What is landed cost and how do you calculate it?
Landed cost is what one unit actually costs you by the time it sits in your warehouse: the factory price plus its share of freight, duty, insurance and inland transport. The allocation matters as much as the total — freight should be allocated by volume and duty by goods value. Splitting a container’s freight evenly across five products charges the small one for space the bulky one used, and every margin that follows is fiction.
The allocation decides the answer
A container holds five products. The freight bill is $4,860.
| Method | Result |
|---|---|
| Split evenly by product | Small item absorbs the same as the bulky one |
| Split by units | Cheap high-count item absorbs most of it |
| Split by volume | Each product pays for the space it used |
Only the third describes what happened. Duty is different again — it is charged on value, so it should be allocated on value.
A worked example
Example numbers, not a tariff.
| Product | Units | FOB | Volume share | Freight share | Landed cost |
|---|---|---|---|---|---|
| T-shirt | 400 | $18,460 | 46.2% | $2,245 | $51.76 |
| Sweatshirt | 300 | $12,460 | 28.1% | $1,366 | $45.95 |
| Duvet set | 350 | $9,640 | 17.4% | $846 | $29.96 |
Had the freight been split evenly across the three products, the duvet set would have carried $1,620 instead of $846 — and looked unprofitable.
Preview before writing
Once landed cost reaches the product record, every margin, price decision and profit report uses it. That is exactly why it should be previewed first: an allocation written on the wrong basis is hard to notice afterwards, because everything downstream looks consistent.
Checklist
- Is each cost line allocated on a basis that matches what it pays for?
- Is the allocation previewed before it reaches product cost?
- Does the profit report use landed cost, not the factory price?
- Are duty and freight allocated on different bases?
Frequently asked questions
What is landed cost?
The total cost of getting one unit into your warehouse: factory price plus its share of freight, duty, insurance and inland transport.
How should freight be allocated?
By volume, because freight is paid for space. Duty and insurance are usually allocated by goods value, because that is what they are charged on.
Why does landed cost matter for marketplace sellers?
Because referral fees and fulfilment are percentages and tiers applied on top of it. A 15% error in unit cost turns a 6% margin into a loss without anything on the marketplace changing.