Your supplier says the product costs $10. By the time it sits on your shelf or in an Amazon warehouse, it really cost you $14.10. That $14.10 is your landed cost, and this guide shows where it comes from and how it turns into COGS.
TL;DR
- Landed cost is the full cost to get one product to your door: factory price plus freight, duty and fees.
- COGS (cost of goods sold) is the landed cost of the units you actually sold in a month.
- A $10 product with $4.10 of shipping and duty has a landed cost of $14.10. Sell 400 of them and your COGS is $5,640.
- Ads, Amazon fees, Shopify fees and rent are not in landed cost or COGS. They are operating expenses.
- If you price off the $10 factory number, you will think you make more money than you do.
What Is Landed Cost
Landed cost is everything you paid to get one product from the factory to your warehouse, ready to sell. Think of it as the price of the product once it has "landed" at your place. It includes the factory price, the trucking in China, the ship or plane, import duty, customs fees and the truck to your warehouse or Amazon FBA.
Here is a real example. You order 1,000 phone stands from a supplier on Alibaba at $10 each, so the factory bill is $10,000. Shipping, duty and fees add another $4,100. Your total is $14,100, and $14,100 divided by 1,000 stands is $14.10 per stand.
| What you paid for | Total | Per unit |
|---|---|---|
| Factory price | $10,000 | $10.00 |
| Trucking to the port in China | $300 | $0.30 |
| Ocean freight and insurance | $1,800 | $1.80 |
| Import duty and customs fees | $1,700 | $1.70 |
| Truck to your warehouse or FBA | $300 | $0.30 |
| Landed cost | $14,100 | $14.10 |
The US government's Trade.gov guide makes the same point from the seller's side: the real price of goods is much more than the factory quote. If you want the longer version, read what landed cost is and why it matters.
What Is COGS
COGS stands for cost of goods sold. It is the cost of the products you actually sold during a month or a year. Products still sitting in your warehouse count as inventory until the day they sell.
Using the same phone stands, say you sell 400 of them in your first month at $29 each. Your COGS for that month is 400 times $14.10, which is $5,640. The other 600 stands are still inventory worth $8,460, and they only become COGS when they sell.
| First month | Amount |
|---|---|
| Sales (400 x $29) | $11,600 |
| COGS (400 x $14.10) | $5,640 |
| Gross profit | $5,960 |
| Stands still in stock (600 x $14.10) | $8,460 |
Landed Cost Vs COGS
The simple way to remember it is this. Landed cost is what one unit cost you to bring in. COGS is what the units you sold cost you. Landed cost is the ingredient, and COGS is the total you get when you multiply it by how many you sold.
| Question | Landed cost | COGS |
|---|---|---|
| What does it answer? | What did one unit cost to get here? | What did the units I sold cost me? |
| When do you know it? | When the shipment arrives | At the end of the month |
| Where is it used? | Pricing, picking suppliers, reordering | Your profit report and taxes |
| Phone stand example | $14.10 per stand | $5,640 for 400 sold |
You need both numbers. Landed cost tells you if a product is worth selling at all. COGS tells you if you made money last month.
Which Cost Includes What: The Chart
New sellers mix up these cost words all the time, so here is one chart with everything side by side. Green means the cost is included and red means it is left out. Read across a row to see which cost types include that item.
Which cost includes what, using a $10 product that lands at $14.10
Notice that landed cost and COGS include the same items. The only difference is timing. Landed cost is per unit when it arrives, and COGS is the landed cost of the units that have sold.
Landed Cost Vs Unit Cost Or Product Cost
Unit cost or product cost usually means the price on the supplier's invoice. In our example that is $10. It is only the starting point, because it leaves out every dollar you spent to move the product.
If you price your phone stand off $10, you think each sale earns $4.10 more than it really does. Over 1,000 units that is $4,100 of profit that does not exist. Always price off the landed cost of $14.10.
Landed Cost Vs FOB And EXW Price
Suppliers on Alibaba quote prices with short codes. EXW (ex works) means the price at the factory door, and you pay for everything after that. FOB (free on board) means the supplier also pays to get it onto the ship in China. Neither one includes the ocean shipping, duty or the trip to your warehouse.
So EXW is $10.00 in our example and FOB is about $10.30. Both are still far from the $14.10 landed cost. Our guide on FOB vs EXW vs DDP for FBA sellers explains which quote is easier for a first order, and what EXW price means covers the factory door price in more detail.
Landed Cost Vs Operating Expenses And Total Cost
Operating expenses are the costs of running your business that are not tied to bringing in a product. Facebook or Amazon ads, Amazon referral and FBA fees, Shopify or WooCommerce subscriptions, card fees, software and rent all go here. These are real costs, but they are not landed cost and they are not COGS.
The total cost of running the business adds all of it together. Back to the phone stand: if Amazon fees and ads come to $9 per sale, your profit on a $29 sale is $29 minus $14.10 minus $9, which is $5.90. Keep the two buckets separate so you can see whether the problem is your product cost or your marketing.
How To Calculate Landed Cost Step By Step
You do not need accounting software to do this. A calculator and your bills are enough for your first order.
- Write down the factory bill. Example: $10,000.
- Add every bill to move the goods: trucking, freight, insurance, duty, customs broker and delivery. Example: $4,100.
- Add them up. Example: $14,100.
- Divide by the number of good units you received. Example: $14,100 divided by 1,000 is $14.10.
If 50 stands arrive broken, divide by 950 instead, and your landed cost goes up to about $14.84. Our free landed cost calculator does this math for you, and the import duty calculator and freight cost estimator help you guess those numbers before you order. For more detail, see how to calculate landed cost.
SupplyAutomate's free landed cost calculator
Common Mistakes New Sellers Make
The most common mistake is treating the $10 factory price as your cost. The second is paying the freight bill and just calling it a business expense for that month. When you do that, your first month looks terrible and later months look better than they really were.
Here is what that mistake does to the phone stand numbers. You count $4,100 of shipping as an expense in month one, and you count COGS at $10 per unit, which is $4,000 for 400 sold. Your gross profit looks like $7,600 when it really is $5,960, and your stock looks like it is worth $6,000 when it really is worth $8,460.
Other easy mistakes to avoid:
- Forgetting the freight bill that shows up weeks after the goods arrive.
- Splitting shipping evenly across big and small products in the same box.
- Counting freight twice when the supplier quoted DDP, which already includes it.
- Putting the shipping you pay to send orders to customers into landed cost.
If you sell many products in one shipment, our guide on allocating freight cost across multiple SKUs shows how to split it fairly. If you use QuickBooks, landed cost in QuickBooks shows how to enter it there.
QuickBooks help article on calculating landed cost
SupplyAutomate keeps your purchase orders, supplier bills and shipments in one place, so the $14.10 is easy to find when you price or reorder. It works out landed cost from factory price, freight, duty and samples. It does not connect to Amazon, Shopify or QuickBooks, so your bookkeeper still records COGS in your accounting software.
SupplyAutomate homepage
FAQ
What Is The Difference Between Landed Cost And COGS?
Landed cost is what one unit cost to bring in, including the factory price, shipping and duty. COGS is the landed cost of the units you sold in a period. In our example, landed cost is $14.10 per stand and COGS is $5,640 for 400 sold.
Is Landed Cost Included In COGS?
Yes. When a product sells, its full landed cost moves into COGS. Ask your accountant about edge cases like taxes you can get back.
Is Shipping To Customers Part Of COGS?
Usually not. Shipping orders out to customers is normally an operating or fulfillment expense. Landed cost only covers shipping that brings goods in to you.
Are Amazon FBA Fees Part Of Landed Cost?
No. Amazon referral fees, FBA fulfillment fees and storage fees happen when you sell, so they sit with your other selling costs. The cost to ship your goods into an Amazon warehouse does belong in landed cost. Our guide on Amazon FBA landed cost walks through it.
Is Cost Of Sales The Same As COGS?
Not always. Some businesses use cost of sales to also include outbound shipping, packing or payment fees. Keep the labels clear so you always know which number you are looking at.
Related Guides
- What Is Landed Cost And Why It Matters
- How To Calculate Landed Cost
- Landed Cost For Amazon FBA
- Landed Cost Spreadsheet Vs Software
SupplyAutomate Pages And Free Tools
- Landed Cost Calculator
- Import Duty Calculator
- Freight Cost Estimator
- MOQ Calculator
- Free Purchase Order Creator
- SupplyAutomate For Shopify Sellers
- SupplyAutomate For Amazon FBA Sellers
- Pricing
Start with your last shipment. Pull out the factory bill and every shipping and duty bill, add them up, and divide by the units you got. That one number will make your pricing a lot more honest, and if you get stuck, our team is happy to help.
