Landed Cost: Meaning, Formula and Example
Landed cost is everything it costs to get imported goods to your warehouse: the product price plus freight, insurance, customs duty, taxes you cannot reclaim, fees and local delivery.
What is landed cost?
Landed cost is the total cost of a product once it has arrived at your premises, ready to sell or use. It adds every cost of buying, shipping and clearing the goods to the supplier's price, so you can price correctly and compare suppliers fairly.
Landed cost formula: product cost + freight + insurance + customs duty + non reclaimable taxes + clearance and port fees + inland delivery + other costs (bank charges, inspections)
Landed cost per unit = total landed cost ÷ number of units
Worked example
A UK importer buys 1,000 Bluetooth speakers at USD 8.00 each FOB Shenzhen.
| Cost | USD |
|---|---|
| Goods (1,000 × 8.00) | 8,000.00 |
| Ocean freight, LCL, to Felixstowe | 1,200.00 |
| Cargo insurance | 50.00 |
| Customs value (goods + freight + insurance) | 9,250.00 |
| Import duty, assumed 2% of customs value | 185.00 |
| Customs clearance and port charges | 350.00 |
| Delivery to the warehouse | 250.00 |
| Total landed cost | 10,035.00 |
| Landed cost per unit | 10.04 |
The speakers cost 8.00 on the invoice but 10.04 on the shelf, about 25% more. Import VAT is left out because a VAT registered importer can usually reclaim it; if you cannot reclaim it, add it. The duty rate is an assumption for the example: the real rate depends on the product's HS code and origin.
How Incoterms change the calculation
The Incoterm decides which costs are already in the supplier's price. With EXW you add everything, including export clearance in the supplier's country. With CIF the freight and minimum insurance are included, but not the destination charges or duty. With DDP almost everything is included. Convert every quote to landed cost before comparing suppliers.
How to split costs across products
When one shipment holds several products, share the shared costs fairly. Common methods are by value (insurance, and duty where rates are equal), by volume (sea freight, using each line's CBM from the CBM calculator) and by weight (air freight). Duty is usually calculated per line from its own tariff rate.
Why landed cost matters
- Pricing: apply your markup to landed cost, not the invoice price, with the markup calculator.
- Supplier choice: a cheaper supplier further away can have a higher landed cost.
- Accounts: landed cost is the basis of inventory cost and cost of goods sold.
Features
- Plain English definition
- Landed cost formula
- Worked example per unit
- How Incoterms change the calculation
Frequently asked questions
What is landed cost?
The total cost of getting a product to your premises: the purchase price plus freight, insurance, customs duty, taxes you cannot reclaim, clearance fees and delivery.
How do you calculate landed cost per unit?
Add up every cost of the shipment and divide by the number of units. In the example on this page, 10,035 ÷ 1,000 = 10.04 per unit.
Is VAT part of landed cost?
Only if you cannot reclaim it. Most VAT or GST registered importers reclaim import VAT, so it is usually left out.
Is landed cost the same as CIF value?
No. CIF value covers goods, freight and insurance to the destination port. Landed cost also includes duty, clearance, port charges and delivery to your door.
How do I allocate freight across products?
Split sea freight by each product's share of the volume (CBM), air freight by chargeable weight, and insurance by value.