# How to calculate landed cost: the step-by-step formula with a worked example
This guide shows you how to calculate landed cost step by step, with a worked example.
Your supplier quotes $4.20 per unit. You sell at $12.99 and the margin looks comfortable. Then the freight bill arrives, customs assesses duties you had not modeled, the broker invoices their fee, and the truck from the port costs more than expected. The $4.20 was never the cost. The landed cost was, and you did not know it until the money was gone.
Learning how to calculate landed cost is the difference between pricing on facts and pricing on hope. This guide gives you the formula, walks through a worked example, and flags the cost components importers most often forget. That complete picture is what how to calculate landed cost means in practice: no missing lines.
Why the unit price lies
The unit price on a supplier quote covers the goods and whatever the Incoterm includes, nothing more. An EXW price excludes everything after the factory gate. An FOB price includes export clearance and loading but not the ocean freight. Even a DDP price, which looks all-in, can hide the duty calculation inside it. None of these numbers is your cost. Your cost is the total amount spent getting sellable units into your warehouse, divided by the number of units that actually sell.
That denominator matters as much as the numerator. If 2% of units arrive damaged and cannot be sold, your landed cost per sellable unit rises even though the invoice total did not change. Importers who price from the supplier's unit price systematically underprice, which is why how to calculate landed cost belongs at the center of your pricing process, not as an afterthought.
Landed cost also changes with every variable you can name: order size, freight method, season, destination port, duty rate, and damage rate. It is not one number per product. It is one number per shipment, and the importers who thrive are the ones who recalculate it every time instead of reusing last quarter's figure. That variability is why how to calculate landed cost is a recurring exercise, not a one-time setup.
The landed cost formula, piece by piece
The formula itself is simple addition followed by division:
(product cost + international freight + insurance + duties + MPF + HMF + broker fees + inland delivery) / sellable units = landed cost per unit
Each component deserves a line of its own. Product cost is the supplier's price times quantity, on whatever Incoterm you agreed. International freight is the ocean, air, or express charge for moving the goods, quoted by your forwarder or baked into CIF/DDP terms. Insurance is cargo insurance, roughly 0.3-0.5% of cargo value as a 2026 range, which many importers skip and then regret exactly once.
Duties are the import taxes assessed on the customs value, determined by the HS classification of your goods. For US imports from China, Section 301 additional tariffs may apply by HS code. Treat tariff rates as policy-sensitive: check the current USTR and CBP sources at the time of ordering rather than relying on any article's figures, including this one. Misclassified goods cause the two most expensive outcomes in customs: holds that accrue storage fees, and penalties.
MPF, the merchandise processing fee, applies to US imports: 0.346% of cargo value, capped at around $538. HMF, the harbor maintenance fee, is 0.125% and applies to ocean shipments only. Broker fees run roughly $100-200 per entry as a 2026 range. Inland delivery covers drayage from the port, roughly $150-300 as a 2026 range, plus any onward trucking to your warehouse or 3PL.
Two components sit outside the formula but inside the real cost: the cost of money tied up during the 30-60 day transit, and the expected loss rate from damage and defects. Serious importers add a shrinkage factor to the denominator. If your historical damage and defect rate is 3%, divide by 97% of units, not 100%. That shrinkage adjustment is part of honest how to calculate landed cost work, and skipping it is how margins quietly erode.
How to calculate landed cost: a worked example
Here is how to calculate landed cost on a realistic order. Every rate below is an illustrative example built from 2026 ranges, not a quote. Run your own numbers with live quotes before making decisions.
The order: 2,000 units of a small home product from Shenzhen to Los Angeles by sea, FOB terms. Product cost: $4.20 x 2,000 = $8,400. The goods fill about 8 CBM, so they ship LCL. International freight at an example $180/CBM = $1,440. Insurance at 0.4% of cargo value = roughly $34. Import duty: assume the HS code carries a 7.5% rate for this example, assessed on the $8,400 customs value = $630. (Your rate will differ. Confirm with a licensed broker and check current official sources for any Section 301 additions.)
MPF at 0.346% of $8,400 = roughly $29. HMF at 0.125% = roughly $11. Broker fee: $150. Inland delivery: drayage $220 plus trucking to the warehouse $180 = $400. Total: $8,400 + $1,440 + $34 + $630 + $29 + $11 + $150 + $400 = $11,094.
Divide by sellable units. If all 2,000 sell, landed cost is $5.55 per unit. If 3% are unsellable, divide by 1,940: $5.72. Compare that to the $4.20 quote. The real cost is roughly a third higher than the supplier's price, and every pricing decision based on $4.20 was wrong by that margin.
Now change one variable to see the formula working. Ship the same order by air at an example $6/kg for 1,600 kg = $9,600 freight. Total becomes about $19,254, or $9.63 per sellable unit. Air freight nearly doubles the landed cost, which is why the how to calculate landed cost exercise usually ends with a hard look at the freight method.
The costs people forget
Even importers who know how to calculate landed cost routinely omit the same items. Storage fees top the list: if the container sits at the port beyond free time, demurrage accrues daily, and warehouse storage after delivery is rarely free beyond a short window. Customs exam costs are next: when customs pulls a container for inspection, the exam, the drayage to the exam site, and the storage all bill to you.
Compliance costs hide in plain sight. Product testing and certifications, FCC or CE reports for electronics, labeling corrections, and the broker's time on a complicated entry all cost money that never appears on the supplier's invoice. So do currency conversion spreads if you pay the supplier in yuan or the forwarder in another currency.
Returns deserve a line in the planning even though they arrive later. Defective returns from China-sourced goods need a triage process: inspect, rework, dispose, or ship back to the factory. Each path has a cost, and none of it is in the landed cost formula unless you put it there. Importers with return rates above a few percent should model a returns reserve per unit.
Finally, the opportunity cost of cash. A sea shipment ties up the full order value for 6-10 weeks between payment and sale. That capital has a cost whether you borrow it or not. It does not belong in the per-unit landed cost for pricing, but it belongs in the business decision about whether the order is worth placing.
Using landed cost to make decisions
The formula earns its keep when you use it comparatively. Comparison is the real job of how to calculate landed cost: the arithmetic is simple, the decisions are not. Run it twice for every sourcing decision that matters: supplier A versus supplier B, FOB versus DDP, sea versus air, one large order versus two small ones. The winner on unit price rarely survives the full calculation unchanged.
Supplier comparisons are the classic use. Supplier A quotes $4.20 FOB, Supplier B quotes $4.45 DDP. The DDP quote looks $0.25 more expensive until you add freight, duties, and clearance to Supplier A's side. After the full how to calculate landed cost treatment, Supplier B sometimes wins, and when they do, the margin of victory is the value of having run the numbers.
Freight method decisions are the second use. The air-versus-sea example above showed freight nearly doubling landed cost, but for high-margin, time-sensitive goods the math can still favor air: the carrying cost of a stockout, lost sales during a 40-day sea transit, can exceed the freight premium. Landed cost per unit is only half the decision. The other half is what the transit time costs you.
Volume decisions are the third. Larger orders spread fixed costs, broker fees, drayage minimums, across more units, which lowers landed cost per unit. But they also concentrate risk and tie up more cash. The formula tells you the per-unit saving. Your cash flow tells you whether you can afford to capture it.
Revisit the calculation when anything structural changes: a new HS classification, a duty rate change, a different port, a new forwarder. Landed cost is a living number. Treat last year's figure as a rumor, and rerun the how to calculate landed cost steps from scratch each time.
Conclusion
How to calculate landed cost comes down to one discipline: add every cost of getting sellable units into your warehouse, product, freight, insurance, duties, MPF, HMF, broker fees, and inland delivery, then divide by the units that actually sell. The worked example showed a $4.20 quote becoming $5.55-5.72 landed, roughly a third higher, with freight method as the largest swing variable. Run the formula on every order, compare suppliers and freight options on landed numbers rather than quote numbers, and confirm duty rates with a licensed broker against current official sources. Price from the landed cost and the margin you thought you had becomes the margin you actually have. Make it a habit: the how to calculate landed cost routine takes about twenty minutes per order once the template exists.
FAQ
### What is the landed cost formula?
(Product cost + international freight + insurance + duties + MPF + HMF + broker fees + inland delivery) divided by sellable units. Each component is added at its actual or quoted amount, and the denominator reflects units that can actually be sold, not units ordered.
### What is the difference between unit price and landed cost?
Unit price is what the supplier charges per item under the quoted Incoterm. Landed cost is the total cost of getting sellable units into your warehouse divided by those units. The gap between them, often 25-40% on sea shipments, is freight, duties, fees, and delivery.
### How do I find my product's duty rate for the landed cost calculation?
Classify the goods with the correct 10-digit HS code and confirm it with a licensed customs broker before ordering. For US imports from China, check current USTR and CBP sources for Section 301 additional tariffs by HS code, since rates are policy-sensitive and change.
### Should damaged units count in the landed cost denominator?
No. Divide by sellable units only. If your historical damage and defect rate is 3%, divide the total cost by 97% of ordered units. Pricing from the full order quantity understates your true per-unit cost.
### Does the how to calculate landed cost method change for DDP shipments?
The formula is the same but several components collapse into the DDP all-in price: freight, duties, and clearance are inside the supplier's number. You still add inland delivery if the DDP destination is not your warehouse, and you should still verify the duty basis inside the all-in price rather than trusting it blindly.