When running a business, you want to ensure you're getting the most out of what you're selling. This means you're making a good profit and increasing your overall bottom line. However, to make money, you need to spend money, and there are product costs associated with production and delivery before you can actually figure out what you've brought home to the company from the customer.
Determining profit and revenue involves a lot more than just subtracting the purchase price from your sales amount. You also have to take into account other factors like fulfillment costs and freight costs. All of these together make up the product landed costs.
But how can you figure all of this out in a simple way? We're here to tell you what you need to know about the ins and outs of the landed cost of a product and how you can calculate it yourself.
Product landed costs refer to the total amount a business has spent on a product after it has arrived at its final destination. Most people just assume that companies remove the purchase price from the selling price and figure out their profit. However, there are actually a lot more expenses involved, especially as the product moves along the supply chain.
Understanding the full landed cost of a product can help businesses determine their actual cost of goods sold (COGS) and help them set the right pricing to ensure a decent profit. Here are the key components that make up the total landed cost:
This is the actual amount you've spent on the product when you've acquired it from the supplier or manufacturer. This can also include things such as production costs. You should use the purchase price as a base before you add any additional costs.
In order to receive the products you're selling to the customer, you need to receive them from the supplier first. This involves transporting them, so you'll have to pay out for expenses such as freight charges, container fees, and other related costs depending on the mode of delivery.
This one will vary depending on where you're based and where the original products were based. There are sometimes taxes and duties imposed on the products, but these can vary depending on the type of product you're receiving, how much it's worth, and the trade agreements in place between the exporting and importing countries.
There are also insurance costs involved when transporting the product from the supplier to the buyer. You may also have this in place when sending it to the customer as well. It protects the product from any potential losses or damages while it's being moved.
The total cost of your product will also include the various stages in the supply chain where it has been physically handled. This will cover the costs of employing people to load and unload the product at the different stages.
Warehousing costs also make up a big part of the product landed costs. This includes any expenses that have been generated when the product has been stored in any facilities or hubs before it reaches its final destination.
Sometimes, you might come across some unexpected extra costs in the handling, storage, or shipping process. You might, therefore, have to add this to the total product cost when you're calculating it.
As a business, you need to make a profit to ensure you can meet your goals and grow. Therefore, it's important to know what your landed costs are. Here are some of the main reasons why:
The problem that many businesses make when calculating their profitability is that they only include the initial product price and the shipping costs. However, when they do this, they aren't receiving a clear image of what their profits are actually like. This means they might end up losing out at the end of the fiscal year. By knowing your true landed costs, you can budget properly and avoid this ever happening.
By going through every part of the supply chain and figuring out what each process costs your business, you receive better insights into what you're spending. For example, you might find out that you're spending too much on warehousing costs and want to find a different partner that provides you with the same efficiency but at a lower price. You can also consider using a 3PL company like Portless to help you build better relationships with carriers and keep costs down.
Say you have a large inventory of products that you sell within your business, but you want to reduce it. By figuring out the landed costs of each one, you have better insights into which ones are costing you too much and which ones are profitable. It can help you make better business decisions for your company and increase your bottom line overall.
So, how can you actually figure out your product landed cost and ensure you're getting the most profitability for your business? It's actually simple and doesn't involve a wide range of calculations when you have the right tool. We have put together a landed cost calculator that uses the latest and most innovative cost formula to provide you with a fast result.
All you have to do is head to Portless's product landed cost calculator called 'Whats My Landed Cost' and click the 'Start' button. It's simple to use and can help you receive a clearer picture of your expenses to help make your business more efficient in no time.
