How to calculate landed cost per unit
The supplier's price is not what a product costs you. Before you sell it on Amazon, you pay freight and preparation. This guide explains how to spread those costs across the units of a batch, with a full example.
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What landed cost is
It is what each unit costs you once it is ready to sell: the supplier's price plus its share of the freight, the preparation and any other cost of that shipment.
It does not include Amazon's fees. The referral fee, the FBA fulfillment fee and monthly storage are charged when you sell or each month. They belong in the profit calculation, not in the unit cost. If you add them in both places, you count them twice.
The formula
First, split each batch cost across the product lines. Then divide each line's share by its received units and add it to the supplier cost.
cost per unit = supplier cost + (allocated freight + allocated preparation + allocated other) ÷ units received
The three allocation methods
The formula does not say how to split freight across different products. There are three reasonable ways, and the result changes with the one you use.
- By units. Every unit carries the same amount. It works when products are similar in size and value.
- By purchase value. Each line carries its share of what you paid for it. It works when the expensive items are also the large ones, or when you pay insurance or duties on value.
- By weight. Each line carries its share of the weight. It is the most accurate when the carrier charges by the kilogram and products weigh very differently. It needs the weight of every line.
A worked example
An invented batch from one supplier, with three products and 360 units. You paid $3,600.00 for product, $360.00 for freight and $180.00 for preparation: $4,140.00 in total. Preparation is charged per unit, so it is split by units in all three cases: $0.50 per unit.
Product A: 200 units at $4.50 (0.6 kg each). Product B: 100 units at $12.00 (1.2 kg). Product C: 60 units at $25.00 (2.0 kg).
| Product | Supplier cost | By units | By value | By weight |
|---|---|---|---|---|
| A | $4.50 | $6.00 | $5.45 | $5.60 |
| B | $12.00 | $13.50 | $13.70 | $13.70 |
| C | $25.00 | $26.50 | $28.00 | $27.50 |
What the example shows
All three methods add up to the same total: $4,140.00. What changes is who carries it. By units, product C carries $1.00 of freight per unit. By value, $2.50. If C sells on a thin margin, that $1.50 difference decides whether it is profitable.
Pick one method per batch and use it the same way for that kind of shipment. Switching methods between similar batches makes the same product look more or less profitable when nothing changed.
Common mistakes
- Dividing by the units ordered. Freight is spread over what arrived. If you ordered 360 and received 350, the $360.00 of freight is $1.0286 per unit, not $1.00.
- Rounding each unit to the cent. In a large batch, the cents lost on each line mean the total no longer matches what you paid. Keep at least four decimals and round only for display.
- Splitting by weight with incomplete data. If a product has no weight, the split gives it zero freight and makes the others more expensive.
- Putting Amazon's fees in the unit cost. They are already in profit; adding them here counts them twice.
- Judging a purchased batch's profit with the supplier cost alone. Before buying it is a good reference; after, the real number includes freight.
Before buying and after
Before buying, you do not know how many units you will order or what freight will cost. So when you analyze a supplier price list, measure margin and ROI on the supplier cost and leave a buffer for freight.
Once there is a purchase order and the batch arrives, freight is no longer a guess. That is when you calculate landed cost, and that number goes into the profit of each sale.
How Scoutly Pro does it
In supplier price list analysis, margin and ROI use the supplier cost, without freight or preparation.
When you receive a batch, you split freight, preparation and other costs by units, by purchase value or by weight. If you choose weight and a product is missing it, Scoutly Pro splits by units and tells you. The divisor is units received, the cost per unit is stored with four decimals, and the batch total matches what you paid to the cent. That cost is the one used in the profit of each sale.
Frequently asked questions
- What is landed cost per unit?
- It is the supplier's price plus each unit's share of freight, preparation and other shipment costs, divided by the units received.
- Are Amazon's fees part of landed cost?
- No. The referral fee, the FBA fee and storage belong in the profit of each sale. Adding them to the unit cost counts them twice.
- Should I split freight by units, by value or by weight?
- By units if the products are similar; by value if the expensive items are also the large ones or you pay duties on value; by weight if the carrier charges by the kilogram and you have the weight of every product.
- Why divide by units received instead of units ordered?
- Because freight was paid for what arrived. If units are missing, the ones that arrived carry all of the freight, and their real cost goes up.
Calculate your batch costs in Scoutly Pro
Record the batch, split freight and preparation, and the cost per unit goes into the profit of each sale.