The landed cost formula
The landed cost of a unit is what it really costs you once it has arrived, excluding VAT:
Landed cost = supplier price × exchange rate × (1 + ad valorem fees) × (1 + customs duty) + freight per unit
Every term is there for a reason:
- The exchange rate: yours, the one your bank applies, and the same one for every offer in the same currency.
- Ad valorem fees: insurance, currency exchange and bank fees, in proportion to value. Merconto starts at 2 %, to set to your real costs.
- Customs duty: a percentage that depends on the product and its origin.
- Freight: an amount per unit, which depends on the space a product takes, not on its value.
With the calculator's example values: 51.16 USD × 0.86 = €44.00; plus 2 % fees, €44.88; 0 % duty; plus €3.50 of freight: €48.38 per unit. A calculation you can redo by hand, on purpose.
What the incoterm changes
The incoterm says what the supplier's price already includes. Ignore it and you pay for freight twice in your figures, or forget it altogether.
| Incoterm | The price includes | In the calculation |
|---|---|---|
| EXW, Ex Works | the goods, available at the seller's premises | freight and duty added |
| FCA, Free Carrier | handover to the carrier you name | freight and duty added |
| FAS, Free Alongside Ship | the goods alongside the ship, at the port of loading | freight and duty added |
| FOB, Free On Board | the goods loaded on board, at the port of loading | freight and duty added |
| CFR, CIF | carriage to the port of destination (and insurance with CIF) | duty added |
| CPT, CIP | carriage to the agreed place (and insurance with CIP) | duty added |
| DAP, DPU | delivery to the agreed place (unloaded with DPU) | duty added |
| DDP, Delivered Duty Paid | delivery, customs clearance and duty | nothing added |
| Not stated | nobody knows | everything added, to be safe |
The stakes are real: in two real offers, a FOB Shenzhen price compared as is with a DDP Hamburg price made the DDP offer look a good twenty per cent dearer, when it already included freight and duty. When an offer states nothing, Merconto adds everything: better to overestimate a cost than to buy at a loss.
One nuance for the “carriage paid” incoterms: with CFR or CIF, the supplier pays carriage to the port of destination, not unloading, nor on-carriage to your warehouse. The calculator then sets freight to zero and lets you enter what is left to you.
Freight: by volume, not by value
Sea freight is charged by volume. Spreading it as a percentage of value is wrong by construction in electronics, where value per cubic metre varies a hundredfold: a memory card and a party speaker do not take the same space in a container. So Merconto spreads freight by size class:
| Class | For example | Default freight per unit |
|---|---|---|
| XS | memory card, USB drive, cable, adapter | €0.15 |
| S | earbuds, mouse, SSD, small speaker | €0.50 |
| M | headphones, keyboard, portable speaker | €3.50 |
| L | large speaker, soundbar, monitor | €6.00 |
| XL | party speaker, subwoofer, printer | €15.00 |
These values are a starting point: replace them with your real costs. The class matters as much as the amount. In a real offer, a 2 GB SD card filed by mistake in class M picked up €3.50 of freight instead of €0.15: a landed cost overstated by 104 %.
Customs duty
The rate depends on the product's customs classification and its country of origin. TARIC, the European Commission's database, gives the rate for each code. In Merconto the default rate is 0 %, and a line without a customs code says so rather than hiding it.
One precision, to be exact: at customs, duty is assessed on the customs value, generally the price of the goods plus transport and insurance up to entry into the European Union. This calculator, like Merconto, applies duty to the converted price and fees, without freight. The difference stays small while the rate is low: 4 % duty on €3.50 of freight is €0.14 per unit.
What is not part of the landed cost
- VAT. The landed cost is stated excluding VAT: a VAT-registered business recovers import VAT, so it is not a cost.
- Fixed costs per shipment, forwarder, customs clearance, handling fees: they belong in the cost, but per unit. Spread them and add them to freight: €150 of fees on a shipment of 500 units is €0.30 per unit.
- Your own costs, storage, picking, financing the stock: they weigh on your margin, not on the purchase cost of the unit.
From landed cost to selling price
The landed cost tells you what the unit costs you; the public price tells you what the market will pay. In between, your reseller customer has to keep their margin. Merconto derives a ceiling from it: public price incl. VAT ÷ 1.2 × 0.77, the price excluding 20 % VAT, minus 23 % left to the reseller. For a product on the shelf at €89.99, the ceiling is €57.74: bought at €48.38 landed, there is room for your margin. Above the ceiling, the line cannot be sold.
That is the subject of the guide on analysing a supplier offer: from landed cost to verdict, line by line.