Let’s start with a simple landed cost definition. Then we’ll explain what that definition means in reality, give you a landed cost formula and a quick way of getting an estimate for your particular business, thanks to the DHL Express Global Trade Services tool, which includes a landed cost calculator.
When an e-commerce business is pricing its products, it will need to consider more than just the cost of the materials. There will be several other costs associated with the product’s journey to the buyer’s door; knowing and factoring in all of these costs is important to ensuring a profit is made.
In simple terms, landed cost can be defined as the total cost of getting a product from the factory to a customer’s door. It includes shipping fees, insurance, and any customs and duties due if the goods cross borders.
The landed cost is the sum of several different component costs: the product price, transportation costs, customs duties & taxes, other regulatory fees, and insurance costs. Here’s a bit more explanation of what each of these components means:
Below is a simple formula showing how to calculate landed cost.
Without knowing your business’s costs, you risk running at a loss! Calculating your total landed cost will help you to:
Many of the component costs that make up your estimated landed cost can fluctuate. For example, the raw materials used in your product may increase or decrease in price, along with the cost of the fuel involved in manufacturing it. The freight costs will vary according to the size and weight of the goods and the logistics company you use. And of course, customs duties and taxes differ considerably between countries, as well as other regulatory fees (from Customs Authorities). Different currency exchange rates can also make a substantial impact.
So, while the formula used to calculate your estimated landed cost is relatively simple, these variations make it much more complicated and something you need to keep a close eye on.
Below is an example of a small business’s landed cost estimate from DHL Express.
It gives the business a clear overview of the total costs of getting the product to the customer’s door.
This in turn will help them price their products better and give the customer a transparent cost for shipping.
As international logistics specialists and e-commerce experts, we can help you optimize your supply chain and grow your business. Apply for a DHL Business Account today. Get started