The landed cost is the total cost of a business purchase when all of the factors that affect the overall amount the purchaser must pay are included. These excess costs are in addition to the actual price of the business, and can include shipping costs, duties or tariffs, insurance fees, inspection fees, and many others. Determining the landed cost of a purchase is most important to companies doing international business, since there are many extraneous costs associated with international business. Businesses must account for these costs and try to eliminate them or limit them as much as possible to make the most efficient purchases.
Many companies and businesses rely on outside sources for the purchase of the products that they sell. Ideally, they can keep the costs of purchases low so that they can price their items competitively upon resale. Doing this also allows them to improve their profit margin. When dealing with items that need to be shipped in from great distances, costs can escalate quickly. The landed cost of a purchase is the complete amount paid out by a business to complete the transaction and gain physical ownership of the product in question.
When shipping things in from international locations, there are many costs which can arise that can factor into the overall landed cost. Shipping costs associated with the transport of a product from one place to another are the most obvious examples of these extra costs. Companies have to decide upon the most cost-effective way of shipping. For example, having an item transported via air freight means that it will arrive quickly, but it is also an expensive mode of transportation.
In addition to shipping charges, there are other costs which arise in international purchases that affect landed cost. Businesses sometimes purchase insurance to prevent against an item being damaged. Various tariffs and duties may be attached to purchases from specific countries. Inspections may be performed at certain customs points, which require fees to be paid. All of these seemingly insignificant charges can add up to a large amount.
As a result, it is important for business owners to understand all of the components of the landed cost and to try to limit these costs. Current conditions in the world may affect these purchases, like rising fuel prices which affect shipping or changing currency values which can have an effect on international prices. If a business can effectively limit the excess costs attached to purchases, it ultimately will experience benefits to its bottom line.
