Optimize your supply chain operations with a landed cost calculator

Let’s start with a story, shall we?

My little cousin was recently selling lemonade on his block for $1 a cup, but kept losing money. 

But with ingredients priced at only $0.60 per cup, how could this be? 

When we sat down to talk about this conundrum, I learned he was so swamped with practicing his times tables that he didn’t have time to bike to the store. He had resorted to ordering all of his ingredients on Instacart—and all those taxes and fees were adding $0.50 per cup to his overhead. 

He raised the price to $1.50/cup, and was back to making a killing.

This completely fabricated (but very realistic) scenario actually has a point: It’s a good illustration of landed cost. Even at a simple business like a lemonade stand, you’ve got to know the total cost of your wares, including the costs of shipping, storage, and associated fees. In other words, it’s not just the price of the goods themselves that matters, but also what you’re spending to get those goods to the consumer.

Duh, you might say—this is a core principle of supply chain management. But how exactly do you calculate your landed cost? Read on to find out.

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What is landed cost?

Landed cost is the total cost of an item that has been delivered to a specific location. This includes the item price, as well as all additional costs incurred on its way to the customer’s hands. Think shipping and freight fees; import duties, tariffs, and taxes; insurance premiums or other risk mitigation expenses; and storage and handling charges.

By calculating landed cost, you can better understand the actual cost of securing and moving inventory. This trickles down to all kinds of business decisions around pricing and spending at each link in the supply chain.

Why is landed cost important?

Accurately calculating landed cost is crucial for optimizing your supply chain operations and maintaining profitability. On a basic level, understanding all the hidden costs in securing and transporting goods makes for more accurate budgeting.

Beyond keeping financials accurate, increased visibility enables ops teams to be more strategic. Knowing where you’re spending can help you identify opportunities for savings and operational improvements. Beyond that, increased awareness of how much you’re spending to move, store, and insure product gives you the leverage to compare costs and negotiate more favorable vendor terms.

Understanding landed cost translates to better strategic decisions about sourcing, pricing, and inventory management.

How to calculate landed cost

The basic formula for calculating landed cost is something like:

Unit cost + freight charges + duties + taxes + insurance premiums + other fees =

Landed cost

Let's break down the key components:

• Unit Cost: The price a consumer pays for an individual item, before any additional costs.
• Freight Cost: The cost to transport the goods to the consumer.
• Duties: Any import taxes or tariffs owed on the goods.
• Taxes: Sales tax, value-added tax (VAT), or other taxes applied.
• Insurance: The cost to insure the goods during transportation.
• Other Fees: Any other expenses, such as storage, handling, or brokerage fees.

Inputting these values into the formula will produce the true landed cost per unit.

Using a landed cost calculator

Although you can calculate landed cost manually, this can be time consuming and error-prone. Taxes and tariffs vary by destination, and carrier costs are constantly changing. (If you haven’t heard of a rate card, consider yourself lucky.)

Using a dedicated landed cost calculator can simplify the process and provide more detailed insights. A good landed cost calculator will enable you to input all relevant cost components, automatically perform the landed cost calculation, and deliver a detailed breakdown of the individual cost elements. An excellent calculator will also generate reports and data visualizations to analyze cost trends, and point out significant variances when they occur.

Parabola is one such tool. With Parabola, you can create a landed cost calculator that seamlessly integrates with your various supply chain systems, performs the necessary calculations, and outputs detailed reports and visualizations. This can save you significant time and effort compared to manual spreadsheet-based calculations, while providing more robust landed cost analysis.

If you’re reading this, your business is probably a fair sight more complicated than a lemonade stand, which means tracking your logistics spending is more complicated too. From identifying areas for saving and operational improvements, to negotiating vendor contracts and improving efficiency, there’s almost nothing that landed cost doesn’t touch. Fear not: using a landed cost calculator like Parabola makes the process as easy as, well, mixing up a glass of lemonade.