Landed cost, explained: what your products really cost you
Freight, duties and fees can add 10-30% to what a unit costs. How landed cost works, how to allocate it fairly, and why your margins are wrong without it.
Landed cost is what a unit had cost you by the time it reached your shelf ready to sell: the supplier price plus freight, duties, import taxes and handling, spread across the units in the shipment. On imported goods it commonly lands 10 to 30% above the invoice price.
Ask most merchants what a product costs them and they’ll quote the supplier’s price list. Ask their accountant and you’ll get the bigger number. If you price or report from the supplier number alone, your margins are overstated on every sale.
What counts as landed cost
Landed cost is everything it took to get a unit onto your shelf, sellable:
- The supplier price - the number on the invoice.
- Freight - ocean, air, courier, the pallet fee, fuel surcharges.
- Duties and import taxes - anything customs collected that you don’t reclaim.
- Handling and fees - brokerage, inspection, insurance on the shipment.
For imported goods, the add-ons commonly run 10-30% on top of the supplier price. A $10.00 unit that cost $2.10 to land is a $12.10 unit. If your reports treat it as a $10.00 unit, a “40% margin” product is closer to 27%.
The allocation problem
The hard part is splitting one $500 freight charge across the 47 different line items in the shipment. There are three reasonable ways to do it:
- By value - each line takes freight in proportion to what it cost. This is the default, and the right choice when a shipment mixes cheap and expensive goods.
- By quantity - each unit takes an equal share. This works when units are similar and freight scales with the count.
- By weight - heavy items take more. Use this when the carrier charges you by weight.
The most common method is the wrong one: not allocating at all, and leaving freight in a general expense line where it never reaches any product’s cost.
Doing it at receiving time
The best time to record landed cost is when the delivery arrives, because that is when you have the PO, the freight invoice and the received quantities in one place. That is how it works in Stockroom: add the charges to a receipt, pick the allocation method, and each line’s landed unit cost is recorded there and then. The allocation is saved on the receipt, so you can check the numbers later.
If the delivery is short, the allocation runs over what arrived rather than what was ordered, so units that never turned up do not dilute your costs.
From there, Stockroom can push the updated weighted-average cost to Shopify’s cost per item (opt-in, per action), so Shopify’s margin reports use the same number you do.
What changes once you track it
- Pricing uses the full cost. Products that “made 40%” but relied on expensive air freight stop looking like winners.
- Supplier comparisons are fair. The supplier with the lower price and the higher shipping often isn’t cheaper once the goods have landed.
- Reporting matches the bank account. COGS built on landed costs reconciles with what you spent, which your accountant will notice at year-end.
- Reordering improves. Buying decisions based on margin need the correct margin.
Start simple
You don’t need to be precise to the cent on day one. Allocate freight by value on your next few receipts and compare the landed unit costs to your price list. If the gap is small, you can stop worrying about it. If it’s big, which it is for most importers, you have found where your margin was going.