What Is Landed Cost?

Definition

Landed cost is the total cost of getting a product into your warehouse: the purchase price plus freight, duties, insurance, and handling.

A distributor buys a product for $10 and sells it for $14. That looks like a healthy margin, until freight, customs duties, and broker fees add $2.50 to every unit. If inventory is valued at the $10 purchase price, margins are overstated and pricing decisions are based on the wrong numbers. Landed cost fixes that.

The landed cost formula

Landed cost = purchase price + freight + duties and tariffs + insurance + handling and other fees

Other costs often included are customs broker fees, port and terminal charges, currency conversion costs, and inbound inspection.

Worked example

A distributor imports 1,000 units at $10.00 each, for $10,000. The shipment also incurs:

• Ocean and inland freight: $1,200
• Customs duties: $800
• Insurance: $100
• Broker and handling fees: $400

Total landed cost is $12,500, or $12.50 per unit. At a $14.00 selling price, the true gross margin is about 11%, not the 29% the purchase price alone would suggest.

How landed cost changes margin by customer and product

Landed costs vary by supplier, country of origin, shipping method, and order size. Two products with the same purchase price can have very different landed costs. Without accurate landed cost, a distributor can:

• Underprice products with high freight or duty costs.
• Misjudge which customers and product lines are actually profitable.
• Overvalue inventory on the balance sheet.

With landed cost built into inventory, every sale carries an accurate cost of goods sold, so margin reports by customer, product, and sales rep reflect reality.

Allocating landed cost in your ERP

Freight and duty invoices often arrive after the goods. A distribution ERP, such as Acumatica, lets you record those costs against the original receipt and allocate them across the items in the shipment. Common allocation methods include:

• By value: costs split in proportion to each item's purchase price.
• By quantity: costs split evenly per unit.
• By weight or volume: often the most accurate for freight.

Once allocated, the landed cost updates inventory value and flows into cost of goods sold when the items are sold. Faster entry of freight and broker invoices, for example with AP automation, keeps landed costs current.

Learn more about Acumen's ERP services or see ERP implementation.

Example: two products, same purchase price

A distributor buys two products at $20 per unit. Product A ships from a domestic supplier with $1 per unit in freight. Product B is imported, with $3 in freight, $2 in duties, and $1 in broker fees per unit. Landed cost is $21 for Product A and $26 for Product B. If both are priced at $28, Product A earns a 25% gross margin while Product B earns about 7%.