What is landed cost?
Landed cost is everything you spent to have the item in your warehouse, ready to sell, divided by the units that arrived. It is the number you should compare with your selling price. If you price from the invoice alone, the margin you see is larger than the margin you have.
What goes into it
Each shipment brings its own set of costs. List them one by one, with date and amount, so none is forgotten when the shipment closes.
Which taxes apply, whether any can be recovered and how each one counts in the cost depend on the country, on the product and on the professional who answers for your operation.
- Goods: what the supplier invoices
- International freight, by sea or by air
- Insurance of the cargo
- Import taxes and duties
- Port and local expenses: fees, storage, transport to the warehouse
- The customs broker
How to spread the cost over the items
A shipment usually carries several items, and the costs that are not on the invoice belong to the shipment as a whole. To know the cost of each item you spread them, which means choosing a criterion and applying it to every line.
Value suits costs that grow with the price, such as insurance. Weight or volume suits freight, because a heavy or bulky item uses more of the container. Choose one criterion for each kind of cost, write it down and keep it, so that the numbers of one shipment can be compared with the next.
The exchange rate of the order versus the payment
You order in one date and pay in another, and the exchange rate is rarely the same on both. If the cost is calculated with the rate of the order but the payment goes out at another rate, the real cost is different from the one you wrote down.
Keep the payable in the currency of the supplier and record the rate of the day of each payment. The difference between the two rates is an exchange result: it can raise or lower the cost, and it is better to see it by order than to find it later inside the cash balance.
Why the cost per unit should feed the stock
A landed cost that stays in a spreadsheet does not help the next sale. When the cost of each unit goes to the stock, the value of what you hold is right, and the average cost is recalculated at every new purchase.
With the real cost in the stock, the margin of each item can be read against the selling price before you set the price, and not after the goods are sold. Remember that goods still in transit are not yet stock you can sell, so count them apart.
How Verbum helps
Verbum puts the order, the shipment, the expenses and the stock in the same record, next to the conversation with the supplier. It follows the clearance with your customs broker and does not replace the broker. Talk to the team about the shipments, the broker and the taxes of your operation.
- Purchase orders in the currency of the supplier, and shipments with their stages and an alert when the arrival is near or late
- Goods, international freight, insurance, import taxes and local expenses spread over the items of the shipment
- Each tax and expense recorded with date and amount, and the cost of each unit sent to the stock with the weighted average cost
- Payables in the currency of the supplier, with the rate of the payment date and the exchange result by order
- Margin by item: the selling price against the landed cost, and the stock in transit counted apart