Why landed cost matters
A supplier's unit price is not always the true cost of getting a sellable product into your inventory. Freight, insurance, customs duties, brokerage and other inbound charges can materially change the margin on a product. If you price from the factory invoice alone, you may overestimate contribution profit before the first order ships.
For inventory planning, define landed cost consistently: the product purchase cost plus the inbound costs needed to bring that inventory to the point where it is ready for sale. Keep outbound postage, customer fulfilment, marketplace fees and advertising separate because those are generally order-level selling costs.
Basic landed-cost formula
Total landed inventory cost = supplier invoice + inbound freight + insurance + customs duties + brokerage and clearance + other directly attributable inbound charges.
Landed cost per unit = total landed inventory cost ÷ number of sellable units received.
Use a consistent currency and document the exchange rate and date when supplier invoices or freight bills are paid in another currency. If some units arrive damaged or are not sellable, decide how your accounting policy treats those units rather than silently spreading their cost across sellable inventory.
Worked example
Assume you buy 500 units at $4.00 each. The supplier invoice is $2,000. Inbound freight is $350, insurance is $20, customs duties are $120 and brokerage/clearance is $60. Total landed inventory cost is $2,550. If all 500 units are sellable, landed cost per unit is $5.10.
Using only the $4.00 supplier price would understate unit cost by $1.10, or 27.5% relative to the supplier price. A profit calculator using $4.00 would therefore overstate the contribution remaining on each order by $1.10 for every unit sold.
Choose an allocation method that reflects the shipment
- By unit count: suitable when products are similar in size, weight and handling requirements. Divide shared shipment costs equally across units.
- By weight: useful when freight charges are driven mainly by actual or dimensional weight. Allocate costs in proportion to each SKU's share of chargeable weight.
- By volume: useful when container or storage space is the main driver. Allocate by each SKU's share of shipment volume.
- By invoice value: may be appropriate for value-related insurance or certain shared costs. Allocate in proportion to each SKU's share of the supplier invoice value.
- Direct assignment: assign a charge directly when a freight, inspection or handling fee clearly relates to one SKU or shipment component.
Do not choose an allocation method simply because it produces the lowest cost for a product. Use a reasonable method that reflects the cost driver, apply it consistently and keep the source documents so you can explain the calculation later.
Example of a weight-based allocation
Suppose a shipment contains 300 units of SKU A weighing 0.2 kg each and 200 units of SKU B weighing 0.8 kg each. Total chargeable product weight is 220 kg. If shared freight is $440, SKU A represents 60 kg (27.27%) and receives $120 of freight allocation. SKU B represents 160 kg (72.73%) and receives $320. The allocated freight per unit is $0.40 for SKU A and $1.60 for SKU B.
Keep landed cost separate from selling costs
Once inventory is ready to sell, track order-level costs separately: packaging, outbound postage, fulfilment, marketplace commissions, payment processing, advertising, returns and other variable selling costs. Avoid counting inbound freight in both the inventory cost and a separate order-level cost field.
For a product profit estimate, use a consistent per-unit landed cost in the profit calculator. When recording actual orders, use the free order profit tracker and include product cost based on your chosen inventory-cost method.
Common landed-cost mistakes
- Using the supplier's unit price while ignoring freight, duties or clearance fees.
- Dividing a mixed shipment's freight equally when weight or volume is the real cost driver.
- Counting inbound freight once in landed inventory cost and again in the order tracker.
- Mixing inbound freight with customer delivery postage.
- Ignoring foreign-exchange differences or failing to record the exchange-rate assumption.
- Changing allocation methods from shipment to shipment without documenting why.
A repeatable landed-cost workflow
- Collect the supplier invoice, freight bill, insurance charge, customs entry and brokerage or inspection invoices for the shipment.
- Separate charges that belong to inventory acquisition from outbound fulfilment and selling expenses.
- Assign directly traceable costs to the relevant SKU, then allocate shared costs using a documented driver such as chargeable weight, volume or invoice value.
- Divide each SKU's allocated total by its sellable received quantity to calculate landed cost per unit.
- Save the allocation method, exchange-rate date and source documents so later purchase batches can be compared consistently.
Before using the result in a margin calculator, confirm that the per-unit figure does not include customer postage, marketplace commissions or advertising. Those costs belong in the order economics separately.
Accounting and customs note
This guide is a management-planning framework, not tax, customs or accounting advice. Inventory-cost treatment can depend on your accounting method, jurisdiction, shipping terms and business circumstances. Confirm the appropriate treatment with a qualified accountant or customs professional and retain supplier invoices, freight bills, insurance records and customs documents.