Landed Cost
Also called Total landed cost, TLC
- Shopify
- Amazon
- eBay
- Etsy
Definition
Landed cost is the true all-in cost of getting one unit onto your shelf and ready to sell — the product price plus freight, duties, tariffs, insurance, handling, and receiving. It's the number your real margin is calculated from, and it's almost always higher than the invoice.
Landed cost is what one unit actually costs you by the time it's sitting on a shelf, ready to pick. Not the supplier's invoice price — that's usually only 60–80% of the real figure. Everything between the factory and your fulfillment center belongs in this number.
Get it wrong and every downstream decision is wrong with it: pricing, discounting, ad spend limits, and which products you think are your winners.
What Goes Into Landed Cost
| Component | What it covers |
|---|---|
| Product cost | The unit price on the supplier invoice |
| International freight | Ocean or air from origin to port of entry |
| Duties and tariffs | Assessed by HS classification and country of origin |
| Customs brokerage | Clearance fees and documentation |
| Insurance | Cargo coverage in transit |
| Domestic freight | Port or airport to your warehouse, plus drayage |
| Receiving | Unloading, counting, inspecting, and putting away |
| Prep and labeling | Poly bagging, FNSKU labels, kitting, barcode application |
How to Calculate It
Landed cost per unit = (Product cost + Freight + Duties + Insurance
+ Brokerage + Receiving + Prep) ÷ Units received
Worked example — 1,000 units:
| Line | Amount |
|---|---|
| Product (1,000 × $6.00) | $6,000 |
| Ocean freight | $1,400 |
| Duties (assume 8%) | $480 |
| Customs brokerage | $250 |
| Insurance | $90 |
| Drayage to warehouse | $380 |
| Receiving and putaway | $200 |
| Poly bagging and labeling | $300 |
| Total | $9,100 |
Landed cost per unit: $9.10 — not $6.00.
If you priced this product for a "60% margin" against the invoice price, your actual margin is far thinner. That's the entire reason the calculation matters.
Allocating Costs Across Mixed Shipments
Most containers hold several SKUs, so shared costs have to be split. Three defensible methods:
- By unit count — simplest, but overcharges small light items and undercharges bulky ones.
- By value — allocate proportionally to product cost. Reasonable for similar goods, distorts when a small expensive item ships alongside cheap bulky ones.
- By volume or weight — allocate freight by the cubic space or weight each SKU consumed. The most accurate for freight, and the closest analogue to how carriers actually charged you.
Freight is a volume cost, so allocating it by volume is usually the honest choice — the same logic that makes dimensional weight matter on the outbound side.
Landed Cost vs. Cost to Serve
Landed cost stops at the shelf. It does not include:
- Pick and pack fees
- Outbound postage
- Storage, month after month
- Returns processing
- Marketplace referral and FBA fulfillment fees
Track those separately as cost to serve. Together the two tell you your real contribution margin per order — and they fail differently. A rising landed cost is a sourcing or freight problem; a rising cost to serve is a fulfillment, packaging, or returns problem. Blending them into one number hides which lever to pull.
This is also a fair argument for published, flat fulfillment pricing: a variable per-order fee that shifts by month makes the cost-to-serve half of the equation impossible to forecast. Honeybee publishes a flat $2/order with $0 setup so that half stays a straight multiplication.
Frequently asked questions
How do you calculate landed cost?
Add every cost incurred before a unit is sellable — product price, international and domestic freight, duties and tariffs, insurance, customs brokerage, and receiving — then divide by the number of units in the shipment.
What's the difference between landed cost and COGS?
Landed cost is a per-unit figure covering everything up to shelf-ready. COGS is the accounting figure recognised when the unit sells. Landed cost is what you should price from; COGS is what you report from.
Does landed cost include fulfillment and shipping to the customer?
No. Landed cost stops when the unit is on the shelf. Pick and pack, outbound postage, and returns are downstream costs — track them separately so you can see which lever is actually squeezing your margin.
Why do sellers underestimate landed cost?
Because most of it doesn't appear on the supplier invoice. Freight, duties, brokerage, and receiving arrive as separate bills weeks apart, so the invoice price feels like the cost — and the margin looks better than it is.
Last reviewed by the Honeybee Fulfillment team.