What landed cost is
Landed cost is the full cost of a product at the point where you can sell it. For goods made in China, that means the supplier's price plus everything that happens between the factory gate and your warehouse shelf — and the things that happen to your cash and your inventory along the way.
The formula is simple. The discipline is in not leaving lines out:
Landed cost per unit = (goods + international freight + insurance + duty + clearance and port fees + inland delivery + inspection + cost of capital in transit) ÷ units that arrive sellable
Two parts of that formula are where most spreadsheets go wrong. Duty is calculated on a different base depending on where you import. And the divisor is the units you can actually sell, which is never quite the number you paid for.
Landed cost calculator
Put in one real shipment. The defaults are illustrative, not a quote. Change any field and the result updates.
| Line | Shipment | Per unit |
|---|
Per-unit figures divide by units shipped, except the last two lines. Import VAT is left out because a VAT-registered business normally recovers it. Duty rates: US HTS · EU TARIC · UK Trade Tariff. Nothing you type here leaves your browser.
FOB vs landed cost — and the Incoterm in between
A quotation is only comparable to another quotation on the same Incoterm. The four you will see most often from Chinese suppliers move the cost line to different places:
| Term | Supplier's price includes | Your risk starts |
|---|---|---|
| EXW Ex Works | Goods at the factory door. Nothing else. | At the factory |
| FOB Free On Board | Goods, export clearance, loading onto the vessel at the Chinese port | Once loaded at origin |
| CIF Cost, Insurance & Freight | FOB plus ocean freight and minimum insurance to your port | Once loaded at origin — not at arrival |
| DDP Delivered Duty Paid | Everything, including your import duty | At your door |
Two things in that table are worth a second look. CIF moves the freight cost to the supplier but not the risk: if the container is damaged at sea, it is still your problem, now with an insurance policy you did not choose. And a DDP price looks like a landed cost but hides the duty calculation inside the supplier's margin, where you cannot check it.
FOB is the right basis for comparing suppliers. It is the wrong basis for deciding whether you made money.
The lines that never appear on an invoice
Freight, duty and clearance all arrive as bills, so they get counted. These do not, so they usually do not.
1 · The units you cannot sell
A defective unit found at the factory costs a repair or a replacement. The same unit found in your warehouse has already been paid for, shipped, insured, cleared and taxed. The cost of a defect grows at every step it travels, which is why inspection before shipment is cheap relative to what it prevents — and why a landed cost divided by units shipped flatters every supplier with a quality problem.
2 · Cash in transit
A common structure is a deposit at order and the balance before shipment. Add production time and a month or more on the water to Europe, and the money is out of your account for a quarter before a unit is sold. At a normal cost of capital, that is a real percentage of the unit cost, and it grows every time a shipment slips.
3 · Tooling
Moulds and dies are paid once, so they disappear from the unit cost after the first order. They should not. Spread them over the tool's planned life, and know where the tool is and who owns it in writing — the day you want to move production is the day that question gets expensive.
4 · The expedite
One missed vessel and one air-freight shipment to cover it can erase the saving that justified the supplier in the first place. A landed cost that assumes every shipment goes by sea, on time, is a forecast of the best case.
Why this is the number to manage
For twenty years I have run Termozeta's China manufacturing at finished-product level — the whole bill of materials, not one supplier. The pattern does not change: decisions are made on the unit price and judged, a year later, on the landed cost.
I have watched a supplier change made to save eighty cents a part end up costing a hundred and thirty-four thousand dollars. None of that cost was on the quotation. All of it was in the landed cost.
The $134,000 supplier switch, in detail →
The same arithmetic decides whether a China+1 move pays for itself, and the raw-material side of it moves every quarter — the factory cost index tracks what we actually pay.