Your supplier quotes £3.20 a unit, so the product costs £3.20. Except it doesn't. By the time a unit sits in your warehouse, ready to sell, you have also paid for freight, insurance, duty, customs paperwork and a truck from the port. That full figure is your landed cost. Every profit calculation should start from it.
What landed cost means
Landed cost is the total cost of getting one unit from your supplier to the place you sell it from: your own stockroom, a third-party warehouse (3PL) or an Amazon fulfilment centre. It covers everything you pay before the first sale.
Selling costs, such as marketplace fees, payment fees and ads, come later. They are not part of landed cost.
The formula
Landed cost per unit = (product cost + packaging + freight + insurance + customs duty + brokerage and clearance + delivery to the warehouse) ÷ number of sellable units
Work it out for the whole shipment first, then divide. Many costs, like freight and broker fees, are charged per shipment, not per unit.
Each cost explained
Product cost
The price on your supplier's invoice, converted to your currency. Check the Incoterm on the quote, because it decides what the price includes:
- EXW (ex works): you pay to collect the goods from the factory.
- FOB (free on board): the supplier pays to get the goods onto the ship, and you pay from there.
- DDP (delivered duty paid): the supplier delivers to your door with duty paid. It's simpler, but it hides the parts of the cost.
Also count bank transfer and currency conversion fees.
Packaging and labels
Retail boxes, inserts, polybags, barcodes and any labels a marketplace requires. If the supplier includes them in the unit price, don't count them twice.
Freight
The cost of moving goods from the supplier to the destination port or airport. Sea freight is cheaper per unit but slow. Air and express courier are faster and cost more. Freight is usually priced on volume or weight, whichever is greater, so bulky, light products cost more to ship than you might expect. Get a written quote from a freight forwarder for your real carton sizes.
Insurance
Cargo insurance covers loss or damage in transit. It's usually a small amount, but it matters for the next line: in many countries it is part of the value that duty is charged on.
Customs duty
Duty depends on the product's customs code (HS code), the country where it was made and the country you import into. It is a percentage of the customs value, and that value is defined differently by country:
- UK and EU: the customs value is usually the price of the goods plus freight and insurance up to the border.
- US: duty is usually charged on the value of the goods alone, without international freight and insurance. The US also charges some processing fees on imports.
Look up your rate in the destination's tariff before you order, and ask your broker or forwarder to confirm the code. A wrong code can change the rate completely.
Brokerage and clearance
A customs broker files the import declaration for you. Expect a broker fee plus port, terminal and handling charges. Many of these are fixed per shipment. That is why a small first order can have a high landed cost per unit.
Delivery to the warehouse
Trucking from the port to your warehouse or fulfilment centre, plus any prep or labelling service on the way. For Amazon FBA, include the cost of sending stock into Amazon's network.
Losses
Some units arrive damaged or fail inspection. Divide the total cost by the units you can actually sell, not the units you ordered.
What about import VAT?
The UK and EU countries charge import VAT when goods arrive, usually on the customs value plus duty. If your business is VAT-registered and the goods are for your taxable sales, you can usually reclaim it on your VAT return. In the UK, many importers use postponed VAT accounting, which lets them declare and reclaim it on the same return instead of paying it at the border.
So for most registered sellers, import VAT affects cash flow but is not a cost. If you are not VAT-registered, you usually can't reclaim it, and it belongs in your landed cost. Our VAT guide for Amazon sellers explains the wider picture, and your accountant can confirm your situation.
Worked example
A seller imports 500 units of a silicone kitchen product into the UK by sea. All rates and quotes are assumed for illustration.
First, the duty. The customs value is the goods (£1,600.00) plus packaging on the same invoice (£150.00) plus freight (£420.00) plus insurance (£15.00), which is £2,185.00. Duty at an assumed 4% is £87.40.
| Cost | Shipment total | Per unit (500 units) |
|---|---|---|
| Product (£3.20 a unit) | £1,600.00 | £3.20 |
| Packaging and labels | £150.00 | £0.30 |
| Sea freight to UK port | £420.00 | £0.84 |
| Cargo insurance | £15.00 | £0.03 |
| Customs duty (assumed 4%) | £87.40 | £0.17 |
| Broker, port and clearance fees | £140.00 | £0.28 |
| Delivery to warehouse | £180.00 | £0.36 |
| Landed cost | £2,592.40 | £5.18 |
The unit that cost £3.20 at the factory costs about £5.18 in the warehouse, around 62% more. If 10 units arrive damaged, the same £2,592.40 is spread over 490 sellable units, and the landed cost rises to about £5.29.
Import VAT on this shipment would be about £454.48 (20% of £2,272.40, the customs value plus duty). The seller is VAT-registered and reclaims it, so it is not in the table.
Splitting costs across several products
When one shipment carries more than one product, split shared costs the way they were charged:
- Freight: by volume for sea freight, or by chargeable weight for air. If product A takes 2 cubic metres and product B takes 1, A carries two-thirds of the freight: £280 of a £420 bill, and B carries £140.
- Duty: per product, using each product's own code and rate.
- Fixed fees (broker, port, delivery): by volume or by value. Pick one method and use it every time.
Common mistakes
- Using the factory price as your cost. It makes every margin look better than it is.
- Charging duty on the goods alone in the UK or EU, when the customs value usually includes freight and insurance.
- Forgetting fixed fees on small orders. A £140 broker bill is £0.28 a unit on 500 units, but £1.40 a unit on 100.
- Counting reclaimable VAT as a cost, or leaving it out when you can't reclaim it.
- Ignoring one-off costs such as samples, inspection and product testing. Spread them over the first order so you see the real cost of launching.
Use landed cost in your profit numbers
Landed cost feeds every other number. Profit per unit is the selling price minus VAT, landed cost, channel fees and ad cost. ROI is that profit divided by landed cost. Our Amazon FBA profit guide shows the full calculation. A reliable landed cost also starts with a reliable supplier, so read how to find and vet a supplier before you pay a deposit.
Where Ecomtoro fits
Ecomtoro doesn't quote freight, so start with your forwarder's quote. Enter your unit cost, freight per unit and duty rate, and it charges duty on the right basis for the US, UK or Germany. It then works out profit per unit, net margin, ROI and break-even ROAS for Amazon FBA, Shopify and TikTok Shop, with VAT and channel fees included. If the duty rate is unknown, it shows the gap instead of guessing.
Frequently asked questions
What is included in landed cost?
Everything you pay to get a unit to the place you sell from: product, packaging, freight, insurance, customs duty, broker and clearance fees, and delivery to your warehouse. Selling costs such as marketplace fees and ads are not included.
Is import duty charged on the product price or on the price plus shipping?
It depends on the country. In the UK and EU, the customs value is usually the goods plus freight and insurance to the border. In the US, duty is usually charged on the value of the goods alone.
Should import VAT be part of landed cost?
If you are VAT-registered and can reclaim it, usually not, because you get it back through your VAT return. If you can't reclaim it, include it. An accountant can confirm your position.
How can I lower my landed cost?
Order larger quantities so fixed fees are spread over more units, ship by sea instead of air, reduce packaging volume, and make sure your product's customs code is correct.
