It encompasses the original cost of the item, plus costs like shipping and handling fees, warehousing fees, customs and duties, taxes and insurance, and currency conversion fees.
By knowing what your landed cost will be for every product you sell, you’ll be able to price your inventory in a way that will ensure you make a consistent profit.
Once you calculate landed cost, you’ll also be able to find less obvious fees that you can eliminate from your supply chain. With this information driving your decisions, you’ll have the power to get products to buyers in cost efficient ways.
Calculating the landed cost doesn’t have to be complicated
To calculate the landed cost for any item you sell, list out every step of your product’s journey. Start with the price that you pay to get your product from your supplier, including freight estimates and then add in the costs involved with warehousing, packing and shipping that item to a buyer. Add any duties. The tricky part comes from estimating foreign exchange rates, but there are ways to hedge your currency volatility exposure to keep your cash flow predictable. (Don’t forget that margins on cross-border payments can be up to 5% when you transfer with a bank and nearly 4% when using Amazon or PayPal to bring your profits home.)
Lower your landed cost with OFX
After crunching some numbers, you may find a few fees that are taking their toll on your bottom line. But there’s a simple solution to immediately start seeing a higher return on every international sale.
Setting up an multi-currency account with OFX will help you save money on currency conversion fees when you want to bring your money home. Rather than having to give up nearly 4%, we only charge 1.5% or less, which means you can save up to 75%* on conversion fees alone.
Let’s look at a really basic example, shall we?
- Say you purchase a product for $500 and ship it for $100 (we’re keeping out taxes and other fees for the purposes of keeping this simple). Your landed cost will be $600. If you sold that single product for $2,000, that means that your profit on that single item was $1,400.
- Sounds pretty good, right? But wait, you have to bring your money home, and Amazon will charge you 3.9% on that $1,500 sale, so you’ll have to give up $80. That means that your landed cost will be $680, and your profits will only be $1,320.
- With OFX, you’d only pay $30, so you’d save $50 in margins. Your landed cost would be $630, and your profits would be $1,370.
- Multiply that same sale 100 times, and you’ll end up saving $5,000, which is nothing to sneeze at. But the added bonus of working with OFX is getting access to a suite of tools so you can minimise your exposure to currency volatility. Most marketplaces don’t let you do that. With us, you can lock in a great rate for up to 12 months to keep your cash flow running smoothly. Plus we offer receiving accounts in 7 currencies: USD, GBP, HKD, AUD, CAD and EUR.
Even if you don’t make any other changes to the way you do business, you could save thousands by using OFX. It’s simple, it’s straightforward, and it could be just what your e-commerce business needs to get ahead.
Looking for ways to simplify your logistics? Check out this post about Fulfillment By Amazon.
*Average savings based on a sample of published transaction fees for cross border payments provided by Amazon and PayPal dated 8.24.16. Quoted savings are not indicative of future savings. Third party intermediary fees may apply.
Sources:
http://www.nfiindustries.com/blog/understanding-total-landed-cost-your-supply-chain/
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. OzForex Limited (trading as OFX) and its affiliated entities make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.
