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.)