What Does “Landed Cost” Mean? (Includes Formula)

If you buy a product for $5 in China and sell it for $15 in the USA, did you make a $10 profit? Wrong.

You likely lost money. Many new businesses fail because they calculate profit based on the Product Cost, not the Landed Cost.

What is Landed Cost?

Landed Cost is the total price of a product once it has arrived at your door (or warehouse), ready to be sold. It includes every single penny spent to get the product from the factory to you. Ignoring this metric is the fastest way to run an unprofitable business.

The Landed Cost Formula

Formula: Landed Cost = Manufacturing Cost + Transport + Customs + Insurance + Overhead

Let’s break down the components so you can calculate it accurately.

1. Manufacturing Cost (COGS)

This is the price you pay the supplier per unit.

• Example: $5.00 per unit.

2. Transport (Freight)

The cost to move it. This is often the biggest variable. It includes:

• Trucking from factory to port in China.
• Sea https://www.google.com/search?q=/Air freight charges.
• Trucking from US port to your warehouse.
• Example: $1.50 per unit.

3. Customs & Duties

The taxes paid to the US Government.

• Duty: Based on the HS Code (e.g., 5% or 25%).
• MPF: Merchandise Processing Fee (flat fees).
• Tariffs: Extra taxes (e.g., Section 301 tariffs on Chinese goods).
• Example: $0.75 per unit.

4. Insurance & Fees

• Cargo insurance (usually inexpensive but vital).
• Bank transaction fees (Wire transfer fees).
• Quality Inspection fees.
• Example: $0.25 per unit.

The Real Calculation

Let’s look at that $5.00 product again with the real costs added.

• Product: $5.00
• Freight: $1.50
• Customs: $0.75
• Fees: $0.25
• Total Landed Cost: $7.50

If you sell it for $15.00, your gross profit is $7.50, not $10.00. That is a 25% reduction in your expected margin.

Why This Matters for the CBM Calculator?

Freight (#2) is often the most variable part of Landed Cost.

• If you don’t calculate your CBM correctly, your Freight cost might jump from $1.50 to $3.00 because you paid for dead space.
• That destroys your profit margin.

How to Lower Your Landed Cost

1. Optimize Volume: Use our CBM Calculator to ensure you aren’t shipping empty space.
2. Order More: FCL (Full Container) shipping is much cheaper per unit than LCL.
3. Check Duties: Before ordering, check if a similar product has a lower duty rate.

Conclusion

Never base your business model on the Alibaba price. Always build a spreadsheet that estimates the Landed Cost. Only then will you know if your product is actually profitable.