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Landed cost is the total cost of getting a product to your warehouse: purchase price plus freight, insurance, duties and fees. The formula, a worked example with 2026 US tariffs, the three allocation methods, and why pricing on purchase price alone loses money.
Short answer: landed cost is the full cost of a product once it arrives at your door — not just what you paid the supplier, but freight, insurance, customs duties and tariffs, brokerage, and handling. It's the only honest basis for pricing and margin. A product that looks profitable on purchase price can lose money once duty and freight are loaded, and in 2026 — with US tariffs rewritten three times and diesel at a record — the gap between purchase price and landed cost has never been wider.
The formula
Landed cost = Purchase price + Freight + Insurance + Customs duties & tariffs + Brokerage & fees + Handling
Landed cost per unit = Total landed cost ÷ Units received
Landed cost % = (Landed cost − Purchase price) ÷ Purchase price
Worked example
A US distributor imports 2,000 units from Vietnam at $12.00 each.
| Component | Amount |
|---|---|
| Purchase price (2,000 × $12.00) | $24,000 |
| Ocean freight | $2,800 |
| Insurance | $240 |
| Duty — Section 301 tier at 12.5% on customs value | $3,000 |
| Customs brokerage and fees | $450 |
| Drayage and handling | $610 |
| Total landed cost | $31,100 |
Landed cost per unit = 31,100 ÷ 2,000 = $15.55
Landed cost % = (15.55 − 12.00) ÷ 12.00 = 29.6%
If this product is priced at $18 based on the $12 purchase price, the margin looks like 33%. On landed cost it's 13.6%. That is the gap that sinks companies quietly. What changed with US tariffs in 2026.
Allocating costs across items
When one shipment carries several products, the extra costs have to be split. Three methods:
| Method | How | Best for |
|---|---|---|
| By value | In proportion to each item's purchase cost | Duties and insurance (which are value-based) |
| By weight or volume | In proportion to kg or m³ | Freight |
| By quantity | Equally per unit | Handling, when units are similar |
Using the right method per cost matters: allocating freight by value makes light expensive items look costly and heavy cheap ones look profitable — exactly backwards.
Why most companies get it wrong
- Standard cost set once and never updated as freight and duty moved.
- Freight and duty booked to expense instead of to the inventory, so they never reach product margin.
- Costs arrive after the goods — the freight invoice lands three weeks later, and nobody goes back to the receipt.
- One rate for everything instead of by country of origin, which since 2026 is how US duty works.
How an ERP handles it
In Business Central, extra costs are posted as item charges assigned to the purchase receipt — by amount, weight, volume or equally — so they flow into the item's cost and into cost of goods sold. When the freight invoice arrives late, it's assigned back to the original receipt and the cost is adjusted. Country of origin and tariff code on the item make duty per origin possible. The Profit Leak Audit shows which of your products change sides once landed cost is loaded.
FAQ
Is landed cost the same as COGS? Landed cost is the cost to acquire and receive inventory. COGS is what that inventory cost when sold. Landed cost feeds COGS.
Should landed cost include warehousing? Storage after arrival is a carrying cost, not landed cost. Receiving and handling at arrival is included.
How often should I update it? Every shipment, ideally — at least whenever freight rates or duties change.
What about domestic purchases? Same formula, minus duties: price plus freight plus handling.
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