Category Archives: Definitions

Landed Cost on Merchandise

Editors Note: This is part of my series on sales math.

Landed cost is the simplest loaded cost to deal with. The landed cost is calculated by adding the actual cost of the product (raw cost) with the shipping costs. Here are a couple of examples.

The washing machine you sell has a cost of $200 and the freight company charges $50 to pick it up at your vendor and deliver it to your store. The landed cost  is the sum of these two figures, or $250. That is what it cost to get the washing machine to a point where you can sell it.

Sometimes though, it is a little different. The carton of 24 light bulbs costs you $40 and the freight is $10. That makes the landed cost $50, but you sell the bulbs individually. Now we have to do some math.

The cost of each bulb is $1.67 ($40 /24). The freight for each bulb is $0.42 ($10/24), so the landed cost of each bulb is $2.09. You can also just add $40 + $10 to get $50 and divide it by 24 or $2.08. The difference is a rounding issue.

The next cost you need to become familiar with is the Loaded Cost, which we’ll discuss next.

(note: the definitions given on The Magnum Life are for salespeople, not accountants.)

Raw Cost of Goods

Editor’s Note: This is part of my series on sales math.

Raw cost of goods is only the cost of purchasing a product or service. It doesn’t include any other costs associated with selling, but the acquisition cost.

Example: A manufacturer makes bicycle handlebars. They sell these handlebars to bicycle shops for $15.00 each, F.O.B their plant. The raw cost of the handlebars is $15.00.

There is one problem, though. You can’t sell handlebars that are sitting in the manufacturers warehouse. You need them in your bike shop where customers can see, touch, and purchase the handlebars.

This requires the manufacturer to ship the bars to you via some type of freight company, i.e. UPS, FedEx, Motor Freight, etc.

That brings us to the landed cost.