What is Landed Cost?
Landed cost is the complete cost of acquiring a product and having it physically arrive at your warehouse, ready to be picked, packed, and shipped to customers. "Landed" refers to the product having "landed" at its destination — your stock location.
It is the most accurate measure of a product's true cost basis, and the only number you should use when calculating margins, setting prices, and determining Google Ads targets.
Landed Cost vs. COGS
Landed cost and COGS are often used interchangeably, but there's a nuance: COGS is an accounting term that uses the cost of goods sold in a period (adjusted for opening and closing stock). Landed cost is the per-unit cost calculation. For day-to-day pricing and ad targeting decisions, use landed cost. Your accountant will use COGS for your P&L.
Components of Landed Cost
| Cost Component | Description | Typical Range |
|---|---|---|
| Product Cost | Supplier invoice price, net of discounts | Base (100%) |
| Ocean / Air Freight | Cost of transporting goods from origin to destination port | 5–20% of goods value |
| Import Duties (Tariffs) | Customs tariffs based on HS code and country of origin | 0–12% of customs value |
| Cargo Insurance | Insurance against loss or damage during transit | 0.2–0.5% of goods value |
| Port Handling Fees | Unloading, port storage, and terminal handling | £100–£400 per shipment |
| Customs Clearance | Freight forwarder or customs broker fees | £80–£250 per shipment |
| Inland Freight | Haulage from port to warehouse | £150–£500 per shipment |
| Quality Inspection | Pre-shipment inspection or factory audit fees | £200–£400 per inspection |
| Compliance / Certification | Product testing, CE marking, UKCA certification | £500–£5,000 (amortised over units) |
Don't Forget Compliance Costs
Product certifications (CE, UKCA, ROHS) and testing costs are often paid once and forgotten. But they should be amortised across the units they cover and included in landed cost. For a certification costing £2,000 covering 5,000 units, add £0.40 per unit to your landed cost.
The Landed Cost Formula
LANDED COST FORMULA
Total Shipment Cost = Product Cost + Freight + Duties + Insurance + Port Fees + Clearance + Inland Freight + Inspection
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Per-Unit Landed Cost = Total Shipment Cost ÷ Units Received
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Note: Where a cost is shared across multiple products in the same shipment (e.g., freight), allocate proportionally by unit count or by goods value, depending on which is more representative for your product mix.
Worked Example
WORKED EXAMPLE — 600 units of a ceramic kitchenware set, imported from China
Product cost: £11.20 × 600 = £6,720.00
Ocean freight (20ft FCL): £1,450.00 ÷ 600 = £2.42 per unit
Import duty (UK rate 6.5% on customs value of £6,720): £436.80 ÷ 600 = £0.73 per unit
Cargo insurance (0.3% of goods value): £20.16 ÷ 600 = £0.03 per unit
Port handling & terminal fees: £280.00 ÷ 600 = £0.47 per unit
Customs clearance (freight forwarder): £175.00 ÷ 600 = £0.29 per unit
Inland haulage (port to warehouse): £320.00 ÷ 600 = £0.53 per unit
Pre-shipment inspection: £290.00 ÷ 600 = £0.48 per unit
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Per-unit landed cost = £11.20 + £2.42 + £0.73 + £0.03 + £0.47 + £0.29 + £0.53 + £0.48 = £16.15
That's 44% above the supplier invoice price of £11.20.
If the product sells for £39.99: Gross margin using landed cost = (£39.99 − £16.15) ÷ £39.99 = 59.6%
Gross margin using supplier price only = (£39.99 − £11.20) ÷ £39.99 = 72.0% — a 12-point overstatement.
How Landed Cost Affects Your ROAS Target
Every percentage point of cost you miss when calculating landed cost translates directly into an understated minimum ROAS target — meaning you may run campaigns that appear profitable but are silently losing money.
ROAS TARGET COMPARISON
Scenario A — using supplier price only (£11.20 cost on £39.99 product):
Gross margin: 72% | Minimum viable ROAS (to cover 15% operating costs): ~1.4×
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Scenario B — using true landed cost (£16.15 on £39.99 product):
Gross margin: 59.6% | Minimum viable ROAS (same 15% operating costs): ~1.9×
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Running at a ROAS of 1.6× looks profitable in Scenario A but loses money in Scenario B.
The minimum viable ROAS formula:
MINIMUM ROAS FORMULA
Min ROAS = 1 ÷ (1 − (Landed Cost % + Operating Cost %))
Where costs are expressed as a decimal fraction of selling price.
Example: Landed cost 40% + Operating costs 15% = 55% total cost ratio
Min ROAS = 1 ÷ (1 − 0.55) = 2.22×
International Sourcing Considerations
Currency Risk
If you buy in USD or CNY but sell in GBP, exchange rate fluctuations change your effective landed cost without any action on your part. A 5% weakening of GBP against USD increases your landed cost by ~5%. Review your landed cost figures at least quarterly or after significant currency movements.
Incoterms
Your supplier's quote will specify Incoterms (e.g., FOB, CIF, DDP) which determine which party bears which costs. Under FOB (Free On Board), you pay all costs from the origin port onwards. Under DDP (Delivered Duty Paid), the supplier bears all costs to your door. Always clarify Incoterms before building your landed cost model.
Post-Brexit UK Tariff Changes
UK duty rates now follow the UK Global Tariff, which differs from EU rates for some product categories. Always verify the current UK duty rate using the HMRC Trade Tariff tool rather than relying on pre-2021 figures.
Air Freight vs. Ocean Freight
Air freight is typically 4–6× more expensive than ocean freight per kg but delivers in days rather than weeks. For high-value, low-weight products, air freight may still represent a small landed cost premium. For heavy or bulky goods, it can be prohibitively expensive and should only be used for emergency restocking.
Frequently Asked Questions
What is landed cost in e-commerce?
Landed cost is the total cost of getting a product from your supplier to your warehouse, ready to sell. It includes the product purchase price plus all inbound freight, insurance, customs duties, port handling, and any compliance or inspection costs.
What is the landed cost formula?
Landed Cost = Product Cost + Inbound Freight + Import Duties + Insurance + Port Handling & Customs Clearance + Quality Inspection Costs. Divide the total by units received to get a per-unit landed cost.
How does landed cost affect my ROAS target?
Your minimum viable ROAS is based on your margin, which is based on your landed cost. If your landed cost is 30% higher than you thought, your true margin is lower, and your minimum ROAS target needs to be higher to remain profitable.
How do I calculate import duties for my products?
Import duties are based on the commodity code (HS code) of your product and the country of origin. In the UK, you can look up duty rates at the HMRC Trade Tariff tool (trade-tariff.service.gov.uk). Duties typically range from 0% to 12% of the customs value for most consumer goods.
Should I include VAT in my landed cost calculation?
No — import VAT is reclaimable for VAT-registered businesses and should not be included in landed cost for margin calculations. It is a cash flow cost but not a true cost of the goods.
Next Steps
Build a landed cost spreadsheet for your top-selling products. Start with the supplier invoice, then layer in freight, duties, and handling using actual invoices from your last shipment. The difference between what you've been using and true landed cost will inform both your pricing and your ROAS targets going forward.
Store Landed Cost in GROW Platform
GROW Platform's COGS+ feature stores your full landed cost per SKU — product price, freight, duties, packaging, and more. It uses this to calculate the minimum profitable ROAS for each product's Google Shopping campaign and keeps your bids accurate as costs change. Create an account →
