The world of supply chains, inventory management and warehouse logistics is rife with hidden costs. Taxes, brokerage fees and freight costs can add up and make your total delivered cost much higher than your original estimate. These other costs are the landed cost, or the actual cost of your shipment after export fees, harbour fees and additional fees have been factored into the total cost.
Knowing how to calculate this cost is essential for calculating not just profit margins but your actual fulfillment costs, too. These costs are significant for an eCommerce business, as it’ll affect your unit pricing, your delivery speed and how you conduct your overall eCommerce shipping strategy.
Some examples of extra fees and transportation costs that your shipment might incur during domestic and international shipping include:
- Package landing costs
- Shipping customs/ customs expenses
- Shipping insurance
- Import fees
- Purchasing agency commissions
- Harbor fees
- Value-added tax (VAT) and GST
- Last-mile transportation fees
With so many additional fees to account for, your total landed cost may vary wildly from your original estimate. It’ll be challenging to determine your business’s actual profit margin and net profits without calculating your landed cost.
Understanding and calculating landed cost helps you understand your true shipping spend when you deliver to our customer’s doorstep and helps reduce costs and businesses expenses in the long run.
What is Landed Cost?
The landed cost definition is the total cost for a vendor or business to have their shipment, package, or product fulfilled to their customer. Total landed costs will factor in the shipping costs and all other relevant fees such as customs duties, brokerage fees, and other regulatory fees. Businesses can include the cost of your packaging, dunnage and last-mile delivery courier as well.
Why is landed cost important? Calculating landed costs allows you to calculate your profit margin to a more accurate degree. Without factoring in these costs for your deliveries, you could be hemorrhaging money without even realizing it!
3 Elements of Landed Cost
The landed costs for any shipment can be divided into three fundamental elements. While you might be able to adjust or reduce some of them, others will be baked into the shipping cost and will be challenging to control.
Your shipment costs are the deciding element in calculating your landed cost. Your transportation cost will vary depending on where your store is located, where you’re sending your package too and its speed. Choosing the right shipping partners, opting for bulk discounts and reducing the weight of your packaging can all influence your shipping costs.
Establishing your supply chain closer to your fulfillment destination, providing retail delivery fulfillment options and/or reducing your fulfillment speed can help lower your landed shipment cost.
Handling, Processing and Compliance Fees
The total price and size of your package, additional services such as shipping insurance, special handling fees and payment processing fees are additional costs that must be included in your landed costs calculation. If you’re shipping your packages internationally, currency exchange rates might also affect your per-unit costs as well.
Customs, Import Duties and Taxes
Although landed costs are also incurred during domestic shipping, they’re most commonly associated with global trade. The destination country and even the type of product you’re importing can all affect your shipment’s landed price. The import duty rate will vary country by country but if you don’t want to be losing money on shipping customs, there are a few things you can do to offset the expenses.
Depending on the import duty rate, vendors and businesses can either pay for their shipment duties upfront or pass the cost onto the end consumer. However, deciding to do so can cause them to refuse to receive the package and deter future customers from making a purchase.
How to Calculate Landed Cost
Calculating your total landed cost is a simple calculation. These costs are simply the aggregation of your package costs, your shipping, handling, processing and compliance fees and the customs and duties of the destination country.
Here is the formula broken down into its individual elements:
Packaging Costs + Entire Shipment Cost + Import Duties and Customs Fees + Insurance and Additional Service Fees = Landed Cost
Businesses can also include additional costs such as the last-mile delivery costs and other logistical costs if you wish. However, these are usually omitted.
Example Landed Costs Calculation
Let’s take a look at the calculation in practice. Let’s begin with the purchase price, the raw materials cost and the basic shipment fees.
Product Unit Price: $10 per unit
Entire Shipment & Packaging Costs: $250 for a shipment of 100 units, or $2.5 per unit
Import Duties and Customs: 15% VAT, or $1.5/unit
Insurance and Additional Service Fees: $1.50
Net Landed Cost = $10 + $2.5 + $1.5 + $1.50 = $15.5
In the above example, the actual cost to procure and fulfill a product to a particular country is $15.5/unit. Without factoring in the landed costs, your assumed profit margin would be a lot higher than what it is.
In this example, calculating your net landed cost tells you that to break even, your unit price needs to be $15.5. To generate a positive net profit, it’ll need to be even higher.
Optimizing Your Landed Cost with Cantec Couriers
Cantec Couriers helps retailers of all shapes and sizes reduce their landed costs by bringing the supply chain closer to them. SME and small business shipping can be incredibly expensive and many struggle to compete with big-box retailers to meet customer expectations such as same-day delivery.
By transforming retail stores and brick-and-mortar storefronts into hybrid dark stores, Cantec Couriers brings your supply chain closer to your customers. Our easy-to-use platform reduces your delivery times, lowers your delivery fees and lets you offer the convenience of same-day delivery to all of your customers from all of your stores.
Sign up today for a free trial and experience the Cantec Couriers difference!