What is landed cost?
Landed Cost · Also called landed COGS, landed unit cost, total landed cost, delivered cost
Landed cost is what it costs to buy a product and get it to a stated place, such as your warehouse, ready to sell. Say which location and which costs it includes.
What it is
For delivery to your warehouse, landed cost starts with what you pay your co-packer or supplier, then adds inbound freight, cargo insurance, any import costs, and necessary prep such as labeling. If the supplier's price already includes delivery, do not add freight again.
Work it out per shipment: add up every included cost and divide by the units you accepted as sellable. When a shipment carries more than one SKU, split the shared costs with a documented driver such as weight, volume, value or units, whichever fits. Charges tied to one item, such as its import duties, go to that SKU. Duties are not always a simple percentage of value, so use the charges that actually apply.
Landed cost is a planning measure. What you record as inventory value also depends on your accounting policy, for example on recoverable taxes, abnormal losses and later write-downs.
Why it matters
Freight and prep add real cost to each unit, especially on small or heavy shipments. If you use only the factory price, your gross margin looks better than it is.
Landed cost changes with every shipment as freight rates, order sizes and routes change. Tracking it per purchase order shows you when a cheaper unit price is being eaten up by shipping.
Formula
Landed cost per unit = (Product cost + Freight + Insurance + Import costs + Prep) ÷ Accepted sellable units
For a mixed shipment, allocate shared costs to each SKU with a documented driver before dividing, and assign item-specific charges directly.
Worked example
Landing 10,000 units from a US co-packer
- Assume you accept 10,000 sellable units from your co-packer at $1.20 each: 10,000 × $1.20 = $12,000.
- Freight to your warehouse is $900, cargo insurance $60, and labeling and prep $540. The goods are made in the US, so there are no import charges.
- Added costs = $900 + $60 + $540 = $1,500.
- Total landed cost = $12,000 + $1,500 = $13,500.
- Landed cost per unit = $13,500 ÷ 10,000 = $1.35, which is $0.15 more than the $1.20 factory price.
Common mistakes
- Leaving freight and prep out and using the factory price as your unit cost.
- Dividing by units ordered instead of units accepted. Reconcile ordered, shipped, received and accepted quantities, and record supplier credits, carrier claims and abnormal damage separately rather than folding them into the cost of the good units.
- Splitting freight on a mixed shipment by unit count when one SKU takes far more weight or space than the others.
- Adding landed cost on top of a COGS figure that already includes the same freight and prep.
Common questions
- Is landed cost the same as COGS?
- No. Landed cost tells you what a unit cost to get into your warehouse, which can become its inventory value. COGS is the cost you recognize when that unit sells.