Understanding your landed price

The only number that matters

Landed price is what one sellable unit costs you by the time it is sitting in your warehouse, ready to sell. It is the number you should price from, plan from and compare suppliers on, and it is not the number on the factory's quotation.

The gap between the two is where most first-time importing goes financially wrong. A quote of four pounds a unit can land at six or seven once everything is counted, and a business that priced its retail off four is now discounting to move stock it cannot afford to hold.

What goes into it

Start with the goods: unit price multiplied by quantity, in the currency you are actually paying.

Add getting them here: freight and insurance to the UK, terminal handling at both ends, documentation, the customs entry, port charges, haulage to your address, and unloading.

Add the tax that stays: duty at the rate for your commodity code, plus anti-dumping duty if your goods carry it. Import VAT is normally recoverable if you are VAT registered and the goods are for your business, so it belongs in your cash-flow plan rather than in your unit cost.

Add what you paid before the goods existed: samples and their courier costs, and tooling, spread across the units you realistically expect to produce rather than across an optimistic lifetime.

Then subtract nothing and divide by less than you ordered. Some proportion of any run will not be sellable, so the divisor is the units you can actually sell, not the units you bought. This single adjustment is the one most spreadsheets miss.

A worked shape

Take an order of two thousand units quoted at four pounds. Goods are eight thousand pounds. Say freight, handling, entry and delivery come to eleven hundred, duty at your code adds a few hundred, and tooling of two thousand is spread over an expected run of ten thousand units, so four hundred falls on this order. Samples and courier were two hundred.

That is roughly ten thousand pounds of committed cost. Divide by two thousand and you get five pounds. But if you expect three per cent to be unsellable, you are dividing by nineteen hundred and forty, and the real figure is nearer five pounds sixteen.

The point is not the arithmetic. It is that a four pound quote is a five pound sixteen product, and every pricing, margin and break-even decision you make should start from the second number.

Two places the arithmetic quietly goes wrong

The first is the customs value. Duty is not charged on your invoice; it is charged on the customs value, which includes freight and insurance to the UK border and things you supplied to the factory such as tooling, even when those were invoiced separately and never shipped. If you calculated duty on the invoice alone, your figure is low.

The second is currency. For the customs declaration, conversion does not use your bank's rate on the day. HMRC publishes a rate for the month and that is the one the entry must use, so the duty you actually pay can differ from the duty you modelled. Meanwhile your own exposure runs from the day you commit to the day you pay, which is a separate risk worth being deliberate about.

Using it to make decisions

Once you have a landed price, three questions get easier. What must I sell this at to make the margin the business needs, allowing for returns and the cost of holding stock? How many units must I sell before this order has paid for itself? And is the supplier who quoted higher actually more expensive once packing efficiency, defect rate and lead time are in the same column?

That last question is the one that changes minds. A supplier who is five per cent dearer per unit but packs thirty per cent more into a carton and sends fewer defects is often cheaper landed, and you would never see it from a price list.

Build the landed price before you commit, not after the invoice arrives. Our duty calculator and container calculator will do the two fiddliest parts for you, and the customs value builder will construct the value the declaration should actually use.