A supplier quotes you six dollars a unit and you build your whole pricing model around it. By the time that unit is sitting in a fulfillment center ready to sell, it cost you closer to ten. The four-dollar gap is landed cost — and ignoring it is how profitable-looking products quietly lose money.
The factory quote is the most dangerous number in ecommerce sourcing because it feels like the answer when it is only the beginning. A supplier quotes the price of goods leaving their door — ex-works, in trade terms — and that price ignores everything that happens between the factory floor and your fulfillment center. International freight, cargo insurance, customs duties, additional tariffs, broker fees, port drayage, inbound trucking, and 3PL handling all stack on top, and together they routinely add 30-50% to the factory price. A seller who prices on the quote is pricing on roughly two-thirds of the real cost, which means every margin calculation downstream is wrong in the same optimistic direction. This guide builds landed cost from the ground up: the eight components, how to find your duty and tariff rates, the formula, a worked example, why the number moves with every purchase order, and the levers that actually bring it down. It pairs directly with the true-cost-of-a-sale teardown — landed cost is the product-cost line that teardown starts from.
The total per-unit cost of a product by the time it reaches your fulfillment center, ready to sell — including factory price, freight, insurance, customs duties, tariffs, broker fees, drayage, and inbound handling. Landed cost is the only accurate cost-of-goods figure for pricing because the factory quote typically represents only 50-70% of what the unit actually costs delivered.
Why the factory quote misleads
A factory quote answers one narrow question: what does it cost to make this product and hand it over at the factory door? That is genuinely useful information, but it is not the cost of selling the product. The quote stops exactly where the logistics begin, and the logistics are where 30-50% of the real cost lives. The danger is that the quote arrives early, looks authoritative, and gets baked into pricing before any of the downstream costs are known.
The trade term attached to the quote tells you how much is missing. An ex-works (EXW) quote includes almost nothing beyond the goods themselves. An FOB quote includes getting the goods onto the vessel but nothing after. A landed or DDP quote includes far more. Many sellers receive an EXW or FOB quote, treat it as the product cost, and never add back the freight, duties, and handling that the term explicitly excludes. The quote is not dishonest — it is just answering a different question than the seller thinks it is.
Before using any supplier quote in a pricing model, check the Incoterm. EXW and FOB quotes deliberately exclude most logistics costs. Treating an FOB price as landed cost is the single most common sourcing-economics error — the term itself is telling you what is missing.
The 8 components of landed cost
Landed cost is the sum of eight components. Some are per-unit by nature; others are shipment-level costs allocated across units. Building the habit of listing all eight every time prevents the quiet omissions that understate cost.
The goods cost per unit at the supplier's quoted Incoterm. The starting point, not the answer.
Ocean or air transport, allocated per unit. The biggest variable and the one most sensitive to shipment size.
Coverage against loss or damage in transit. Small but real; frequently forgotten entirely.
Standard import tax from your product's HTS classification, calculated on customs value.
Trade-policy charges layered on top of duty for certain origins. They stack with the base duty.
Customs broker charges for clearing the shipment. A fixed per-shipment cost spread across units.
Moving the container from port, plus terminal handling and any demurrage if it sits too long.
Trucking to your warehouse or Amazon, plus receiving, prep, and inbound handling.
Components 2, 6, 7, and 8 are largely fixed at the shipment level, which is why per-unit landed cost depends so heavily on how many units share the shipment. The same eight costs spread across 5,000 units produce a far lower per-unit figure than across 1,000.
Freight: the biggest variable
Freight is the landed-cost component with the widest range and the most leverage. It commonly adds 10-40% to the factory cost per unit, but the figure swings dramatically with shipment mode (ocean versus air), route, fuel surcharges, season, and above all how full the shipment is. Because freight is largely a fixed cost for a given container or consignment, the per-unit number is almost entirely a function of how many units share the space.
This makes shipment efficiency a direct margin lever. A half-full container costs nearly the same to ship as a full one, so the per-unit freight on a half-full load can be close to double. Sellers who order in quantities that fill containers cleanly, consolidate shipments from multiple suppliers, or move from less-than-container-load to full-container-load as volume grows are not just simplifying logistics — they are directly lowering landed cost on every unit. The decision of how much to order is partly a freight-optimization decision.
Freight is mostly fixed per shipment. A half-full container can nearly double per-unit freight versus a full one. Order quantity is therefore partly a freight decision — the difference between an efficient and an inefficient load can move landed cost by several percentage points.
Duties vs tariffs (and HTS codes)
Duties and tariffs are often used interchangeably but are worth separating because they stack. A duty is the standard import tax a country charges on a product, determined by the product's HTS (Harmonized Tariff Schedule) classification and calculated on the declared customs value. A tariff, in common usage, refers to additional trade-policy charges layered on top — the kind that can change quickly with policy and that apply to specific origins.
Both are calculated on customs value, and both increase landed cost, but the critical practical point is that they add together. A product can owe a base duty plus an additional tariff, and a seller who budgeted only for the base duty gets a larger-than-expected bill at customs. The starting point for getting either right is the HTS code, which classifies what the product is; the duty rate flows from that classification, and the additional tariff (if any) flows from the country of origin. Getting the HTS code right is both a compliance matter and a landed-cost accuracy matter — a customs broker can confirm the classification.
A duty is the standard tax a country charges on an imported product, set by its tariff schedule and based on the product's HTS classification and declared value. A tariff in common usage refers to additional or special trade-policy charges layered on top of the standard duty. Both are calculated on customs value and both increase landed cost — and they stack.
Broker, drayage & inbound
Between the port and your warehouse sits a cluster of costs that individually look small and collectively get forgotten. The customs broker charges a fee to clear the shipment through customs — filing the entry, classifying the goods, handling the paperwork. Drayage is the short-haul move of the container from the port to a rail yard or warehouse, and terminal handling charges apply at the port itself. If the container sits too long before pickup, demurrage charges accrue.
Then comes the inbound leg: trucking from the port or deconsolidation point to your warehouse or to Amazon, plus the receiving and prep work to get units shelf-ready or FBA-compliant. None of these is large on its own, but a landed-cost estimate that includes only factory price, freight, and duty — skipping broker, drayage, and inbound — will understate the real number by a meaningful margin. The discipline is to list all eight components every time, even the small ones.
3PL and the last leg
For brands that route inventory through a third-party logistics provider before it reaches the customer or Amazon, the 3PL adds its own layer to landed cost: receiving fees, storage, pick-and-pack, and often prep services like labeling, bundling, or FBA-compliant packaging. Whether these belong in landed cost or in fulfillment cost depends on where you draw the line — but they must be counted somewhere, and double-counting or omitting them are both common errors.
The cleanest approach is to define landed cost as everything required to get a sellable unit to its selling location, and to put any 3PL receiving and prep that happens before that point into landed cost, while ongoing per-order fulfillment goes into the cost-of-sale calculation. The decision matters less than the consistency: pick a clear boundary and apply it the same way across every SKU so comparisons stay honest. The broader fulfillment trade-offs are covered in the inventory forecasting guide.
The landed-cost formula
The formula is straightforward; the discipline is in collecting every input. Sum all shipment-level costs, add the per-unit costs, and divide by the number of units in the shipment.
The calculation order
- Factory cost = unit price × number of units (the goods total)
- Plus freight = total international freight for the shipment
- Plus insurance = cargo insurance for the shipment
- Plus duty = duty rate × customs value
- Plus tariff = any additional tariff rate × customs value
- Plus broker + drayage + port = clearance and port-side handling totals
- Plus inbound + 3PL prep = trucking and receiving to get units sellable
- Divide the grand total by units = landed cost per unit
The result is one number per unit that you can drop straight into the contribution-margin worksheet as the true product cost. Everything before this point is sourcing logistics; everything after is platform economics. Landed cost is the hinge between the two.
A worked example
Here is the formula applied to an illustrative shipment of 2,000 units quoted at $6.00 ex-works. The figures are illustrative; the structure is the point.
| Component | Per Unit | Note |
|---|---|---|
| Factory price (EXW) | $6.00 | The quote everyone anchors to |
| International freight | $1.20 | Allocated across 2,000 units |
| Cargo insurance | $0.05 | Small but real |
| Customs duty | $0.90 | Duty rate on customs value |
| Additional tariff | $0.90 | Stacks on the base duty |
| Broker + drayage + port | $0.35 | Clearance and port handling |
| Inbound + 3PL prep | $0.20 | Trucking and receiving |
| True landed cost | $9.60 | +60% over the quote |
The factory quote was $6.00; the true landed cost is $9.60 — the quote represented just 62% of the real number. A seller who priced this product assuming a $6.00 cost would have built every downstream margin calculation on a figure that was understated by 60%. Notice too that duty and tariff together ($1.80) exceed freight, and that the small forgotten items (insurance, broker, inbound) add up to $0.60 on their own. Each layer that gets skipped pushes the pricing model further from reality.
A supplier quotes six dollars and you build your model around it. By the time the unit is sitting in a fulfillment center, it cost you ten. That four-dollar gap is landed cost — and ignoring it is how profitable-looking products lose money.
Why it changes every PO
Landed cost is not a number you calculate once and carry forward. Nearly every input moves over time. Freight rates fluctuate with market conditions, fuel surcharges, and peak season. Duty and tariff rates can shift with trade policy, sometimes abruptly. Factory prices move with raw materials and currency. And the per-unit freight allocation changes with every shipment size. A landed cost that was accurate two quarters ago can be materially wrong on the next purchase order.
The practical consequence is that landed cost should be recalculated for each PO, not inherited. A brand that locks in a landed-cost figure and prices off it for a year is pricing off stale data, and the direction of the error is unpredictable — freight might have fallen, but a new tariff might have more than offset it. Building the recalculation into the purchasing process, so every PO triggers a fresh landed-cost build, keeps pricing anchored to reality rather than to a number that was true once.
Levers that lower landed cost
Landed cost feels fixed but has several real levers. Pulling them is often more reliable than a price increase because it improves margin without any conversion-rate risk.
The controllable levers
- Shipment fill — order quantities that fill containers cleanly; consolidate suppliers; move LCL to FCL as volume grows. The single biggest freight lever.
- HTS classification — confirm the correct (and most favorable legitimate) classification with a broker; misclassification both overpays and creates compliance risk.
- Sourcing origin — where additional tariffs apply to specific origins, an alternative origin can remove the tariff layer entirely (covered in section 12).
- Mode and timing — ocean over air where lead time allows; avoid peak-season freight spikes by ordering ahead.
- Packaging efficiency — tighter packaging fits more units per container, lowering per-unit freight, and can reduce dimensional fulfillment fees downstream.
- Demurrage avoidance — clear and collect containers promptly so they do not accrue port storage charges.
Common landed-cost mistakes
Five mistakes recur when brands estimate landed cost. All distort pricing in the optimistic direction.
Using the EXW or FOB price as the product cost. Fix: read the Incoterm and add back everything the term excludes.
Counting the base duty and missing the additional tariff that stacks on top. Fix: check origin-based tariffs separately from the HTS duty.
Omitting insurance, broker, drayage, and inbound because each looks trivial. Fix: list all eight components every time.
Pricing for a year off a landed cost calculated once. Fix: recalculate landed cost on every purchase order.
Using the same per-unit freight regardless of order quantity. Fix: re-allocate fixed freight and fees across the actual unit count.
Sourcing flexibility & tariffs
When additional tariffs target a specific country of origin, they become one of the few landed-cost inputs that can be removed entirely rather than merely reduced — by sourcing the product from a different origin not subject to the tariff. This makes sourcing flexibility a strategic asset rather than just an operational nicety, and it is why brands heavily exposed to origin-specific tariffs increasingly diversify their supplier base across countries.
The trade-off is real: a new origin may carry a higher factory price, longer lead times, or quality-qualification costs that partly offset the tariff saving. The right analysis runs the full landed-cost build for each origin option, tariff included, and compares the all-in per-unit numbers rather than the factory prices. Sometimes the higher-quoted, lower-tariff origin wins on landed cost; sometimes it does not. The point is that the comparison should be made on landed cost, the same honest number this entire guide is built around — not on the factory quotes, which by now you know to distrust.
When evaluating an alternative sourcing origin to escape a tariff, run the complete landed-cost build for each option and compare the all-in per-unit figures. A higher factory quote with no tariff can beat a lower quote that carries one — but only the landed-cost comparison reveals which.
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Book a strategy call →The 7 Things to Remember About Landed Cost
- Landed cost is the all-in per-unit cost to get a product to your fulfillment center ready to sell — the factory quote is only 50-70% of it
- There are eight components: factory price, freight, insurance, duty, tariff, broker fees, drayage/port, and inbound/3PL
- Freight is the biggest variable (10-40%) and is mostly fixed per shipment, so per-unit freight falls sharply as shipment size rises
- Duties and tariffs stack — a product can owe a base duty plus an additional origin-based tariff, both calculated on customs value
- Always price on landed cost, never the factory quote; the quote understates real cost by 30-50% and corrupts every downstream margin number
- Recalculate landed cost on every purchase order, because freight, tariffs, factory prices, and shipment size all move over time
- The biggest controllable levers are shipment fill, HTS classification, sourcing origin, and packaging efficiency — often more reliable than a price increase