Landed cost: what it is and how to calculate your true COGS
The price on the supplier's invoice is not what the product cost you. Landed cost is.
Landed cost is the total cost of getting a product all the way to your door, not just its purchase price. It adds freight, duties and tariffs, insurance, and handling to the unit cost from your supplier. A product invoiced at $8 can have a landed cost of $10.50 once shipping and import duty are counted, and that higher figure is the one your margins should be built on.
What does landed cost mean?
Landed cost is the full cost of a product once it has arrived at your warehouse or fulfilment centre, including everything spent to get it there. It combines the supplier's unit price with freight, customs duties and tariffs, insurance, and any handling or brokerage fees. It is called landed because it is the cost of the goods after they have landed with you, ready to sell.
The reason the term exists is that the invoice price alone understates what a product really costs. A $8 item that took $2.50 to ship, clear customs and handle actually costs you $10.50 before you have sold a single unit. Price your margins off the $8 and every profit figure you report is inflated by the costs you left out.
How do you calculate landed cost?
Add every cost of acquiring and importing the goods to the unit price, then divide by the number of units to get the landed cost per item. The components are the product cost, freight, duties and tariffs, insurance, and handling or customs brokerage. Sum them for the shipment and split the total across the units in it.
| Component | Example (per unit) | Running landed cost |
|---|---|---|
| Supplier unit price | $8.00 | $8.00 |
| Freight / shipping | $1.50 | $9.50 |
| Import duty (10%) | $0.80 | $10.30 |
| Insurance + handling | $0.20 | $10.50 |
In this example the landed cost is $10.50, about 31 percent more than the $8 invoice price. That gap is entirely typical for imported goods, and it is the difference between a margin that looks healthy and one that actually is. The more you import and the further it travels, the larger the gap grows.
Is landed cost the same as COGS?
Not quite. Landed cost is what one unit costs to acquire and bring in. Cost of goods sold, COGS, is the total landed cost of the units you actually sold in a period. Landed cost is the per unit input; COGS is the period figure that flows into your profit and loss. Getting landed cost right is what makes COGS, and therefore gross profit, accurate.
So the two are linked rather than interchangeable. If your landed cost per unit is wrong, your COGS is wrong by the same error multiplied across every unit sold, and your reported gross profit is wrong along with it. Landed cost is where the accuracy of the whole profit picture begins.
What is the difference between FOB and landed cost?
FOB, free on board, is the price of the goods at the point they leave the supplier, before international shipping and import costs. Landed cost is that FOB price plus everything it takes to deliver the goods to you. FOB is where the supplier's responsibility ends; landed cost is where your true cost is finally known, once freight and duty are added.
Suppliers quote in FOB because it is the number they control and it looks attractively low. The mistake is treating an FOB quote as your product cost. Two suppliers with identical FOB prices can have very different landed costs once one ships from further away or through a higher tariff. Only landed cost lets you compare them honestly.
Why landed cost matters for your margin
Because your margin is only as accurate as your cost of goods, and your cost of goods is only as accurate as your landed cost. Undercount landed cost, and every margin, contribution and profit figure downstream is overstated by the shipping and duty you skipped. It is the quietest way to believe a product is profitable when it is barely breaking even.
Margio uses your product costs as the foundation of every profit calculation, so entering true landed costs, not just the supplier price, is what makes its true profit figures real. For print on demand orders it goes a step further and syncs the actual fulfilment cost per order from Printful and Printify, so those costs are landed and current without any manual entry.
The principle holds across the product: a profit number is only as honest as the costs behind it. Landed cost is the input most stores get wrong, and the one that changes the answer the most.
Frequently asked
How do you calculate landing cost?
Add the supplier unit price, freight, duties and tariffs, insurance, and handling for a shipment, then divide by the number of units. The result is the landed cost per item. An $8 unit with $1.50 freight, $0.80 duty and $0.20 handling has a landed cost of $10.50.
Who pays landed costs?
You, the buyer, pay the landed costs beyond the agreed shipping term. Under an FOB arrangement the supplier covers costs up to the port of departure, and you pay freight, insurance, duties and handling from there. The exact split depends on the Incoterms in your contract, so check which term you agreed.
Is landed cost the same as actual cost?
Landed cost is the actual cost of acquiring and importing the goods, so for most purposes it is the actual product cost. Actual cost can sometimes be used more broadly to include later costs like storage or shrinkage, but landed cost specifically captures everything spent to get the goods delivered and ready to sell.