What is landed cost, and how do I work it out for my products?

For one shipment:

Landed cost per unit = (product cost + freight + duty + customs and port fees + inbound shipping to your warehouse or fulfillment center) ÷ units received

In the example, the demo store buys 400 camp stoves at 18.50 each. The supplier invoice is 7,400.00, but by the time the stoves are on a shelf ready to sell, ocean freight, duty, broker fees and the truck to the warehouse have added another 2,200.00. Total landed cost is 9,600.00, or 24.00 a unit, not 18.50.

The IRS describes the cost of purchased merchandise in the same terms: the invoice price less appropriate discounts, plus transportation or other charges incurred in acquiring the goods.^[2] Publication 334 lists freight-in as part of cost of goods sold on Schedule C.^[1] Treasury regulations add "transportation or other necessary charges incurred in acquiring possession of the goods"; duty and customs broker fees are paid to take possession of imported stock, so we include them.^[3] Your tax preparer confirms the treatment for your return.

The test is simple: did the cost arise in getting the stock to the point where it can be sold? If yes, it belongs in landed cost.

• In: supplier price, less any discount · freight from the supplier · import duty · customs broker and port fees · inbound shipping to your warehouse, 3PL or fulfillment center.
• Out: costs of selling the unit once it is ready, such as marketplace referral fees, fulfillment fees charged per order, payment processing, advertising and shipping to the customer. Those are real costs, but they belong on the profit and loss as selling expenses, not inside the value of stock on the shelf.

Some costs sit on the line, such as fees a marketplace charges to receive or place inbound stock. Decide where they go once and apply it to every shipment, so months compare.

When one freight bill covers several products, split it on a fixed basis: by units, by weight or volume, or by product value. Value is the easiest to keep consistent; weight is closer to reality for bulky items. The method matters less than using the same one every time.

A common mistake is pricing and booking stock at the supplier price and putting freight and duty into a general shipping expense. Your total profit for the year can come out the same, but every number you make decisions with is wrong:

• Margin per product is overstated. Sell a stove at 45.00 and the supplier price says the margin is 58.9%. Landed cost says 46.7%. That 12.2-point gap is the difference between a product that funds the next order and one that barely pays for itself after fees.
• Inventory on the balance sheet is understated. 400 stoves on hand are worth 9,600.00 at landed cost, not 7,400.00. The 2,200.00 difference turns up as an expense in the month the freight bill was paid instead of as cost when each stove sells.
• Cost of goods sold swings month to month. A big shipment lands, the freight hits the books at once, and that month looks bad while the months the stock sells look better than they were.

For a seller whose products carry heavy or bulky freight, or a high duty rate, the gap is wider than in this example. For a seller pricing off a spreadsheet of supplier prices, it is a common reason the margin in the plan is not the margin in the bank.

Working out landed cost once on a spreadsheet is useful. Keeping it in the books is what makes it reliable: each shipment's freight, duty and fees recorded against that shipment, the per-unit cost updated as new stock arrives, and cost of goods sold taken at that cost when units sell. That is the input cost of goods sold needs, and it is how inventory stays an asset until it sells.

If you import, buy from more than one supplier, or hold stock in more than one location, landed cost is worth doing every month rather than once a year. For Amazon sellers, our Amazon seller accounting records landed cost on every shipment, keeps inventory and cost of goods sold current, and gives you a gross margin by product you can price on.