The quoted price is not your cost
A factory quote is what the goods cost at the factory door. Your cost is what they are worth on your shelf, after freight, duties and brokerage have been paid - and if your system holds the first number, every margin it reports is optimistic by exactly the difference.
A factory quotes you eleven cents a unit and your books say fourteen. Neither number is wrong. The three cents in between is the part of the price nobody quotes: the freight, the customs duties and the brokerage fees the goods collect on the way to your shelf.
Two prices, one truth
The quote is what the goods cost at the factory door. Landed cost is what they cost sitting in your warehouse, ready to fill or sell - the same carton after the ocean freight, the duty for the category and the broker who cleared it have all been paid.
The difference matters because margin is computed against cost. If the cost in your system is the factory quote, every margin you report is flattered by exactly the part of the price you left out. The error is invisible on any single order and structural across a year - and it is not evenly spread. Cheap, bulky goods collect proportionally more freight than dense, expensive ones, so the products your reports flatter most are precisely the ones freight punishes hardest.
Spreading it honestly
Landing a cost sounds like one division. The honesty is in three details:
- The premium spreads in proportion to line value, not evenly by line - a pallet of caps must not carry the same freight as a pallet of glassware.
- A free line carries none of it. Replacements and thrown-in samples have a zero subtotal, and loading freight onto them would write a cost onto goods you never bought.
- It happens when the order is fully received, because until the last carton lands you do not know what the shipment finally cost.
Do it any other way and the number is still called landed cost, but it has stopped being true.
What this looks like here
A purchase order here carries the three buckets beside its lines - shipping, customs duties, and brokerage or tariff fees - and you can set them any time before the order is received, as the real figures arrive. On full receipt the whole premium is spread across the priced, stockable lines in proportion to their value, and each line shows its landed unit cost right beside the quoted one.
That landed figure is what flows into the item's cost, so the margin you report downstream is the margin you actually earned - and the cheap-but-bulky product finally shows its real price. The quote is where the negotiation happens. The landed cost is where the truth lives.