What is landed cost?
Landed cost is the true price of a product once it has cleared customs and arrived at your dock, not just the price on your supplier invoice. It's the number that tells you what a unit actually costs you, and it's the number your margins are built on, whether or not you've been calculating it.
Founders who only track product cost are often working from a margin that isn't real. Freight, duty, and fees can add 15 to 40 percent on top of what a supplier charges, depending on the product category and origin country. Skip that math and your pricing, your reorder decisions, and your cash flow projections are all built on a number that's too low.
What is the landed cost formula?
The formula is simple:
Landed Cost = Product Cost + Freight + Duty + Fees
Each term covers a specific piece of getting a product from a factory to usable inventory.
- Product cost is what you pay your supplier per unit, before anything else is added.
- Freight is the cost of moving the shipment from origin to your dock or 3PL, whether by ocean, air, or truck.
- Duty is the import tax charged on the product, calculated as product cost times the duty rate that applies to that product's tariff classification.
- Fees covers everything else that hits before the product becomes sellable inventory: customs broker fees, insurance, handling, and similar charges.
Add those four together and you have your landed cost per unit. Multiply by order quantity and you have it for the full shipment.
How do you calculate duty?
Duty is calculated as:
Duty = Product Cost × Duty Rate
When the rate is entered as a percentage, divide it by 100 first. For example, a 10% duty rate on a $20 product is $20 × (10 ÷ 100), or $2.
The duty rate is set by the product's Harmonized Tariff Schedule (HTS) classification, not by the shipper or the freight forwarder. A cotton t-shirt and a wool sweater can carry different duty rates even from the same factory, because they fall under different HTS codes.
You can look up the rate for a specific product using the U.S. Harmonized Tariff Schedule (opens in new tab), maintained by the U.S. International Trade Commission. If you're not certain which code applies to your product, a licensed customs broker can classify it correctly. That matters because misclassifying a product is a compliance risk, not just a pricing one.
Why does landed cost matter for pricing and sourcing decisions?
Landed cost is the real floor under your pricing. A product that looks profitable at the factory price can turn into a loss once freight and duty are added, especially on categories with higher duty rates or long ocean transit times. Brands that price off product cost alone tend to find this out at the worst possible time: after the purchase order is placed and the container is already on the water.
It also changes how you compare suppliers and sourcing regions. A slightly higher factory price from a supplier with a lower duty rate or shorter freight lane can land cheaper than the "cheaper" option once the landed cost formula is run in full. Landed cost is the number that makes that comparison honest.
Learn how Izba helps growing brands make clearer sourcing, pricing, and operational decisions through our Scale services.