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.