How to calculate landed cost

The unit price is the start of the cost, not the end. A cheaper supplier is often the more expensive one.

Landed cost is everything it takes to get a unit into your warehouse, ready to sell. Comparing suppliers on unit price alone regularly picks the wrong one.

Step-by-step

1. Enter the unit price and quantity.
2. Add freight, insurance, duty and handling.
3. Add the costs that are easy to forget.
4. Read the true cost per unit.

What goes into it

• Unit price, at the order quantity actually being placed.
• Freight, per unit at that quantity — this is where large orders win.
• Duty and tariffs, which depend on classification and origin.
• Import handling, customs brokerage, port charges.
• Insurance in transit.
• Currency, including the spread your bank takes.
• Inspection or testing, where required.
• Defect rate. If 3% arrive unsellable, the other 97% carry that cost.

Payment terms and cash

A supplier requiring full payment up front with a twelve-week lead time ties your cash up for three months. One offering 60-day terms is effectively financing you. That difference does not appear in unit price and can matter more than a few per cent on it.

Minimum order quantities

A low unit price with a minimum order of 5,000 is expensive if you sell 500 a year — you have bought ten years of stock, and paid for storing it. Compare landed cost at the quantity you will genuinely order.

Frequently asked questions

What should landed cost include?

Unit price, freight, duty, insurance, handling, currency costs, inspection and an allowance for defects — everything required to have a sellable unit in your warehouse.

Why does a cheaper supplier sometimes cost more?

Freight, duty, minimum order quantities, defect rates and payment terms all differ. A lower unit price with high freight and cash paid up front frequently loses.

Does lead time affect cost?

Substantially. Longer lead times require more safety stock, tie up capital in transit and reduce your ability to respond to demand changes.