What is Landed cost?

What goes into it

Landed cost is every cost needed to bring stock to the place where it will be sold, in the condition to sell it:

• The supplier's price, after trade discounts and rebates.
• Freight and insurance to your warehouse, by sea, air or road.
• Customs duties that cannot be recovered: basic customs duty, the Social Welfare Surcharge and any other non-creditable levy on imports.
• Clearing charges: the customs broker's fees, port and container freight station charges, and documentation.
• Inland transport from the port or the supplier to your warehouse, and loading and unloading.
• For goods you finish yourself, inward packaging and labelling done before the goods are ready to sell.

What stays out

• GST and import IGST that you can claim as input tax credit. They are recovered against your GST on sales, so they are not a cost. If you cannot claim the credit, for example because your sales are exempt, the tax becomes part of landed cost.
• Selling costs: marketplace fees, shipping to the customer and ads. These come out at CM2 and CM3, not in landed cost.
• Storage after the goods are ready to sell, and general overheads.
• Interest on money borrowed to buy the stock.

Spreading shared costs across SKUs

A shipment usually carries several products. Shared costs such as freight and clearing need a fair basis for splitting them:

• By value for duties, which are worked out on value anyway.
• By weight or volume for freight, when products differ a lot in size.
• By units only when the products are similar.

Pick a basis, write it down and use it every time, so landed costs stay comparable from shipment to shipment.

Why it matters

• CM1 starts here. Using the supplier's price instead of landed cost overstates CM1 on every unit sold. For imports the gap can be large.
• Pricing and supplier choice. Compare suppliers on landed cost, not on their quoted prices. A cheaper supplier that ships by air, or from a country whose goods carry more duty, can cost more once the goods arrive.
• Inventory valuation. The accounting standards value stock at cost, including costs of purchase such as non-recoverable duties and inward freight. Landed cost is that figure.

Recalculate landed cost for every shipment. Exchange rates, freight and duty rates change, and an old figure quietly distorts margins.