Inventory glossary
What is Landed cost?
Landed cost is the total cost to get a product into your warehouse ready to sell, including the unit price plus freight, customs duties, insurance and any other fees to get it there.
Knowing landed cost matters because it tells you your real profit per unit, not just the price you paid the supplier. A candle that costs $4 to make but $1.50 to ship and $0.50 in duties really costs you $6, and if you price it as if it cost $4, your margin is smaller than you think.
Use landed cost to set prices properly and to compare suppliers fairly. A supplier with a lower unit price but higher shipping cost might actually cost you more per unit once everything is added up.
Formula
Example
A store buys mugs from an overseas supplier at $3.00 each. Shipping the order costs $300 for 500 units, which is $0.60 per unit. Customs duty adds $0.40 per unit. Landed cost is $3.00 + $0.60 + $0.40 = $4.00 per mug. If the store sells each mug for $9.00, actual gross margin is ($9.00 - $4.00) / $9.00 = 55.6 percent, not the 66.7 percent it would be using unit price alone.
Common mistakes
- Using only the supplier unit price and ignoring freight and duties when calculating margin.
- Spreading shipping costs evenly across all SKUs in an order instead of by weight or volume, which distorts costs for small or large items.
- Forgetting to update landed cost when freight rates or duty rates change, leading to stale pricing decisions.
Landed cost and SteadyShelf
SteadyShelf turns your Shopify sales and each supplier's lead time into an order-by date and quantity for every product, then drafts the purchase order for you to approve.
SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.
Related terms
Cost of goods sold · Gross margin · Purchase order · Supplier · Carrying cost
FAQ
Does landed cost include storage costs after the product arrives?
No. Landed cost covers getting the product to your door, such as unit price, freight, duties and insurance. Storage after arrival is a separate cost called holding or carrying cost.
Why does landed cost matter more for imported goods than local ones?
Imported goods usually carry extra costs like customs duties, international freight and brokerage fees that local purchases do not have. Ignoring these for imports can make a product look more profitable than it actually is.
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