How to Calculate 'Landed Cost' for your Food Business

November 27, 2023

When running an ecommerce business, understanding the true cost of your products is essential for making informed decisions and maintaining profitability. Landed cost is a crucial concept that encompasses all expenses associated with getting a product from the supplier to the buyer's hands. In this comprehensive guide, we'll explore what landed cost is, how to calculate it, and why it matters in the world of ecommerce.

What Is Landed Cost?

Landed cost, also known as total landed cost, refers to the sum of all costs incurred in bringing a product from the supplier's location to the buyer's destination. It includes not only the initial cost of the product itself but also various additional expenses, such as transportation, duties, taxes, customs fees, insurance, and handling charges. Landed cost provides a comprehensive view of the true cost of acquiring and delivering goods, enabling businesses to make accurate pricing decisions and optimize their supply chain.

Why Does Landed Cost Matter in Ecommerce?

Understanding landed cost is crucial for several reasons:

Accurate Pricing and Profit Margins

Landed cost helps ecommerce businesses determine the true cost of each product, enabling them to set accurate pricing and profit margins. By factoring in all expenses, businesses can ensure that their prices cover all costs and allow for a reasonable profit.

Cost Comparison for Sourcing

When evaluating suppliers or sourcing products from different regions, landed cost analysis provides a way to compare the total costs associated with each option. It helps businesses identify the most cost-effective sourcing strategies.

International Shipping and Compliance

For ecommerce businesses involved in international trade, landed cost is essential for managing cross-border transactions. It ensures compliance with import and export regulations and helps anticipate any potential delays or hidden costs.

Inventory Management and Demand Forecasting

Landed cost analysis contributes to effective inventory management and demand forecasting. By understanding the true cost of goods, businesses can make data-driven decisions about inventory levels and avoid overstocking or understocking.

How To Calculate Landed Cost

Calculating landed cost involves accounting for various direct and indirect expenses. Here's a step-by-step guide to calculating landed cost for your ecommerce products:

1. Initial Product Cost

Start by determining the cost of the product itself, including the purchase price from the supplier and any additional costs, such as commissions or rebates.

2. Transportation Costs

Next, calculate transportation expenses, which include shipping, freight, and handling charges from the supplier to your warehouse or fulfillment center.

3. Duties and Taxes

Identify any customs duties, tariffs, or taxes imposed on the imported goods. These fees vary based on the product's origin and destination countries.

4. Insurance

Include insurance costs for shipping and transportation. This is crucial for protecting your investment in case of any damage or loss during transit.

5. Customs Fees and Brokerage Charges

Factor in any customs clearance fees or brokerage charges associated with customs procedures and documentation.

6. Overhead and Administrative Costs

Consider indirect expenses, such as warehousing, storage, and administrative costs related to managing the inventory.

7. Currency Conversion

If you're dealing with multiple currencies, account for currency conversion fees and fluctuations.

8. Miscellaneous Costs

Include any other miscellaneous costs that are relevant to your specific supply chain and logistics. Once you have calculated all these components, add them together to obtain the landed cost per unit for your product.

Landed Cost Example: Protein Bars

Let's explore a practical example of calculating the landed cost for a food brand that sells protein bars. Assume that each protein bar pack costs $1 to produce, and the brand sells them at a retail price of $9.99. Here's a breakdown of the various costs involved:

  1. Manufacturing Cost per Protein Bar: $1
    This is the direct cost of producing one protein bar, including raw materials and labor.
  2. Transportation Cost to 3PL/Warehouse: $0.50
    The protein bars need to be transported from the manufacturing facility to the 3PL (third-party logistics) warehouse or the brand's own warehouse.
  3. Flat Shipping Rate: $5
    When customers purchase the protein bars, there is a flat shipping rate of $5 per transaction.
  4. Overhead Costs: $0.75
    This includes overhead expenses related to storage, warehouse management, and other administrative costs. These costs are distributed across all inventory.
  5. Transaction Fee: 2.9% + 30¢ per Protein Bar Transaction
    For each protein bar sold, there is a transaction fee charged by the payment processor, if you are using Shopify, is 2.9% of the sale price plus 30 cents.

Adding all these components together, we get the landed cost per protein bar:

$1 (Manufacturing Cost) + $0.5 (Transportation Cost) + $5 (Shipping Rate) + $0.75 (Overhead Costs) + $0.30 (Transaction Fee) = $7.55

In the protein bar example, there is a significant 443% increase between the manufacturing cost and the landed cost. This means that the landed cost of $7.55 represents 75.58% of the initial retail price of $9.99.

This substantial difference underscores the critical importance of accurately calculating landed costs for food brands. Understanding the true expenses involved in bringing the product to market empowers brands to make informed pricing decisions, maintain healthy profit margins, and optimize their overall operations. By factoring in all costs, including production, transportation, shipping, overhead, and transaction fees, food brands can set appropriate retail prices to remain competitive while still achieving profitability in the dynamic retail landscape.


Understanding landed cost is a fundamental aspect of running a successful ecommerce food business. By accounting for all expenses associated with sourcing, importing, and delivering products, businesses can make informed decisions, set accurate pricing, and optimize their supply chain. Calculating landed cost ensures profitability, enables cost comparison for sourcing, facilitates international shipping compliance, and enhances inventory management. As ecommerce continues to grow and global trade becomes increasingly complex, mastering the concept of landed cost is essential for businesses to stay competitive and thrive in the dynamic ecommerce landscape.

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