How Shopify merchants use Landed Cost
Determines the true unit cost for pricing and margin analysis. Asia imports add 5–15% to base value.
Formula
Landed Cost = Purchase Price + Freight + Duties + Insurance + Handling
Accurate calculation ensures all expenses are in COGS, preventing margin overstatement.
What matters in practice
- Ignoring duties (0–35%) leads to underestimated COGS.
- Required for GAAP-compliant balance sheet valuation.
- Failing to update for freight/exchange rate shifts erodes profit.
Why it matters
Common merchant pain points
- • Basing margins on manufacturer price and losing profit to duties.
- • Inaccurately allocating container costs across different SKUs.
Native Shopify limitations
- • Shopify tracks unit cost but lacks a landed-cost allocation engine.
- • Merchants use spreadsheets to distribute shipping costs across POs.
Benchmarks and reference points
Imported goods often have a landed cost 20–50% higher than ex-works price.
Insurance/exchange rate neglect misstates gross margin significantly.
How to apply this in practice
Step 1
Sum Ancillary Fees
Identify all shipping, port, customs, and duty fees associated with a specific shipment.
Step 2
Allocate to Units
Divide total fees by the number of units (or by weight/volume) to get the 'cost per unit'.
Step 3
Update Shopify
Add this unit cost to your manufacturer's price to update the 'Cost per item' field in Shopify.
Examples
Sea vs Air Freight
A brand realizes that while air freight is faster, it doubles the landed cost, making the product unprofitable at current prices.
New Country Sourcing
Before moving production to India, a merchant calculates potential duties to ensure the final price remains competitive.
Frequently asked questions
Related resources
Related calculators
Related glossary terms
- Reorder Point (ROP)
Reorder point is the inventory level at which a new purchase order should be placed so that replenishment arrives before existing stock is depleted.
- Safety Stock
Safety stock is the extra inventory held above expected demand to reduce the risk of stockouts caused by variability in demand or lead times.
- Inventory Turnover
Inventory turnover measures how many times a company sells and replaces its inventory over a given period, typically a year.