Landed cost: how to price stock so your margin is real (freight, duty, currency, per-unit allocation)

Ask a seller what a product costs and most will quote the supplier's price. Ask what it cost to get it onto a shelf in the UK and the answer is usually 30% to 50% higher, and often unknown. Landed cost is that second number: everything paid to bring a unit from the factory door to your own (or Amazon's) warehouse, excluding VAT you can reclaim. If your margin is built on the first number, it is not a margin, it is a hope.

What goes into landed cost

• The goods, at the price on the supplier's invoice, converted to pounds at the rate you actually paid.
• Freight to the UK: sea, air or courier, including origin charges, documentation and fuel surcharges.
• Insurance for the shipment, if bought separately.
• Customs duty, charged on the customs value, which in the UK is normally the price of the goods plus the cost of transport and insurance to the UK border.
• Customs clearance: the broker or forwarder's entry fee and any port or handling charges.
• Delivery from the port to your warehouse or to the Amazon fulfilment centre, including pallets and labelling if a third party does it.
• Packaging and compliance bought for the batch: retail boxes, UKCA testing, barcodes.

Import VAT is not landed cost for a VAT-registered business: you pay it (or defer it through postponed VAT accounting) and reclaim it on the return. For a business that is not registered it is a real cost and belongs in the number.

Payment costs count too. A bank transfer in US dollars usually costs a flat fee and a margin on the exchange rate; a card payment to a supplier can cost 2% to 3%. Put them in the goods line.

A worked example

A UK seller orders 1,000 plastic kitchen storage containers from a supplier in Shenzhen at $3.20 each, FOB (the price covers the goods loaded at the origin port; everything after that is the buyer's). They ship by sea as less-than-container-load.

The supplier's price was £2.46 a unit. The landed cost is £3.51, which is 43% more. A seller who believes the unit costs £2.46 overstates the profit on every sale by £1.05; on a £12.99 listing that is eight points of margin that were never there. And that is before a single selling fee: on Amazon this product at £12.99 would pay £1.04 to £1.95 of referral fee depending on whether it sits in Home Products (8%) or Kitchen (15%), about £2.70 of Low-Price fulfilment, storage and the rest (see the Amazon fee guide).

Duty rates vary from 0% to over 12% depending on the tariff heading, and a trade agreement can bring them to zero when the goods qualify as originating. Check the heading on the UK Integrated Online Tariff before you order, not after the goods arrive; a wrong heading is the most common surprise on a first import.

Allocating a mixed shipment

The example had one product, so dividing by 1,000 was enough. Real shipments mix products, and then the question is how to share £1,000 of freight and fees across them. There are three defensible ways:

Value allocation is simple and is what most accounts software does, but it undercharges bulky cheap items. Suppose a shipment carries 500 cushions (£2 each, 0.02 m³ each) and 500 phone cases (£2 each, 0.0005 m³ each) with £1,000 of freight. By value each gets £1.00 a unit. By cube the cushions, which fill 97.6% of the space, get £1.95 each and the cases £0.05. The second answer is the true one, and it changes which product is profitable.

Whichever method you choose, duty must be allocated by value because that is how it is charged, and it can differ by line when headings differ. Freight, insurance and handling can follow value, cube or weight. Use the same method consistently so that products are comparable from batch to batch.

Currency: which rate, and what happens later

Book the goods at the rate you actually got when you paid, not the mid-market rate on a news site. If you pay a deposit at one rate and the balance at another, the goods cost is the sum of the two pound amounts. If you book the purchase invoice before paying it, record it at the rate on the invoice date and post the difference on payment as a currency gain or loss, not as a change in the stock value; the landed cost of the units does not move after the fact.

Customs uses its own rate: HMRC publishes monthly exchange rates for customs valuation, so the duty and import VAT on the entry are calculated at that rate, which will differ slightly from your bank's. That difference is small and belongs in the duty line.

Keeping landed cost current

Landed cost is per batch, not per product. The second shipment of the same containers will land at a different cost because freight moved, the rate moved or the quantity changed. Two ways to handle that: value stock at the weighted average of the batches on hand (the usual choice for marketplace sellers), or keep each batch separate and consume the oldest first. Either is acceptable; what is not acceptable is the "standard cost" typed into a spreadsheet in 2024 that nobody has updated.

When you record the freight invoice weeks after the goods arrived, the cost should go into the stock value and flow into cost of goods sold as units sell, not into a "shipping" expense line for the month. That is the difference between a profit per unit that is real and one that is 20% too high in the month the freight was paid and 20% too low every other month.

Merchvio records each receipt with its freight, duty and other charges allocated by value, cube or weight, holds stock at the weighted average, and uses that cost when an order ships, so the per-order profit reflects the batch the unit actually came from.

Duty rates and the valuation rules above were checked against the UK Integrated Online Tariff and HMRC guidance in October 2026. Your tariff heading, origin and incoterms decide the real figures; a customs broker can confirm the heading before you commit to an order.