Landed cost calculation is the process of determining the total cost of a product once it has arrived at its destination, including shipping, customs, duties, and other fees. This helps businesses understand the true cost of acquiring goods.Accurately calculating landed costs is essential for setting the correct product prices and improving profitability. By accounting for all associated costs, businesses can avoid underpricing their products and optimize margin management, particularly in industries with international sourcing.
Why is landed cost calculation important?
Landed cost calculation involves determining the total cost of a product once it has arrived at its destination, including shipping, customs, duties, and other fees. This calculation helps businesses understand the true cost of acquiring goods and ensures that they price their products appropriately. Without accurate landed cost calculations, businesses risk underpricing their products, which can lead to lower profit margins, or overpricing, which can result in lost sales. By calculating landed costs accurately, businesses can make more informed pricing decisions, improve margin management, and ensure profitability. It also allows businesses to assess the impact of international shipping and other logistics costs on their overall financial performance.
How to calculate landed cost
To calculate landed costs, businesses should track all expenses associated with bringing a product to its final destination, including transportation, insurance, customs duties, and any other applicable fees. This information can be gathered from shipping invoices, customs documentation, and other relevant sources. Automated tools can be used to streamline the landed cost calculation process and ensure accuracy.
Landed cost calculation and Parabola
Understanding your true landed cost per SKU is critical for setting accurate pricing, identifying margin improvement opportunities, and negotiating better supplier and logistics rates. However, landed cost calculations often require consolidating and standardizing cost data from tons of hard-to-access data sources including freight and supplier invoices, costed BOMs, duties, and tariffs. As a result, this critical metric often lives in a convoluted spreadsheet that's a headache to update.
Parabola automates SKU-level landed cost calculations by standardizing and consolidating expenses across your supply chain. By combining information from freight invoice PDFs with data from suppliers and your ERP, you can dynamically calculate landed costs while ensuring accurate, real-time visibility into cost drivers across shipments and products.
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