What is Landed Cost?

 In Inventory Management
Landed costs are important factors to consider when making purchasing decisions.

Landed costs are important factors to consider when making purchasing decisions.

Landed cost is the total cost of what it takes to purchase your products from your vendors. It includes everything from the original price of the product, to tariffs, to shipping and handling. Depending on the nature of what you’re purchasing, landed costs can be fairly complicated to determine. 

If you purchase goods internationally, landed costs are of particular importance, as there tends to be more of them. And in order to determine the right selling price for your item, you need to know how much it cost you in the first place. After all, you’re in the business of making money, not losing it. 

Understanding the impact of landed costs

Let’s say the purchase cost of a widget from overseas is $10 and you offer these widgets to your customers for $15, hoping to make a $5 profit. If the import duties, tariffs, freight, shipping costs, etc. cost you $7 per widget, though, you’re actually taking a loss on the sale of these widgets. 

The above example is, of course, a very simplified illustration of why landed costs are important, but it serves to illustrate how complicated total purchasing costs can be, especially for product-centric businesses who work with a lot of different sources of inventory. Managing vendors is complicated enough, but when you add the complexities of international trade into the mix, purchasing calculations can add up to a headache pretty quickly if not handled properly. 

Using ERP to make determining landed costs easier

The thought of having to calculate landed costs might seem overwhelming or daunting, but this is where running the right ERP software comes into play. If landed costs are calculations that must be done outside of your ERP software, you need to consider looking into a solution that determines landed costs, along with any other purchasing costs, for you. 

Many businesses leave tallying up additional costs on an inventory transaction to their accounting solution. This approach does work, but it adds an extra step to your process, and, by sending data out to the accounting platform and pulling it back into your ERP solution, the risk for error increases. By keeping cost calculations contained within your ERP solution, you streamline the entire process and make it easy to find or edit individual transactions, or even groups of transactions, should the need arise.  

Establishing savvy purchasing strategies

In order for your business to grow and increase profits, you need to be able to take all factors into account when making your purchasing decisions. This includes landed costs, but also additional factors such as inventory holding costs or shrinkage.

Smart purchasing practices are an integral part of effective inventory management. Inventory that is not managed correctly will inevitably cost you money. Make sure that your ERP solution simplifies how you track the entire cost of bringing inventory into your warehouse. 

To learn more about SalesPad’s purchasing solutions, including the Purchasing Advisor, check out this webinar recording.

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