Landed cost is the total cost of getting a product to your warehouse and ready to sell: the product price plus freight, insurance, customs duty and tariffs, customs clearance, handling and any other import fees. You calculate it by adding every one of those charges to the supplier invoice, then dividing the total by the number of units to get the landed cost per unit. A £10,000 order of 5,000 units rarely costs £10,000 to land. Add £1,200 freight, £150 insurance, £800 duty and £350 clearance and the true figure is £12,500, or £2.50 per unit against the £2.00 the invoice implied. That £2.50 is the number your selling price must be built on, not the £2.00.
Last updated: June 2026
Most UK importers price off the supplier invoice alone. They take the figure on the supplier's bill, add a markup, and quote. It feels safe because the number is right there in black and white. It is also the single most expensive habit in the trade, because the supplier invoice is only one line of the true cost. By the time freight, insurance, import duty, customs clearance and currency movement have all landed, the real cost per unit can be 20 to 25 percent higher than the invoice suggested. Price on the wrong number and a healthy-looking markup quietly becomes a loss. This guide gives you the formula, a worked example with the per-unit maths, and the allocation methods that decide which products carry which share of the cost.
Landed cost is the complete cost of a product once it has arrived at your warehouse and is ready to sell. It is the supplier price plus every charge incurred to get the goods there: freight, insurance, import duty and tariffs, customs clearance, port and handling, currency movement and the finance cost of stock in transit. The supplier invoice is the starting point, not the answer. For a UK importer buying from outside the country, the landed cost is the only figure that tells you what a unit truly cost before you have sold a single one.
The term matters because it is the cost your selling price must cover. A wholesaler who prices on the supplier invoice is pricing on perhaps 75 to 85 percent of the real cost, and the missing slice comes straight out of margin. Landed cost closes that gap by putting every import charge back onto the product where it belongs.
Landed cost includes every charge between the supplier's price and the goods sitting sellable on your shelf. Each line below is a real cost that belongs in your selling price, not a general overhead to be absorbed elsewhere:
Import VAT is paid at the border too, but for VAT-registered businesses it is reclaimable, so it affects cash flow rather than margin. Every other line above is real cost that the selling price has to recover.
You calculate landed cost by adding every import charge to the product cost, then dividing by the number of units. The total landed cost tells you what the shipment really cost; the per-unit figure tells you what each item must earn back. The formula is the same whether you import one pallet or forty containers.
Landed Cost = Product Cost + Freight + Insurance + Customs Duty + Clearance and Handling + Other Import Fees
Landed Cost Per Unit = Total Landed Cost / Number of Units
Here is a worked example for a UK food importer bringing in a single shipment of 5,000 units invoiced by the supplier at £10,000:
The supplier invoice alone implied a unit cost of £2.00 (£10,000 divided by 5,000). The true landed cost is £2.50, a full 25 percent higher. An importer who priced this stock off the £2.00 figure and added what looked like a comfortable margin would, on every line, be giving away the entire 50 pence of import cost before a single overhead was paid. That is how stock gets sold at a loss while the spreadsheet still shows a profit.
Customs duty in the example is shown as a single figure because the rate depends on the commodity code of the specific product. Duty is charged on the customs value, which includes the goods, freight and insurance, so on this shipment the £800 reflects roughly a 7 percent rate against the £11,350 customs value. Always confirm the correct rate against the UK Trade Tariff for your own commodity code rather than assuming a blanket percentage.
Landed cost decides whether a sale makes money, because gross margin is the selling price minus the true cost of the goods, not minus the supplier invoice. When the cost base is understated by the freight, duty and clearance stack, every margin figure downstream is overstated by the same amount. A line that the accounts show at 20 percent margin can, in reality, be running at break-even or worse.
The danger is worst on high-freight, low-value goods. Bulky or heavy products carry a large freight and handling charge relative to their supplier price, so the gap between invoice cost and landed cost is widest exactly where importers least expect it. Pricing the whole range off supplier invoices treats these lines as if they were cheap to land, and they are the first to slip into loss. Building every price on landed cost is the only reliable way to protect margin across a mixed catalogue.
When a shipment contains more than one product, the shared costs - freight, insurance, duty and clearance - have to be spread across the lines. The method you choose changes the cost of each product, so it changes its margin and its price. There are three common allocation methods:
Allocating by value when freight is really driven by weight makes heavy lines look cheaper than they are and light lines look dearer, and you end up underpricing the very products that cost the most to ship. For a mixed food or goods shipment, weight or volume usually reflects the real driver of freight better than value does. The principle is simple: allocate by whatever actually drives the cost.
Goods on the water are cash you have already committed but cannot yet see on the shelf. A business that cannot value stock in transit tends to over-order, because the warehouse looks empty while three containers are inbound, or to under-price, because the true cost is not known until the goods arrive and the freight invoice catches up weeks later. Pre-allocating the landed cost the moment the order is placed means you can price and reorder on the real number from day one, rather than waiting for customs to clear and the paperwork to settle.
This is also where a fuller worked example helps. Take the same £10,000 supplier invoice but add the variables the simple calculation leaves out: £1,200 freight, £80 insurance, £451 duty, £150 clearance, £120 port and handling, £300 of currency movement on a dollar payment, and £200 of finance cost for ninety days of stock in transit. The total lands at £12,501, almost identical to the clean example, but now you can see currency and finance cost quietly adding £500 that a basic freight-and-duty calculation would have missed entirely.
A proper inventory or ERP system removes the spreadsheet entirely. It captures the supplier purchase order, the freight bill, the duty and the clearance charges against the same shipment, allocates those costs across the units by value, weight or volume, and posts the true per-unit cost straight into your accounts. Currency is recorded at the real payment rate. Stock in transit is visible. Every product then carries its real landed cost, so pricing, margin reporting and reorder decisions all run on figures you can trust rather than on a supplier invoice that was never the full story.
This matters because tools like Xero, Sage and QuickBooks record the supplier invoice and the freight invoice as two separate bills that never speak to each other, so the per-unit cost in the accounts is just the supplier price. An inventory or ERP layer is what joins them. For UK importers and wholesalers this is the core of what we build: one system where purchasing, shipping costs, stock and accounts finally agree. If you sell across a distribution catalogue, our ERP for distribution work brings landed cost, stock and orders into a single view, and our Odoo inventory and WMS implementation handles the warehouse side. For teams that want the costing and reorder decisions assisted automatically, we also deliver AI-assisted ERP implementation.
Landed cost includes the product or supplier price plus freight, insurance, customs duty and tariffs, customs clearance and agent fees, port handling, currency movement and other import fees such as inspection or finance cost. Import VAT is paid at the border but is reclaimable for VAT-registered businesses, so it affects cash flow rather than margin.
Add the supplier invoice to every import charge - freight, insurance, customs duty, clearance and handling, and other fees - to get the total landed cost. Then divide that total by the number of units to get the landed cost per unit. A £10,000 order of 5,000 units with £2,500 of import costs lands at £12,500, or £2.50 per unit.
Landed cost is the true cost of acquiring and importing stock, including freight, duty and clearance. Cost of goods sold is that landed cost recognised in your accounts at the moment the item is sold. If the landed cost is understated, the cost of goods sold and the reported gross margin are both wrong by the same amount.
Landed cost is the only figure that shows what stock truly cost before it is sold, so it is the number a selling price must cover. Pricing on the supplier invoice alone ignores 15 to 25 percent of real cost and can turn an apparent profit into a loss, especially on heavy or bulky low-value goods where freight is high relative to price.
Landed cost per unit is the total landed cost of a shipment divided by the number of units in it. It converts the whole-shipment cost into a per-item figure you can price against. If a shipment lands at £12,500 and contains 5,000 units, the landed cost per unit is £2.50, compared with the £2.00 the supplier invoice alone would have suggested.
Not on their own. Xero, Sage and QuickBooks record the supplier bill and the freight bill as separate transactions and do not combine them into a per-unit cost. You need a dedicated inventory app or an inventory or ERP system that allocates the extra import costs across the units and posts the corrected figure back into the accounts.
If you import or distribute stock and price off the supplier invoice, you are almost certainly leaving margin on the table, and on some lines selling at a loss. Landed cost is not an accounting nicety: it is the number that decides whether each shipment makes money. The formula is simple - product plus freight, insurance, duty and clearance, divided by units - but applying it accurately across a mixed catalogue, with the right allocation method and currency at the real rate, is what separates a business that knows its margins from one that hopes. Get landed cost into one system that connects purchasing, shipping costs, stock and accounts, and every price you set is finally built on the truth.
If you are pricing off a spreadsheet today, that gap is almost certainly costing you margin on every shipment. See how we build landed-cost and inventory systems for UK importers, or book a call to map your import and stock workflow. It also pairs with the upstream paperwork: read our guides on purchase order management for importers, food importer software and what IPAFFS is and when it applies.
Written by the Softomate Solutions team, who build inventory, ERP and landed-cost systems for UK importers, wholesalers and food distributors. This article was drafted with AI assistance and reviewed for accuracy by a human editor before publication. The worked figures are illustrative; confirm your own duty rates against the UK Trade Tariff.
Sources
Landed cost is one of several food-import pains a connected system solves; see the complete guide to software for UK food importers and wholesalers.
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