Definition
Landed Cost is the total cost of getting a product from a supplier to the customer or warehouse, including not only the product price but also all additional expenses involved in the supply chain.
It represents the true cost of a product before it is sold.
Expanded Explanation
Landed cost usually includes:
- Product cost
- Manufacturing or sourcing fees
- Shipping costs
- Customs duties and taxes
- Insurance fees
- Handling and fulfillment charges
For dropshipping businesses, understanding landed cost is essential for setting profitable prices. A product that appears cheap from a supplier may become much more expensive after shipping, customs fees, and other costs are added.
Calculating landed cost helps sellers estimate real profit margins and avoid underpricing products.
Example
A dropshipping store sources a product from a supplier:
- Product cost: $8
- International shipping: $3
- Customs duty: $1
- Fulfillment fee: $2
Landed Cost = $8 + $3 + $1 + $2 = $14
Although the supplier price is only $8, the actual cost of getting the product ready for sale is $14.
If the seller charges $29.99, the gross margin calculation should be based on the $14 landed cost, not the original supplier price.
Why It Matters
Accurate landed cost calculations help dropshipping businesses:
- Set profitable selling prices
- Measure true product margins
- Compare different suppliers
- Avoid unexpected expenses
- Make better sourcing decisions
For scaling stores, landed cost is one of the most important numbers for evaluating product profitability.