The landed cost formula
Start with what each unit costs to bring in:
Cost per unit bought = unit price + packaging + freight per unit + import duty per unit + other per-unit costs
Import duty per unit = duty rate × customs value per unit, where the customs value is the goods value, or the goods value plus freight and insurance, depending on the importing country.
Then spread the one-time costs over the program volume, the number of good units you need:
Units to buy = the larger of the MOQ and program volume ÷ (1 − scrap allowance), rounded up
Total program cost = units to buy × cost per unit bought + tooling + NRE
Landed cost per unit = total program cost ÷ program volume
This is the definition the supplier quote comparison calculator uses. It includes tooling and NRE on purpose: at a given volume, one-time costs are often what separates two quotes.
What goes into it
| Cost | Notes |
|---|---|
| Unit price | What it includes depends on the Incoterm: an EXW price excludes export clearance and transport to port; an FOB price includes them |
| Packaging | Retail and shipping cartons, if quoted separately |
| Origin charges | Pickup, export clearance and terminal handling, if not in the price |
| International freight | Ocean or air, including fuel and peak-season surcharges |
| Insurance | Cargo insurance, if the price does not include it |
| Import duty and tariffs | Set by the product’s HS code, its country of origin and the importing country, including any additional tariffs |
| Customs fees and brokerage | In the US, for example, the merchandise processing fee and, for ocean freight, the harbor maintenance fee, plus the broker’s charge |
| Destination charges | Terminal handling and delivery to your warehouse |
| Import VAT or GST | A cost only if you cannot recover it |
Some teams also add inspection, payment fees and currency margin. Whatever you include, include it the same way for every supplier.
A worked example
A supplier quotes $12.00 per unit FOB Shenzhen, packaging included, with $50,000 of tooling and NRE. The program is 5,000 units, with no scrap allowance. The figures are for the arithmetic only, not market rates.
| Line | Amount |
|---|---|
| Unit price, FOB | $12.00 |
| Ocean freight and insurance: $4,000 per shipment ÷ 5,000 units | $0.80 |
| Duty at 5% of a $12.00 customs value (goods value only) | $0.60 |
| Brokerage, fees and delivery: $1,500 ÷ 5,000 | $0.30 |
| Cost per unit bought | $13.70 |
| Total program cost: 5,000 × $13.70 + $50,000 | $118,500 |
| Landed cost per unit at 5,000 units | $23.70 |
| Landed cost per unit at 50,000 units, same per-unit costs | $14.70 |
If duty were charged on goods value plus freight, it would be 5% of $12.80, or $0.64. With a 2% scrap allowance, you would buy 5,103 units to end up with 5,000 good ones.
One-time costs dominate at low volume. That is why a quote with a higher unit price but lower tooling can be the cheaper choice for a small first program, and the more expensive one at scale.
Where landed cost calculations go wrong
- Different Incoterms. An EXW quote and a DDP quote describe different deliveries. Convert every quote to the same delivery point first.
- Customs value differs by country. The US generally charges duty on the transaction value, excluding international freight and insurance. The EU and many other markets charge duty on a value that includes freight and insurance to the border, so the same rate produces a higher duty.
- Tooling and customs value. Tooling paid for separately can still be dutiable in some countries; in the US it may count as part of the price paid or as an “assist”. Ask your customs broker how to declare it.
- Stale tariff rates. US tariffs on goods of Chinese origin have changed repeatedly since 2018. Check the current rate for your HS code at the time of shipment.
- Origin assumptions. Moving final assembly to Southeast Asia does not automatically change the country of origin. Origin rules depend on the product, the processing done and the importing country.
- Freight at the wrong volume or mode. A part-container shipment costs more per unit than a full one, and urgent first orders often fly at a much higher cost. Model them separately.
Duty and customs questions are specific to the product and the importing country, so confirm them with a licensed customs broker before you commit to a price.
Where Zefinity helps
Cost assessments and quotation analysis, including putting quotes from different suppliers on the same landed basis, are part of Zefinity’s Connect service.
Frequently asked questions
Should import VAT be included in landed cost?
Only if you cannot recover it. In the EU, the UK and many other markets, a VAT-registered business can usually reclaim import VAT, so it affects cash flow rather than cost. If you cannot reclaim it, it is a real cost and belongs in the calculation.
Does the supplier's unit price include shipping?
It depends on the Incoterm. An EXW price covers the goods at the factory only. An FOB price includes export clearance and delivery onto the ship at the named port. CIF adds ocean freight and minimum insurance to the destination port. A DDP price includes delivery, import clearance and duties. Always read the price together with its Incoterm and named place.
Should tooling and NRE be included in landed cost?
For comparing suppliers, yes. Spread over the volume you expect to buy, they are part of what each unit costs you, and they are often the difference between two quotes. Logistics and accounting teams sometimes use landed cost to mean the delivered cost of a shipment without one-time costs, so say which definition a figure uses when you share it.