Landed cost is the total cost of getting a product to a specified destination, using a stated set of included expenses.
How it works in retail
It can include purchase price, transport, insurance, duties and handling. The destination and treatment of taxes and overhead should be defined consistently.
A retail example
A shipment costs $2,000 for goods plus $400 in included freight and import charges. Across 100 saleable units, landed cost is $24 per unit.
What to keep in mind
Do not assume the supplier’s quoted price includes every expense. Incoterms and accounting policies affect who pays costs and how they are recorded.
Landed cost versus wholesale price
The wholesale price is the supplier’s price for the merchandise under the agreed terms. Landed cost adds the expenses included in bringing it to the selected destination. Two suppliers quoting the same unit price can therefore produce different delivered costs when transport, import charges or handling differ.
Allocating shipment costs
Shared freight or handling costs need an allocation method. Equal cost per unit may be reasonable for identical products; mixed shipments might require allocation by weight, volume or another appropriate basis. State the method so that one bulky product does not appear artificially profitable because its delivery cost was assigned elsewhere.
From landed cost to the buying decision
Use the cost figure consistently when evaluating margin and comparing quotations. Also consider when payments fall due and how many units are expected to be saleable. A shipment’s total cost and the cash required before it arrives answer different operational questions.
Examples are illustrative. Terminology and measurement conventions can vary by business and market.