Landed cost is a critical indicator when purchasing products for your brand. However, it is often overseen. In this article, we explain what landed cost is, why it is crucial to your business, and how to approach it in your purchasing journey.
What is Landed Cost?
When partnering with a manufacturer to make your products, prices are often quoted in the Incoterm Ex Works (EXW), which is the price that you can pick up your goods at the supplier’s doorstep. It is also common to be quoted in FOB, which is the price when goods are exported only within the manufacturer’s country.
However, they (EXW and FOB] don’t tell you the real and total costs of the products — i.e., the landed cost
EXW prices give you a good indication of what it costs to produce your products at a certain factory and can function as an excellent indicator for comparing prices between different manufacturers.
Alternately, FOB prices give you a good indication of cost when comparing manufacturers in different countries, but it assumes that international logistics costs are comparable between them, which is usually not the case.
However, they (EXW and FOB] don’t tell you the real and total costs of the products — i.e., the landed cost. Landed cost is the final cost of having the products at your doorstep. It tracks the true cost of a product and includes:
Thus, it is of great importance to look beyond quoted cost because the difference between quoted cost and landed cost can (for example, because of duties) be significant.
Why Landed Cost Is Important
You need to know the landed cost to have a complete and transparent comparison between suppliers. You also need to understand accurate costing, which is crucial for your brand’s financial performance.
It helps to:
- Determine what supplier or country/region is the most appealing, cost-wise
- Determine the investments required
- Set your [retail] prices and expose the impact on your margins
Thus, it is of great importance to look beyond quoted cost because the difference between quoted cost and landed cost can (for example, because of duties) be significant.
Look for a supplier who offers FOB++, meaning they can also offer additional services, including arranging — in your name — the delivery from the country of origin to the destination country.
How to Approach Landed Cost in Your Purchasing Journey
Note that focusing on landed cost does not mean that you should focus on the incoterm Delivered Duty Paid (DDP). When you are requesting a price from a manufacturer, ask them to calculate the landed cost for you in addition to the FOB price.
Look for a supplier who offers FOB++, meaning they can also offer additional services, including arranging — in your name — the delivery from the country of origin to the destination country. Generally, an exporter (supplier/vendor) can do this at a more favorable rate than an importer (customer/buyer).
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