How to calculate landed cost per unit (and why your margin is smaller than your invoice says)

Ask a store owner what a product costs and they will quote the supplier’s unit price. Ask their accountant in March and the number is 20–40% higher. The difference is everything that happened between the factory and the shelf: freight, insurance, duty, customs brokerage, the exchange rate on the day the invoice was paid. That is landed cost, and every pricing decision that uses the invoice price instead is quietly wrong.

The five components

Unit price, converted. The invoice is in the supplier’s currency. Convert it at the rate you actually got from the bank, not the mid-market rate on a website — the spread is typically 1–3% and it is real money.

Freight and insurance. What you paid to move the shipment, in your currency. Sea, air, courier — all of it, including the last mile to your warehouse.

Duty. A percentage of the customs value, which is usually the invoice value (sometimes invoice plus freight, depending on the country). The rate depends on the product’s HS code; the same item can carry 0% or 12% depending on how it is classified, which is worth a conversation with your broker.

Customs and brokerage fees. Fixed charges per shipment for clearance, handling and paperwork.

Other. Pallets, inspection, warehouse receiving — whatever else the shipment cost you.

Add the last four together and you have the shipment’s “extras”. Divide extras by the invoice value and you have the uplift: 25% means every $100 of goods cost $125 to get to you.

Sharing the extras across the box

A shipment usually contains many SKUs, and the extras have to be split between them. Three methods, each right in a different situation:

By value — each line’s share of the invoice value. The default; what most accountants use; fair when duty is the main extra, since duty is itself a percentage of value.

By weight — each line’s share of the kilograms. Right when freight dominates and the box mixes heavy cheap items with light expensive ones. A cast-iron trivet and a silk scarf should not carry the same freight per dollar.

By units — equal per piece. Crude, but usable when items are similar.

Pick one method for the business and stay with it; switching between shipments makes costs impossible to compare.

A worked line

A shipment of 300 linen towels at ¥38.50 each, converted at 0.14: unit price $5.39, line value $1,617. The shipment’s invoice value is $9,000 and its extras — $1,450 freight, $90 insurance, 8% duty ($720), $220 customs, $60 other — total $2,540, a 28% uplift. By value, the towels carry 1,617 ÷ 9,000 = 18% of the extras, $456, or $1.52 per towel. Landed cost: $6.91, not $5.39. On a $24 sell price that is a 71% margin instead of the 78% the invoice suggested. Modest here; on a low-margin item it is the difference between profit and loss.

What to do with the number

Three checks, every time a shipment lands.

The uplift: is it creeping up? An uplift over 25–30% usually means air freight that should be sea, or an order too small for its fixed customs charges. The margin per SKU at the latest landed cost, against your target: the price that restores the target is landed cost ÷ (1 − target margin). The currency: if the supplier’s currency moves 10% against you, which SKUs fall below target? That is your exposure, and it argues for a forward contract or a price built with headroom.

The Landed Cost & COGS Calculator does all of this from three sheets: Shipments (invoice in any currency plus the extras), Lines (what was in the box — it allocates by value, weight or units), and a Catalogue with latest and average landed cost per SKU, the price for target, and an FX stress test. The Monday page shows one number — true gross margin at landed cost, weighted by what you sell — and three verdicts.

Whichever tool you use, stop pricing from the invoice. The invoice is what the supplier charged. Landed cost is what the product cost you.