Landed cost per unit: from container total to a price you can defend

A shipment total is an accounting fact. A price is a decision, and it is made per unit. The step between the two is where importers lose margin — not because the arithmetic is hard, but because shared costs get split on a convenient basis and the unit count is taken from the packing list rather than from what will reach a customer.

This note assumes you already have a shipment total. If you do not, start with the step-by-step landed cost method, which sets out the order duty, levies and import tax arrive in.

Step 1 — decide what belongs inside unit cost

Landed cost is a costing concept, but it has an accounting cousin: under IAS 2, the cost of inventories comprises the costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition, and the costs of purchase include import duties and other taxes that are not subsequently recoverable, plus transport and handling (IAS 2, Inventories). Two words in there decide a lot of arguments.

Not subsequently recoverable. If you are registered for VAT or GST and reclaim import tax as input tax, it is cash flow, not cost, and putting it into unit cost overstates your price floor. If you cannot reclaim it — not registered, exempt output, or a jurisdiction that blocks recovery on the item — it is cost, and leaving it out invents margin that does not exist. Pick the correct treatment for your own position, apply it consistently, and write on the report which basis you used.

Present location and condition. Ocean freight, insurance, clearing, terminal handling, port storage and inland delivery to your warehouse are all inside. Your own marketing, sales commission, outbound freight to the customer and head-office overhead are not. They are real, and they belong in the pricing calculation as selling costs — just not inside unit cost, where they would double-count once you price off margin.

Step 2 — allocate shared costs on a basis you can defend

Freight, insurance, clearing and most border charges arrive as one number for the whole consignment. Splitting them evenly across product lines is the default that quietly distorts every unit cost in the container: it subsidises heavy, cheap goods with margin taken from light, expensive ones.

Match the basis to what drove the charge: weight-rated freight on weight, volumetric freight on volume, ad valorem duty and levies on value, per-piece fees on units. The guide on allocating freight across multiple products works through the mechanics. Whatever you choose, the allocations must still sum to the shipment total — a split that does not reconcile is a bug, not a policy.

Step 3 — divide by sellable units, not shipped units

The denominator is where the most flattering error lives. Shipped units include the carton damaged in transit, the samples you gave away, the short-shipped balance the supplier never sent, and returns you cannot resell. Those units carry cost and earn no revenue, so their cost transfers to the units that do sell.

Sellable units = shipped units
               − short shipment
               − damage and breakage
               − samples and marketing giveaways
               − expected unsellable returns

On a 1,000-unit line, a 3% loss raises landed cost per unit by about 3.1%. That is often the whole difference between the margin you modelled and the margin you banked.

Worked example: two products in one container

All figures and rates below are illustrative only. Substitute the rates, bases and fees your own destination applies. Freight, insurance and clearing are allocated by purchase value; import tax is treated as non-recoverable, so it sits inside unit cost.

Shipment
  Product A  goods 36,000.00   900 shipped   duty 10%
  Product B  goods 12,000.00   600 shipped   duty 5%
  Goods total                48,000.00
  Freight 5,200.00  Insurance 400.00  Clearing & delivery 1,800.00

Allocation by purchase value:  A 75%   B 25%

                                    Product A     Product B
  Goods                             36,000.00     12,000.00
  Freight share                      3,900.00      1,300.00
  Insurance share                      300.00        100.00
  --------------------------------------------------------
  CIF / customs value               40,200.00     13,400.00
  Duty                               4,020.00        670.00
  Tax base (CIF + duty)             44,220.00     14,070.00
  Import tax @ 15% (non-recoverable) 6,633.00      2,110.50
  Clearing & delivery share          1,350.00        450.00
  --------------------------------------------------------
  Total landed cost                 52,203.00     16,630.50

  Shipped units                           900           600
  Loss (damage, samples)                   27            12
  Sellable units                          873           588
  Landed cost per unit                  59.80         28.28

Split the same shipment evenly across the two lines instead, and Product A's unit cost falls to about 56.44 while Product B's rises to about 33.13 — a 17% error on B in a container where nothing was mispriced and no rate was wrong. The allocation basis is not a formatting choice; it decides which of your products looks worth reordering.

Note too that duty sits inside the tax base, so the higher-duty line compounds: a percentage point of duty costs more than a percentage point of cash. The guide to how the import VAT or GST base is assembled shows which levies stack and which stay outside.

Step 4 — turn unit cost into a price

Break-even is not landed cost per unit. Selling costs a unit money too: marketplace commission, card fees, freight out, distributor discount. Those scale with revenue, so they come out of the price, not the cost.

Break-even price = landed cost per unit ÷ (1 − selling costs %)
Target price      = landed cost per unit ÷ (1 − target margin − selling costs %)

Product A: landed 59.80, selling costs 8%, target margin 30%
  Break-even = 59.80 ÷ (1 − 0.08)          = 65.00
  Target     = 59.80 ÷ (1 − 0.30 − 0.08)   = 96.45
  Gross profit at 96.45 = 96.45 − 59.80 − 7.72 = 28.93  (30.0% of revenue)

Divide by one minus the margin; do not multiply by one plus a markup. A 40% markup on cost is a 28.6% margin on revenue, and confusing the two is the most common pricing error we see — it reads as a comfortable margin and behaves as a thin one.

Five mistakes that flatter unit cost

• Including recoverable import tax. If you reclaim it, it is not cost. Your price floor is lower than your spreadsheet thinks, and you may be losing winnable deals.
• Excluding non-recoverable import tax. The reverse, and the expensive direction: every unit is underpriced by the tax.
• Allocating everything evenly. Fast, defensible-sounding, and wrong in both directions at once.
• Dividing by shipped units. Loss, samples and short shipment move cost onto the units that actually sell.
• Ignoring minimum-charge fees. A charge of “1.2% of CIF or US$190, whichever is higher” behaves as a fixed cost on small shipments, so unit cost rises sharply as order size falls. Cost each order size separately rather than scaling one result.

After clearance: reconcile, then trust the number

An estimate becomes a costing standard only once you have put the actual invoices next to it. Keep the variance per line, and per charge: freight against the quote, duty against the assessment, clearing against the broker's bill. A persistent 4% gap on clearing is not noise — it is a rate you should be using in the next estimate.

You can run the whole sequence for a single product in the free landed cost calculator: enter goods, freight, insurance, duty and tax rules, and it returns landed cost per unit, break-even and target price. For containers holding several products — TrueCost Pro keeps each shipment as a saved project, allocates shared costs across lines on the basis you choose, and reconciles the estimate against the actual invoices when they arrive.

Questions we get asked

What is the landed cost per unit formula?

Landed cost per unit = total landed cost of the line ÷ sellable units of that line. The total landed cost of the line is its goods cost, plus its share of freight and insurance, plus duty, excise and levies, plus recoverable-or-not import VAT or GST, plus its share of clearing, handling and inland delivery.

Should import VAT or GST be inside landed cost per unit?

Only if you cannot reclaim it. Where you are registered and the tax is recoverable as input tax, it is a cash-flow item rather than a cost, and including it overstates unit cost. Where it is not recoverable, it is a real cost and belongs inside. Treat it consistently and label which basis you used.

How do I calculate a break-even selling price?

Break-even price = landed cost per unit ÷ (1 − selling costs as a decimal fraction of revenue). Selling costs are the commissions, marketplace fees, card fees and freight-out that scale with the sale. Selling at that price returns your cash and no profit.

How do I price for a target margin?

Target price = landed cost per unit ÷ (1 − target gross margin − selling costs). Dividing by one minus the margin is not the same as multiplying by one plus a markup: a 40% markup on cost is only a 28.6% margin on revenue.

All figures and rates in this note are illustrative estimates. This article explains general costing method and is not customs, tax, accounting or legal advice, nor an official interpretation of any accounting standard or national law. Confirm duty rates, tax bases, recoverability and fee schedules with the destination authority, a licensed clearing agent or your accountant before you commit to a purchase or a price. Our calculation methodology and editorial policy explains how we produce and review these figures, and how to tell us about a correction.