Landed Cost: What to Work Out Before a 3PL Quote

Landed cost is the full cost of one unit by the time it is sitting in your warehouse, ready to sell. It is the price you paid the supplier plus everything it took to get the unit to your door: freight, insurance, duty, customs fees, port charges and transport from the port. If you only know the factory price, you do not know your margin, and you cannot judge whether a fulfilment quote is good.

That matters before you talk to a 3PL. Fulfilment cost is one slice of what each order costs you. If the slice before it is a guess, every quote you compare is built on that guess.

What goes into landed cost

• Product cost. The price per unit on your supplier invoice, in the currency you pay.

• Freight. Sea, air or road, shared across the units in the shipment.

• Insurance. Cargo cover for the goods while they travel.

• Import duty. A percentage of the customs value, set by the commodity code for your product and the origin of the goods. Check the code and rate with your customs agent or on the government's tariff tool.

• Customs brokerage. A fee for the agent who submits the declaration.

• Port and handling charges. Unloading, storage at the port and terminal fees.

• Transport to the warehouse. Haulage from the port or airport to your 3PL.

• Inspection and testing. If you pay for quality checks or product testing.

• Currency cost. The exchange rate and bank fees when you pay the supplier.

Import VAT is usually recoverable if you are VAT registered, but you may have to fund it first unless you use postponed VAT accounting. Ask your accountant how it affects your cash flow. It is not normally part of the unit cost.

A worked example

The numbers below are invented to show the method. They are not rates, and your duty rate depends on your product.

Supplier price£8.00Freight and insurance, shared across the shipment£0.60Customs value (supplier price plus freight and insurance)£8.60Import duty at 4 percent of customs value£0.34Customs brokerage, shared across the shipment£0.15Port charges and haulage to the warehouse£0.25Landed cost per unit£9.34

The unit that cost £8.00 at the factory costs £9.34 at your warehouse, about 17 percent more. If you priced your product on the £8.00, your margin was never what you thought.

Why it changes your 3PL quotes

• It sets your ceiling. The pick fee, packaging and carrier cost come out of the gap between your selling price and landed cost. Without landed cost you cannot say what fulfilment you can afford.

• It affects storage decisions. Stock that cost more to land is more expensive to keep sitting on a shelf.

• It changes the case for bundles and minimum order values. Low-value items with high landed cost leave little room for a pick and pack fee.

• It exposes your true cost per order. Add landed cost of the items in the order to your fulfilment cost per order, and you see what each sale is worth. Our guide to what a good cost per order looks like is a good next read.

How to calculate yours

1. Pull the last three supplier invoices and the matching freight and customs invoices.

2. Add every cost for the shipment into one total.

3. Divide the total by the number of units in the shipment.

4. Do it per SKU if your products vary in size, weight or duty rate. Share freight by volume or weight, not evenly, if the items differ a lot.

5. Update it each time freight rates, duty or exchange rates move.

A spreadsheet is enough. The habit matters more than the tool.

Bring it to your 3PL conversation

Put landed cost per SKU in the brief you send to providers, next to your order volumes, parcel sizes and returns rate. It lets you judge each quote against your real margin. If you run a formal comparison, our guide to running a 3PL tender shows how to ask every provider to price the same sample month, and what a 3PL costs in the UK explains the lines you should expect to see.

People Also Ask

What is landed cost?

Landed cost is the total cost of getting a product to your warehouse. It includes the supplier price, freight, insurance, duty, customs fees, port charges and transport to the door, divided by the number of units.

How do you calculate landed cost per unit?

Add every cost on a shipment, including the supplier invoice, freight, insurance, duty, brokerage and haulage, then divide the total by the number of units. Do it by SKU if your products differ in size or duty rate.

Is VAT part of landed cost?

Normally not, if you are VAT registered and can recover import VAT. It can still affect cash flow because you may need to pay it first. Ask your accountant about postponed VAT accounting.

Finding the right 3PL partner

FulfilQ's advisor, Logan, matches brands to verified providers by order volume, product type and region. Tell Logan what you ship and where it goes, and you get a shortlist to quote against your own numbers. Start at fulfilq.com or browse the full provider directory.