Landed cost is what a unit has cost you by the moment it is sellable on your shelf: the supplier’s price plus everything the journey added, freight, duties, fees, insurance, inbound handling. Sellers who price from the invoice price alone run on flattering fiction: margins look better than they are, floors sit lower than they should, and the error compounds through every discount decision.
The components
- Purchase price: the supplier invoice, net of negotiated discounts, what the PO confirmed.
- Freight: origin-to-door transport, ocean or air, plus the domestic leg, the line that moves most between orders.
- Duties and import fees: customs duty by product classification, plus brokerage and processing fees; import VAT/GST where reclaimable is cash-flow, where not, cost, the accountant checkpoint again.
- Insurance: transit coverage, small and real.
- Inbound handling: receiving labor, prep and labeling (FBA prep counts), and any 3PL receiving fees.
Excluded on purpose: holding costs (a per-year rate, not a per-unit arrival cost) and outbound anything, those live in other lines of the P&L.
Allocation: the part people fumble
A shipment’s shared costs must be split across its units, and HOW you split changes each SKU’s truth. Allocate by the cost’s driver:
- Weight/volume-driven costs (freight) split by weight or cube: heavy items carry more of the container than earbuds do. Per-unit-count allocation subsidizes your bulky SKUs with your small ones’ margins.
- Value-driven costs (duty, insurance) split by declared value, which is how they were charged.
- Flat fees (brokerage) per shipment, then by value or evenly, small enough that consistency beats precision.
Worked example: 400 units across two SKUs on one shipment; $18,000 goods, $2,400 freight, $1,080 duty (6 percent), $220 fees and insurance. SKU A: 300 light units at $30 ($9,000, 40 percent of weight); SKU B: 100 heavy units at $90 ($9,000, 60 percent of weight). Freight by weight: A gets $960 ($3.20/unit), B gets $1,440 ($14.40/unit). Duty by value: $540 each ($1.80/unit A, $5.40/unit B). Fees by value: $0.28/$1.10. Landed: A about $35.28, B about $110.90, versus invoice prices of $30 and $90. B’s true cost is 23 percent above invoice; price from $90 and the margin you think you have is fiction.
What landed cost feeds
- Pricing floors: MAP aside, YOUR floor is landed cost plus fees plus minimum margin, the repricer’s hard stop.
- Channel viability: a SKU can be profitable on your store and underwater on a marketplace, the fee-stack model runs off landed cost per unit.
- Clearance depth: how low the dead-stock ladder can go before losses stop being recoverable rent and start being new losses.
- COGS truth: the per-unit costs your valuation method books, captured at receiving, per PO.
Keeping it current without a finance team
Recompute per shipment, not per year, freight rates and duty exposure move, and each PO’s landed sheet takes ten minutes with a template. Store the per-SKU landed cost with the receiving record, and let the pricing layer read it: floors derived from live landed costs are floors that stay true, rule-driven like everything else.
Common questions
Do domestic purchases have landed cost?
Yes, freight-in and receiving still apply; the number is just closer to invoice. Compute it the same way for consistency.
How do I handle mixed-shipment allocation without pain?
A spreadsheet template with weight and value columns per SKU does it; the discipline is filling it per shipment, not the math.
Does landed cost include my time?
Receiving labor priced honestly, yes, the same honesty as fulfillment math. Founder-time-is-free is how margins lie.
What about returns and damage on arrival?
Shipment-level shrinkage (damaged on arrival, claimed or not) effectively raises the survivors’ landed cost, log it at receiving and let the per-shipment sheet absorb it.
True costs under every price
Floors, margins, and channel decisions built on what units actually cost, from $49/month with unlimited orders. See pricing.