What Is Landed Cost? Formula, Components & a Worked Example
Landed cost is what a unit actually cost by the time it reached your shelf — supplier price plus freight, duty, insurance, handling, and currency movement. The formula, the components, and a worked example.
Landed cost is the total cost of a product by the time it arrives at your warehouse, ready to sell or use: the supplier's price plus every cost incurred getting it there — freight, insurance, customs duty and import taxes, clearing and port charges, inland transport, and handling. It is the number that margin should be computed on. Any price set against the bare supplier invoice is set against a fiction.
The formula
Landed cost =
Supplier price (FOB/CIF) + international freight & insurance + customs duty & non-recoverable import taxes + clearing, port & documentation fees + inland transport & handling ± currency adjustment — allocated to the units in the shipment.
The components, and where each hides
| Component | Typical share of supplier price | Where it goes missing |
|---|---|---|
| International freight & insurance | 5–15% by mode and density | Bundled into CIF prices and never seen separately |
| Customs duty & levies | 0–35%+ by product classification | Counted, usually — but recoverable VAT wrongly included or excluded |
| Clearing agent, port & docs | 2–5% | Paid in cash at the port, expensed as "clearing", never lands on the goods |
| Inland transport & handling | 1–4% | Booked to a general transport account instead of the shipment |
| Currency movement | Whatever happened between order and payment | Costed at the quote-date rate instead of the payment-date rate |
| Storage & demurrage | Zero in a good month; brutal in a bad one | Written off as a loss instead of costed to the goods (policy decision either way — make it consciously) |
A worked example
You import 1,000 units at $10.00 each — a $10,000 supplier invoice. Sea freight and insurance: $1,200. Duty and non-recoverable import charges: $2,300. Clearing, port, and documentation: $450. Truck from port to warehouse: $350. Total landed: $14,300, or $14.30 per unit — 43% above the invoice price. A "40% margin" priced off the $10.00 invoice is actually a 2% loss before any operating cost. Multiply that misreading across a catalog and a business can grow itself into insolvency, best-sellers first.
Allocation: spreading shared costs across the shipment
- By value — for ad-valorem costs (clearing fees, agency): each item takes a share proportional to its invoice value.
- By weight or volume — for freight: the dense, heavy items carry more of the container than the light ones. Value-allocating freight quietly subsidizes exactly the bulky items that deserve a premium.
- Directly — duty computes per line from the customs entry; assign it per item, don't average it.
- Pick the basis per cost type, write it down, and apply it identically per shipment — consistency is what makes landed costs comparable over time.
Doing it in a system instead of a spreadsheet
The mechanics are simple; the discipline is relentless — every shipment, every cost document, allocated before the stock sells. Simple is not the same as safe, though: we audited our own allocation in August 2026 and found it gave each partial delivery the whole freight bill, which is written up in the bill and the sum of its parts. The invariant worth checking in any system is that what the goods carry adds back up to what you were charged. That is why landed costing belongs at receiving in the purchasing system: costs attach to the shipment, allocation runs by rule, and unit costs update before pricing decisions happen. For the import-heavy version with duties, clearing agents, and exchange swings in full flight, see the landed costs deep-dive — and for how the number flows into production costing, the manufacturing guide.
What AWRA OpsHub does today
- Cost lines against a purchase order — freight, duty, clearing, insurance, whatever you add — allocated across the items on that order.
- Two allocation methods per cost line: by value or by quantity, chosen per cost rather than fixed globally.
- The allocation stored on the receiving batch, so the landed cost of a specific consignment is recoverable later.
- The weighted average cost recalculated from it, which is the figure margin and valuation reporting then use.
More we can add to your workspace
- A BOM or recipe entity, which is what lets landed cost flow into a manufactured item's cost. This article's production angle describes the method rather than a shipping feature.
- An allocation by weight or volume. Value and quantity are the two methods; a heavy-but-cheap item cannot be apportioned by mass.
- A landed cost on stock already sold. Recalculation moves the weighted average forward; it does not restate the cost of goods already gone.
- Customs or clearing agent integration. You enter the cost lines; nothing imports them from an entry or an agent's invoice.
The BOM is the one to weigh if you manufacture. Landed cost on purchased goods is solid and is where most of the value sits for distributors and retailers — and if your question is "what did this finished unit really cost me to make", that assembly is the build.
Anything above that you need, we can build for you
Everything listed above as something we can add describes what ships in the standard product today — it is a starting point, not a limit on what AWRA OpsHub can do for your organisation. Kenya's eTIMS integration and its maintained payroll engine are both in the product because clients needed them and commissioned them; neither appeared by itself, and the same door is open for whatever you just read about. One qualification so this is worth what it claims: a small number of things on this blog we deliberately leave to a specialist rather than build — a statutory ledger we will not sign our name to, a rule that would decide a tax question for you, a clinical or member-funds record that belongs in a regulated system — and where that is true the post says so in those words. Everything else is a scope, a timeline and a price.
The operational work, which is what most commissions actually are
An extra approval stage in a chain that does not match the standard one, a custom field set on employees or assets that only your sector needs, an expiry that has to block an order rather than send an email, a report your board asks for in a shape nothing produces, or a scanner or weighbridge feeding the goods-in door. These are the commissions we are asked for most often and the smallest ones we quote — and unlike a revenue-authority pipeline, none of them waits on a regulator.
The module-shaped additions, which are the ones readers ask for most often
A price list with real discount authority, a customer-facing quotation that expires, a bill of materials or recipe costing, a staff advance that is issued, acquitted and chased, a member or unit ledger, a matching rule that holds a payment. Each of these is a build rather than a setting, and each has been quoted before — a bigger piece of work than a custom field, with a written spec and a date instead of a roadmap slide.
The report, document or pack nothing currently produces
The board pack in the shape your board actually asks for, a donor or funder layout, an invoice or receipt template carrying what your regulator or your customer expects, a dataset the report builder cannot reach yet. Usually the fastest thing on this list to deliver, because the data is already in the system.
Systems, rails and hardware you already run
The accounting package, CRM, online store, core banking or custom database you intend to keep — connected through our API so a fact is entered once and appears everywhere it is needed. Plus the physical edge: a scanner, a scale, a weighbridge or a till peripheral feeding the door it belongs to.
How it works: you describe the requirement, we return a written scope, timeline and cost, and once agreed it is built into your environment and maintained as part of the product. Nothing here waits on a regulator or a published specification, which is why operational builds are the ones we quote fastest. Tell us the requirement that would otherwise rule us out — that is a better first conversation than a demo.
Tell us what your operation needsPrice from the real number
AWRA allocates freight, duty and clearing at receiving and carries true landed cost into the [weighted average cost](/glossary/weighted-average-cost) that margins and pricing are read from.
See landed costing in AWRAFrequently asked questions
Is landed cost the same as cost of goods sold (COGS)?
Related, not identical. Landed cost is the per-unit acquisition cost at arrival; COGS is the expense recognized when units sell, computed from landed costs via your valuation method (FIFO, weighted average). Get landed cost wrong and COGS inherits the error.
Should recoverable VAT be in landed cost?
No — if you can claim it as input tax it is a cash-flow item, not a cost. Non-recoverable taxes and duties do belong in the cost. If you are not VAT-registered, import VAT is a real cost and lands on the goods. Confirm treatment with your accountant.
How do we handle landed cost when final charges arrive weeks after the goods?
Receive at estimated landed cost so the stock is sellable, then post the true-up as a cost adjustment when the final clearing invoice lands. The estimate-versus-final gap per shipment is itself a useful report — chronically bad estimates mean a component is being forgotten.
Does landed cost matter for domestic purchases?
Yes, at smaller scale: delivery charges, fuel surcharges, and handling on local purchases are landed costs too. The import version is just the dramatic case — the principle is identical: every cost of getting goods to usable state belongs on the goods.
