Landed Cost and COGS: How to Cost Every Unit You Sell
By ProfitIQ · Updated · 3 min read
COGS and landed cost
COGS is the cost of the goods you sold in a period. Landed cost is what one unit cost by the time it was in your hands, and is what COGS should be built from. The gap between the supplier’s invoice and the landed cost is freight, duty, insurance, handling and packaging.
landed cost = (supplier price + freight + duty + insurance + other charges) ÷ units receivedSpreading shared charges across a purchase order
Freight and duty usually arrive as one charge for the whole shipment. To give each product its share, spread the charge across the lines. Spreading by value is the common choice: a line worth half the order carries half the freight. Spreading by weight or volume suits heavy, cheap goods better.
Line: Item A: 100 units at $10
- Goods:
- $1,000
- Share of order:
- 50%
- Share of $200 freight and duty:
- $100
- Landed cost per unit:
- $11.00
Line: Item B: 50 units at $20
- Goods:
- $1,000
- Share of order:
- 50%
- Share of $200 freight and duty:
- $100
- Landed cost per unit:
- $22.00
When the price changes: weighted-average cost
Suppose you hold 100 units at $10 and receive 50 more at $13. The next sale should not be costed at whichever price you typed last. The blended cost of everything you hold is the weighted average.
new cost = (stock × current cost + received × price paid) ÷ (stock + received) = (100 × $10 + 50 × $13) ÷ 150 = $11.00
The trap: a missing cost is not a free product
Marketplaces know what a product sold for and never what you paid. An imported catalogue arrives with prices and no costs, and a margin worked out against a cost of zero looks wonderful and is wrong. Treat “no cost” as unknown, and show profit as incomplete until it is filled in. ProfitIQ labels it Profit before costs and shows no margin.
Which cost to trust
- A received purchase order: what you actually paid, with freight and duty allocated.
- A cost you entered by hand: right until the next price change.
- The cost your store reports, such as Shopify’s cost per item: a starting point, only as good as the last time someone updated it.
Entering a cost after orders were synced
Costs are often entered after the first orders arrive. A good system lets you apply the cost to those earlier orders so history is corrected, rather than leaving a gap. In ProfitIQ this is the Apply COGS to orders action. See costs, stock and suppliers.
Frequently asked questions
What is the difference between COGS and landed cost?
Landed cost is the per-unit cost including freight, duty and other charges to bring goods in. COGS is the total landed cost of the units you sold in a period.
What is included in landed cost?
The supplier’s price, freight, customs duty, insurance, handling and packaging, and any other charge you pay to get the product ready to sell. Taxes you can reclaim, such as recoverable VAT, are normally left out.
What is weighted-average cost?
It is total money spent on the units you hold divided by the number of units. When a new delivery arrives at a different price, the average moves and later sales are costed at the new figure.
How should I split freight between products?
By value is the most common method. By weight or volume suits goods where size drives the freight charge. Whichever you use, apply it the same way every time.