Landed cost: what a unit really costs when you manufacture overseas

A factory in Guangzhou quotes $6.50 for a hoodie — on the face of it, far cheaper than a domestic maker at, say, $15. But you can't compare those numbers head to head. The Chinese price is the price at their warehouse, while the domestic price is almost at yours. To make the comparison honest, both have to be brought to the same point: the cost of one unit delivered to your warehouse with every expense included. That is landed cost.

The formula

Landed cost = (Goods + Freight + Duty + Import VAT* + Agent + Other) / Good units

*the VAT nuance is below — it isn't a cost for everyone.

Let's break down the components.

1. Goods. The factory's FOB price (the goods plus their costs up to the port/vessel) or EXW (pickup straight from the factory — in which case the first leg of freight is on you). Always confirm the term: "$6.50" FOB and "$6.50" EXW are different money.

2. Freight. Every leg up to your warehouse: international (sea/rail/road/air), domestic inland, and insurance. Calculate it per shipment and divide by quantity. For bulky, lightweight items (down jackets!) ask for both the per-kg and the per-cubic-metre rate — you'll pay whichever is higher.

3. Duty. The rate follows the goods' tariff classification code (for most apparel it's on the order of 10%, but always check your specific code); the base is the customs value (goods plus delivery to the border). This is where the main regional fork appears — whether your source country has a duty-free trade agreement with your market or whether imports are dutiable:

4. Import VAT. Where your jurisdiction levies VAT on imports, the base is the customs value plus duty. Important nuance: if you can reclaim input VAT (standard registered businesses), it's a cash-flow gap for you rather than a true cost. If you operate under a simplified or flat-rate tax regime where input VAT can't be reclaimed, it's a full-blown cost — add it to landed cost in its entirety. Many small sellers fall into the second group, which is why for them imported goods get more expensive by both the duty AND the VAT on top.

5. Agent / intermediary. The buying agent's or sourcing agent's commission — usually a percentage of the goods' value or a flat fee per shipment. Add currency conversion here too: your bank's rate differs from the market rate by 1–3%, which is real money on a full shipment.

6. Other. Any product labelling or traceability requirements your market imposes (the codes are cheap, the process is not), certification/declaration of conformity, packaging, and temporary-storage charges when things don't line up.

7. Divide by good units. Subtract defects and shortfall (2–5% is a reasonable allowance) from the denominator: you paid for 1,000, you'll sell 970.

Why "FOB = cost" fools you

A classic beginner's mistake: see $6.50 on the invoice, multiply by the exchange rate, write "cost $6.50" into the product card, and start calculating margin. Then the marketplace takes its commission and fulfilment fees, and on paper there's still a profit — yet by the end of the quarter the cash is in the red and no one can say why.

Let's break the same $6.50 hoodie from China into components below (shipment of 1,000 units, simplified tax regime, illustrative figures). Say the FOB price is $6.50. On top of it: freight ~$1.35, duty at 10% of the customs value ~$0.77, import VAT at the applicable rate ~$1.90, agent at 5% ~$0.33, bank spread ~2% ~$0.13, and labelling with packaging ~$0.33. Divide by 0.97 for 3% defects and you land at roughly $11.60 at the warehouse.

$6.50 versus $11.60 — a difference of about 1.8x, almost double. If you build your margin off $6.50, you lose around $5.10 on every unit, and on a shipment of 1,000 that's a $5,100 hole. This is where "I'm working at a profit but there's no money" most often hides.

Worked example: China versus Kyrgyzstan

The same hoodie, 1,000 units, seller on a simplified tax regime, illustrative figures.

"Cheap China at $6.50" and "expensive Kyrgyzstan at $10.55" end up within about 5% of each other at the finish line. From there the decision turns not on factory prices but on lead times (40–60 days by sea versus a week by road), minimum order quantities, quality, and the cost of your own nerves spent on inspection. The reverse happens too: on simple, high-volume items China pulls ahead even after all the add-ons. The moral is the same: decisions are made on landed cost, never on the factory price list.

On undocumented "grey" shipping — no moralising, just facts

Bringing goods in without documents strips duty and VAT off the shelf price — but it also strips away:

• the ability to put goods into legal circulation with proper invoicing for the marketplace (platforms accept apparel against documented, traceable supply records);
• a verifiable cost basis for the tax authorities;
• any recourse if the cargo is lost — legally it doesn't exist.

Oversight by marketplaces and tax authorities has deepened over the past couple of years: platforms now share sales data with regulators. Against that backdrop, the gap between a "grey" and a "white" landed cost is no longer a saving — it's a deferred fine, with confiscation attached.

Calculation checklist

1. Get a price from the factory with an explicit term (FOB/EXW) and the MOQ.
2. Request freight for your own volume/weight, both rates (per kg / per cubic metre).
3. Check the duty rate against your tariff code; for Uzbekistan, plan for the certificate of origin.
4. Simplified/flat-rate regime → count import VAT as a cost; reclaimable-VAT regime → as a cash-flow gap.
5. Add the agent, conversion, labelling, and packaging.
6. Divide by good units (2–5% defects).
7. Feed the result into your marketplace unit economics — landed cost is not yet profit.

You can run both steps quickly in our cost and margin calculator — it computes landed cost and then your marketplace margin straight away.

From PLMflow. In the system, landed cost is calculated right on the style card: quotes from several factories in different currencies, plus freight, duty, and agent fees — modelled as scenarios, alongside your target price and margin. Comparing "China vs Kyrgyzstan vs domestic" takes a minute, not an evening with Excel. See it →