Not so long ago, the landed costs were just one insignificant line among voluminous general expenses. Recently, businesses have been expanding globally. Therefore, international sales are growing rapidly. Thus, the impact of landed costs is continuously increasing.
Undoubtedly, landed costs require no less attention than other types of expenses. They influence the prime cost and sales price. Hence, the calculation of landed costs must be accurate, flexible and prompt. These factors empower you to make insightful business decisions, choose the right scenarios and stay competitive.
What are the landed costs?
The sum of all expenses which are experienced during the transportation of goods to a customer‘s door, i.e. until goods “landed” to your warehouse.
Which companies experience the most landed costs?
Usually, these companies are active in sales processes. For example, they purchase a lot of items or semi-processed goods from local or foreign suppliers. According to our experience, most often these are distribution, wholesale or manufacturing companies. Depending on the specifics of the company, landed costs can make 10 to 30 percent of the general company expenses.
Why is the calculation of the landed costs so important?
Importing from abroad should increase a company’s profitability, not vice versa. The accurate calculation and allocation of landed costs allow meticulous calculation of the prime cost for every product. Thus, this enables the setting of reasonable and competitive prices. Whilst inaccurate evaluation of expenses means the loss of either customers or profit.
What factors do the landed costs depend on?
Landed costs depend on many factors. Below, you‘ll find the most common ones. So, please do take them into consideration when evaluating your potential expenses.
- Delivery terms. When negotiating with your suppliers, pay attention to the delivery methods EXW (EX Works), CIF (Cost, Insurance, Freight), FOB (Free on Board). Consequently, this will determine your (the importer‘s) expenses.
- Currency fluctuations. When companies practice international trade or import goods, their profit is closely related to currency fluctuations. The landed costs increase as the local currency rate goes down in comparison with the purchase currency. As a result, the profit decreases.
- Customs duties, taxes, quotas. Customs duties and taxes are the importer‘s responsibility. So, you must consider carefully before making a decision to purchase. Find out about possible import quotas for the goods you wish to import. Because this factor may increase landed costs.
- Transportation. The transportation cost depends on the selected type of transportation, duration, and other mandatory taxes. For example, transit cost, terminal handling costs, terminal charges, etc. Also, it may depend on the quality of the service of the selected carrier. So, keep an eye on the news and tendencies of the transportation sector.
How are the landed costs allocated?
The allocation of landed costs depends on the specifics of the business type and internal rules. In all cases, promptness, accuracy, and flexibility are always the most important.
In small companies, the landed costs allocation process is often manual. In case your company imports goods from various countries and multiple suppliers, manual allocation significantly slows down the process. It takes a lot of time and increases the risk of human errors. Thus, the prime cost and final price can be calculated inaccurately. To avoid all the mentioned issues, we recommend you purchase specialized software, for example, the GO-ERP solution.
Why is the automated allocation of landed costs important?
The automated allocation of landed costs is especially important in the modern global economy. For instance, you need to capture all the expenses and allocate them correctly for every product! Don’t waste your accountancy department’s time for manual allocations. And, do not lose your profit.
Find out why it is worthwhile to automate landed costs. You will see: the cost-saving will be significantly higher than the price of the automated solution.
Author Daiva Jakštienė, CMO at GO-ERP