A factory quote is a price for goods at one point in a chain that has several more points in it. Everything between that point and your shelf is still yours to pay, and for an imported consumer product it is rarely a rounding error. Landed cost is the number that includes all of it.
Why the factory quote is not the cost
Two suppliers send you a price per unit and one is lower. That tells you almost nothing, because the two prices may not be measuring the same thing — one can stop at the factory gate and the other at the destination port. Add the duty that follows from where the product is made, the freight on its lane and the tests the destination market requires, and the order between the two quotes can reverse.
So the discipline is simple: decide on delivered cost per sellable unit, not on the quote. It is also where the money is, because the components a brand never negotiates — freight basis, duty exposure, how well the product packs — are often larger than the two or three percent a hard negotiation moves on the factory price.
- Landed cost
- The total cost of acquiring one unit and getting it to the point where you can sell it: the goods, every transport and handling charge on the way, the duties charged at import, and the order-specific costs — testing, tooling, samples, payment and currency — spread across the units that arrive sellable.
Incoterms decide what a quote already contains
Incoterms® rules are the ICC-published three-letter terms that allocate the tasks, costs and risks of delivery between seller and buyer. Incoterms® 2020 has eleven: seven for any mode or modes of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four for sea and inland waterway transport (FAS, FOB, CFR, CIF). Which one a quote is written on decides how much of the chain the price has already paid for.
| Rule | Roughly what the seller has done | What you still add |
|---|---|---|
EXW | Made the goods available at its own premises, without even clearing them for export | Export clearance, all transport, insurance, import duty and clearance, inland delivery |
FOB | Placed the goods on board the vessel you nominated, cleared for export | Ocean freight, insurance, import duty and clearance, inland delivery |
CIF | Paid carriage and minimum-cover insurance to the destination port | Import duty and clearance, terminal charges, inland delivery, any insurance top-up |
DAP | Delivered to a named place in your country, not unloaded, import formalities still yours | Import duty and clearance, unloading |
DDP | Delivered and cleared for import, paying duty at both ends | Little on freight — but check what duty the seller assumed |
Simplified for comparison. Incoterms® is an ICC trademark and each rule has a precise text — read it before contracting.
The formula
Landed cost per unit = (goods + freight + insurance + duty + clearance + inland transport + order costs) ÷ sellable units received
One shipment, one currency, one destination. The denominator is what arrives sellable, not what the purchase order said.
What sits inside each component
| Component | What drives it | Commonly missed |
|---|---|---|
| Goods at the factory | Unit price, materials, trims, packaging, labour | Retail packaging and export cartons quoted separately from the unit price |
| International freight | Mode, lane, volume, and how well the product packs — freight is charged on weight or volume, whichever is greater | Origin charges, terminal handling and documentation fees beside the rate itself |
| Duties and tariffs | The tariff classification, the origin and the customs value | That the rate applies to a value larger than the goods alone |
| Insurance | A percentage of the insured value | CIF obliges only minimum cover, which may not be the cover you would have bought |
| Customs clearance and brokerage | A per-declaration fee, plus any inspection, storage or deferment charges | It is invisible on a large order and material on a small first one |
| Inland transport and handling | Distance from port to warehouse, plus intake and put-away | Receiving fees at a third-party fulfilment centre |
| Testing, certification and labelling | The destination market and the product, not the supplier | One-off or per-style costs only appear per unit once amortised over the order |
| Payment and currency | Transfer and letter-of-credit fees, and the spread you pay on the currency | The rate at which you settle is part of the cost of the goods |
| Yield | The units that pass inspection and arrive sellable | Rejected units were still paid for, so they raise the cost of every unit that shipped |
The customs value is not just the goods
The European Commission describes duty as following from three things — the tariff applicable, the value of the goods and their origin — and it is normally charged as a percentage of the customs value. In the EU the primary basis for that value is the transaction value: the price actually paid or payable for goods sold for export to the customs territory of the Union, adjusted under specific rules. Transport and related costs up to the point of entry are included in it; transport after entry, the import duties themselves and buying commission are not. So freight to the border is dutiable, and freight and duty are not independent lines in your model.
A worked example, per unit
Every number below is illustrative — arithmetic to show the shape of the calculation, not a benchmark. Rates, fees and duty percentages depend on your product, lane and destination. The order is 5,000 units quoted FOB at €4.20, shipping by sea into an EU port and trucked to one warehouse.
| Component | Order total | Per unit |
|---|---|---|
Goods, FOB €4.20 | €21,000 | €4.20 |
| Ocean freight and origin charges | €2,600 | €0.52 |
| Marine insurance | €80 | €0.02 |
| Import duty, an illustrative 6% of customs value | €1,420.80 | €0.28 |
| Customs clearance and broker fee | €150 | €0.03 |
| Inland transport, port to warehouse | €450 | €0.09 |
| Warehouse intake and handling | €200 | €0.04 |
| Lab testing and documentation, one-off | €900 | €0.18 |
| Payment and currency costs | €315 | €0.06 |
| Landed cost | €27,116.80 | €5.42 |
The duty line is 6% of a customs value of €23,680 — goods plus freight and insurance to the border — not 6% of the goods alone. Per-unit figures are rounded to the cent.
Landed cost is €5.42 against a quote of €4.20: 29% above the factory price. The multiple is product-specific — a dense, low-duty, short-lane product lands much closer to its quote, a bulky air-freighted one much further. The point is that the gap is large enough to decide things.
Why this changes which supplier you choose
Take the same product from a second supplier quoting €3.95 — 25 cents cheaper — but on a longer lane and from an origin where, illustratively, the applicable rate is 12% rather than 6%.
| Per unit | Supplier A | Supplier B |
|---|---|---|
Quoted FOB price | €4.20 | €3.95 |
| Freight and insurance | €0.54 | €0.74 |
| Import duty | €0.28 | €0.56 |
| Clearance, inland, handling | €0.16 | €0.16 |
| Testing and payment costs | €0.24 | €0.24 |
| Landed cost | €5.42 | €5.65 |
Supplier B wins the quote and loses the order by 23 cents a unit — €1,150 on this shipment, and again every time it repeats. B really is cheaper at the factory gate; the comparison was simply made at the wrong point in the chain.
How the sourcing country changes the number
- Duty. The rate follows the classification and the origin, so the same product can carry different rates from different countries — and a preference may apply where the product genuinely meets that agreement's rules of origin.
- Freight and lead time. Distance, sailing frequency and how directly the lane runs move the rate; longer transit is working capital, and a higher chance of paying for air freight to save a launch date.
- Compliance and currency. Testing obligations follow the destination market, but the evidence a factory can already produce decides how much of it you pay for — and the currency you settle in is part of the cost of that origin.
Where landed-cost models go wrong
- Comparing quotes written on different Incoterms rules and treating the gap as a price difference.
- Dividing by units ordered rather than units received sellable.
- Applying the duty rate to the goods value alone, when the customs value also carries freight and insurance to the border.
- Reusing a freight rate from a previous quarter. Rates move independently of everything else in the model.
- Treating tooling, sampling and lab testing as free because they are not per-unit costs, instead of amortising them.
- Before you compare two suppliers
- Both quotes restated on one basis — landed at your delivery point.
- The tariff classification you intend to declare, and the rate that follows from it and the origin.
- A current freight quote for the real lane, mode and volume, including origin and terminal charges.
- The customs value you will declare, not the goods value.
- Clearance, brokerage and destination fees, plus inland transport and warehouse intake to the real delivery point.
- Testing, certification, labelling and packaging for the destination market, amortised over the order.
- Tooling, development and sampling, and an expected sellable yield so the denominator is honest.
How Library of Trade approaches it
We compare supply chains rather than quotes, because moving one part moves the others: a different material can change the classification, a different factory the lane, a different pack the freight. AI gives our team the scale to compare many such combinations; our experts verify and negotiate before the recommendation reaches you. Stated plainly: the cheapest factory quote is not necessarily the cheapest supply chain. The product cost estimator gives a preliminary, model-based figure before you have quotes; the landed cost guide has the full method, and tariff engineering covers the lawful duty levers.