Whether you are running a small or a large one, in business, everything should be calculated because even small things can make a big difference. Landed cost is one of the essentials of running a business. We should know how to calculate it, and we should care about it.
Landed cost is the term used for the total calculation of all expenses you made for buying the products that you’ll sell and its shipping charges from the source to you. But it’s not as simple as how it sounds. Because when we say all expenses, there are many things behind that.
What Composes a Landed Cost
To learn how to calculate the landed cost is also to obtain knowledge to what are the factors of doing so. Calculating landed cost involves:
- Agreed product price from the supplier, including packaging and branding.
- Quality assurance expenses.
- Freight cost includes packing, crating, handling and freight.
- Insurance, compliance and documentation costs.
- If shipping from overseas then it includes tariff and currency conversions.
- Overhead costs or other expenses until it reaches your warehouse or distribution center.
The key here is to gather all the data and to know everything that may involve expenses even the smallest cent.
How to Calculate Landed Cost
Formula: (Total Item Cost + Quality Assurance Fee + Freight Cost + Insurance Charges + Tariff Charge + Overhead) / Shipment Quantity = Landed Cost Per Unit
Now this is just a simple formula. It gets a bit more complicated once other factors have been added. But having an idea about it can absolutely help you with handling your own business.
Is Learning Landed Cost Worth Your Time?
In simplest words, knowing your landed cost can help you grasp your own business. It allows you to maximize your pricing, gauge how your business is performing, and it lets you know the total expenses you made for your inventory. Also, it helps you analyze your supply chain, and it can be your basis whether you need to do some cost-cutting, etc.
If you want to deep dive, here’s more importance of landed cost:
- Accurate data on landed cost can help you plan ahead. You’ll be able to make decisions about your product by not only its price as the basis but also other factors.
- It lets you ensure the estimated profit of the product so you can sell it with discounts.
- It allows you to see the true cost of your product to know what price to sell it for.
- During supply chain management, landed cost allows you to identify where you can make savings by knowing the different costs involved in purchasing goods. In other words, it helps you determine where you can reduce expenses.
- Accurate monthly profits and accurate asset values for the business can easily be viewed when accounting for landed cost was made.
Nowadays, there are many websites and programs that can help you calculate your landed cost, you can even hire someone to do it for you. But even so, it’s wise that you know how to do it manually for cross-reference.