it looks. Dividing by units ordered rather than units that arrive sellable understates the true cost of every order that carries a defect rate. If you expect 2 percent unusable and order 1,000, your real denominator is 980.

A worked shape

Take an order of 1,000 units at 4.00 per unit, quoted FOB origin port.

Line	Amount
Goods, 1,000 × 4.00	4,000
Sea freight	900
Insurance	60
Duty	260
Customs clearance and broker	180
Destination terminal handling	220
Inland delivery	150
Financing, deposit held 10 weeks	70
Total	5,840
Sellable units after 2 percent defect	980
Landed cost per unit	5.96

The quoted price was 4.00. The number that governs your pricing decision is 5.96, and it is 49 percent higher. The figures above are illustrative shape, not benchmarks — every line varies by route, category and volume.

The trade term changes what is already included

You cannot compare two quotes until both are on the same basis. An ex-works price excludes export clearance and origin handling that a FOB price includes; a CIF price already contains freight and insurance to the destination port but still leaves duty, clearance and inland delivery with you.

Convert every quote to landed cost before comparing anything. A lower ex-works price frequently lands higher than a higher duty-paid price, which is the single most common reason a “cheaper” supplier turns out not to be. The terms are compared in EXW vs FOB vs CIF.

Duty is the importer’s responsibility

Duty depends on the classification code applied to the goods and their country of origin. Neither is something to take from the supplier’s paperwork without checking.

• Ask for the classification code and the country of origin explicitly
• Confirm the classification with a customs broker rather than accepting the supplier’s
• Remember that compliance obligations attach to the importer of record, which is normally you, and do not transfer by private agreement

Misclassification is the importer’s problem regardless of who wrote the code on the invoice.

Using the number

Once you have landed cost per unit, three things become answerable that were not before:

• Whether the product works at all. Landed cost against realistic selling price, after marketplace fees and returns.
• Which supplier is actually cheaper. On the same basis, which is rarely the same ranking as the quotes.
• Whether volume helps. Freight and duty scale with the order while clearance and documentation largely do not, so the per-unit curve flattens rather than falling forever.

That last point is worth testing before committing to a larger order to “get the price down”. Beyond a certain size the saving comes almost entirely from the goods line, while the capital commitment keeps rising — a trade covered in what is MOQ.

Where to go next

Fix the trade term first with EXW vs FOB vs CIF, since nothing can be compared until it is settled. For the wider order structure — pricing, payment and inspection — see buying guides.