What is landed cost analysis, and why is it essential?

Ever heard of vibes-based budgeting? 

Typically, experts recommend budgeting based on some combination of past spending and future financial goals. Vibes-based budgeting is all about… kinda winging it—making sure the big expenses are covered, and letting the rest sort itself out.

Some have argued that, actually, how you feel about money can be the biggest factor determining how you use it. But let’s face it: Vibes aren’t gonna balance your budget.

Unfortunately, this is how some companies approach their logistics spending. Moving and storing goods can have a lot of hidden expenses, and even if those numbers are small, they add up fast. This is where landed cost analysis comes in.

What is landed cost analysis, exactly? It’s a crucial tool for businesses that import or export goods. Landed cost analysis helps companies understand the true cost of bringing a product from the manufacturer to the final destination, including all the pesky taxes, tariffs, and fees. By accurately calculating landed cost, companies can make more informed purchasing decisions, improve their profit margins, and better manage their supply chain.

Struggling to read the financial vibes? Make Parabola your vibe-ometer.

What is landed cost?

Landed cost refers to the total cost of a product after it has been delivered to its final destination, including the purchase price, freight charges, customs duties, taxes, and any other associated fees. This comprehensive view of the total cost gives businesses a clear picture of their real cost of goods sold, allowing them to price products competitively and identify areas to cut expenses.

Some key components of landed cost include:

• The base purchase price from the manufacturer or supplier
• The freight charges for transporting the goods
• Any customs duties and taxes required to clear the product through international borders
• Additional handling and logistics fees such as warehousing, inventory management, and other supply chain costs

Factor in all of the components of your logistics spend — even the small ones — and you’ll gain valuable insights into true profits, plus the ability to make more strategic business decisions.

Why is landed cost analysis important?

And what exactly are those valuable insights we just talked about?

Fundamentally, landed cost analysis tells you how much your goods are actually worth. If you’re not factoring in the small, hidden costs, you’re probably underpricing your merchandise. Knowing true landed cost allows companies to price products competitively while still maintaining healthy profit margins.

If logistics spend is feeling high, landed cost analysis will also help you optimize. A complete picture can help identify inefficiencies or unnecessary expenses in the supply chain, enabling businesses to streamline operations and reduce costs.

Lastly, accurately calculating landed costs helps ensure compliance with all relevant customs, tax, and trade regulations. This will reduce the risk of penalties or other legal issues that can bring unforeseen expenses.

Making landed cost analysis simple

If you’re landed cost-curious, you might know you have some problems, but you also might not have the bandwidth to dig deeper. This kind of strategic data work saves time and money in the long run, but the initial investment can be hard to secure.

Fortunately, there are tools like Parabola that allow you to effortlessly synthesize and transform data from a wide range of sources. This is typically the biggest hurdle: landed cost data is often spread across a WMS, an ERP, and multiple other tools, making analysis highly manual and error-prone. Parabola will automatically pull data from those sources, layer it, and generate charts that highlight only the most important insights.

Don't wing it, analyze it

While vibes-based budgeting may work for some areas of personal finance, it's simply not a viable strategy for managing the complexities of international logistics. In the high-stakes world of global trade, you need cold, hard data to make informed decisions.

Landed cost analysis provides that data-driven clarity, giving you a comprehensive view of your true costs and profitability. No more relying on gut feelings or rough estimates — landed cost analysis puts the numbers in your hands so you can make strategic, evidence-based choices.

So don't let your logistics spending take a vibes-based approach. Take the time to fully understand your landed costs, and use that knowledge to optimize your supply chain, price your products competitively, and ultimately, boost your bottom line. Your accountant (and your shareholders) will thank you.