Landed cost is the total per-unit cost to get a sellable product into your warehouse, not just what the supplier charged you. It's the right number to anchor pricing decisions, SKU-level profitability, and gross margin math. Most brands quietly leak 10 to 25 percent of their margin by pricing off the supplier invoice instead.
How landed cost is calculated
Landed cost = supplier unit cost + inbound freight + duty + tariffs + customs brokerage + inbound handling.
A worked example
A DTC brand sources a serum from a contract manufacturer in South Korea. Supplier unit cost: $4.20. Ocean freight allocated per unit: $0.65. Duty (4.2 percent for cosmetics): $0.18. Customs brokerage: $0.08. Inbound handling at the third-party logistics provider (3PL): $0.12. Landed cost = $5.23, which is 24.5 percent above the supplier invoice. The $4.20 was never the real cost.
Typical landed-cost components as percent of total
- Supplier unit cost: 65 to 85 percent
- Inbound freight: 8 to 18 percent
- Duty and tariffs: 3 to 15 percent (highly category-dependent)
- Brokerage and handling: 1 to 4 percent
Foreign exchange (FX) volatility matters too. A 5 percent move in USD/CNY flows directly through to landed cost on China-sourced goods. See USD/CNY impact on DTC COGS.
The most common mistake
Using the supplier unit cost as "COGS" for pricing decisions. A 50 percent gross margin computed off supplier unit cost is actually a 38 to 42 percent gross margin after the product lands. Brands repeatedly under-price products because they're working off the supplier invoice instead of true landed cost. Update your landed cost and re-price.
Frequently Asked Questions
why use landed cost instead of just the supplier invoice?
Because the supplier's invoice is only one of 4 to 6 cost components. Inbound freight, duty, tariffs, customs brokerage, and warehouse handling add another 12 to 35 percent on top. If you set prices off the supplier invoice alone, you're systematically under-pricing every SKU and giving away margin you can't see.
do i include returns handling in landed cost?
No. Landed cost is forward-only: the cost to get a fresh sellable unit into your warehouse. Returns processing is reverse-logistics cost and sits below gross margin as a fulfillment expense. Mixing them blurs your real unit economics.
how often should i update landed cost?
Monthly for high-volume SKUs, because freight rates and FX rates move that fast. Quarterly minimum for the rest of the catalog. Pricing decisions made on outdated landed cost numbers are one of the most common silent margin leaks we see.
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