When businesses are selling goods the price that you see on invoice is not the entire price. There are a lot of hidden charges that go behind the sum of money. The total cost that comes is called the landed cost, and understanding accurate pricing, profit, margins, and the supply chain management can be very beneficial for businesses.
In this article, we have mentioned everything that you need to know about landed cost. We have mentioned everything regarding the calculation of landed costs and their importance in the e-commerce industry. Let’s jump right into the article and have a look at it.
What is Landed Cost?
Landed cost is basically the total cost of a product. This means from the factory floor to the buyers door the total amount that comes with the product. This means that there are price of goods, shipment costs that comes, insurance fees that is attached to and other fees that comes with it. Understanding the landed cost can be very beneficial for running a successful global business in today’s competitive landscape.
Components of Landed Cost
Below, we have mentioned some of the major components of landed cost.
- Product Cost: This is the price paid to the supplier, and it is the base cost for the landed cost calculation.
- Shipping and Freight Charger: The amount is the cost of transporting goods, such as the amount you have to pay for sea, air, and even land transportation.
- Custom Duties: These are government-based taxes that you have to pay for the product when crossing the border.
- Insurance: Insurance is the amount that covers the value of the goods in case of loss, theft, or damage during transit.
- Handling Fees: Some of the brokers even ask for the handling fees, which are also added to the landed cost.
- Storage: Storage fees are applied for the products that are kept in the warehouses.
- Compliance Costs: This is the cost of the certification that covers the inspections that are needed to import the products.
How to Calculate Landed Cost
Firing out the landed cost can be quite tricky. You must estimate it the right way. If you calculate the landed costs too high then it can have a negative impact on the sales, however if you estimate it too low then it will effect the profit, this is why you need to have roper tools when it comes to this.
Below, we have mentioned the landed cost formula that you can use.
Shipping + Customs + Risk + Overhead = Landed Cost
- Shipping: Shipping is the total cost of the process of shipping, such as the crating, packing, handling, and freight.
- Customs: Customs are basically the taxes and duties that you have to pay if you are shipping internationally. This can be different for each country.
- Risk: Risk includes the cost for insurance, compliance, quality, and the safety of the products that you are selling.
- Overhead: the cost can comes with the operation and different parts of the operation is called as the overhead.
Landed Cost Example
For example you are thinking of importin g about 100 units of a product from China to California and per unit cost is about $50. The freight cost for the entire shipment is about $1000, which represents only one-quarter of the shipment. The duty charge is about 5%. According to the formula
$50 + ((1000 * 25%) / 100) + (5% * $50) = $55 Per Unit
However, if there is a custom charges then that will also be included in this entire equation. Therefore, this is a complex method through which you will have to calculate the entire landed cost for your business.
First Cost vs Landed Cost
First cost is basically the initial price that you have to pay to the supplier or the manufacturer from whom you are getting the product. This amount usually includes the basic expenses such as the manufacturing of the product, packaging, and sometimes delivery fees. The supplier often quotes the first cost by properly comparing it with other vendors. It is important to know that the first cost does not reflect the actual expense of the product.
Total landed cost, on the other hand, shows the total cost that comes with a product. This cost includes all the additional charges and includes all the costs from the start of the product to the endpoint. You will find all the shipping fees, the import duties, taxes, insurance, and even the strange fees in this cost. This gives the complete overview of the type cost of the product.
The major difference between these two is that the first cost does not offer the complete view of the product, and it can be misleading. However, landed costs provide the full amount of the product, which is very important for the profit analysis.
Why Landed Cost is Important for E-commerce Businesses
Below, we have mentioned why the total landed cost is important for the e-commerce business
Impact on the Pricing
Learning the accurate loading cost can help the business understand the price of the product properly. Relying on the first cost of the invoice supplied by the manufacturer can be quite misleading. It will also have a negative impact on the profit margins and can cause major losses for the company.
Avoid Hidden Costs
If you don’t know the landed cost, then this can cause a major increase in your total cost. The final price is the sum of the delivery prices, handling, taxes, duties, and all the other expenses. This is why it is important to learn about this to avoid hidden fees.
Budget Accurately
If you want to make sure that the budget of you company is accurate then you must know landed cost as well. This will allow you to learn all the major parts of the price, such as shipping, customs, insurance, and even manufacturing costs. Thus, to ensure that the budget is right it is very important that you calculate the landed cost for the products as well.
Make Informed Business Decisions
With the proper information about the products and the cost of the products, you will be able to make the appropriate business decisions. You can calculate the right profit and strategize for the business in a proper manner which will be good for your company.
Optimize Your Landed Cost with NextSmartShip
Managing international shipping can be quite complex, and this is why it is important to have the right partner who can help you in this entire process. NextSmartShip is one of the best all-in-one fulfillment solutions for businesses. They can help you with getting proper control over the products and even offer you the right landed costs. They have advanced logistics services as well that will help you calculate the right upfront costs and price the product accurately.
Therefore, if you are trying to find an ultimate platform that can help you streamline the entire process, then look no further. NextSmartShip can help you with this whole process and make the logistics much simpler and easier.
Conclusion
There are a lot of different things that go on behind the scenes of the business. When it comes to the pricing of a product, there are a lot of hidden costs that a company has to look into before pricing their products. Landed cost is the finalized cost of a product, which includes all the prices from the start of a product’s till the end of its journey. Therefore, businesses need to calculate landed costs properly to ensure that they do not face any losses. We hope this article was beneficial for you and that you now know everything related to total landed cost. Also, make sure to check out NextSmartShip for their amazing services.
