Landed Cost
The total cost of a product delivered to your warehouse, including manufacturing, shipping, duties, taxes, insurance, and all handling charges.
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What is Landed Cost?
Landed cost is the comprehensive total cost of getting a product from the manufacturer to your warehouse or fulfilment centre. It goes beyond the factory price to include every expense incurred in moving the product from production to your possession.
Components of landed cost:
- Product cost (FOB/ex-factory): The price paid to the manufacturer
- Freight/shipping: Transportation from factory to your location
- Customs duties: Import taxes (if sourcing internationally or across state lines for GST)
- GST/taxes: Goods and Services Tax applicable on the transaction
- Insurance: Cargo insurance during transit
- Packaging: Export/transit packaging beyond garment packaging
- Inspection costs: Third-party quality inspection fees
- Banking charges: LC (Letter of Credit) fees, wire transfer charges
- Handling charges: Loading, unloading, warehousing fees
- Brokerage fees: Customs broker charges for import clearance
Landed cost formula:
Landed Cost = FOB Price + Freight + Insurance + Duties + Taxes + Handling + Inspection + Banking Charges
Why it matters:
Your retail price and margins must be based on landed cost, not FOB price. A product with a ₹200 FOB price might have a ₹260–300 landed cost, significantly affecting your margins.
Why This Matters for Fashion Entrepreneurs
Many new fashion entrepreneurs price their products based on the factory price, forgetting the additional 20–40% in costs to actually receive the goods. This leads to margin compression and financial surprises.
Common hidden costs missed:
- GST on raw materials and services (18% on most textile inputs)
- Courier/freight from factory to your location (₹5–30 per piece depending on distance)
- Quality inspection (if using third-party services)
- Damaged/rejected pieces during transit (1–3% typical)
- Cash handling and banking charges
- Storage costs if goods arrive before you can sell them
Landed cost by sourcing model:
- Local (same city): FOB + 5–10% = landed cost
- Domestic (different state): FOB + 10–20% = landed cost
- International import: FOB + 25–50% = landed cost (duties, shipping, customs)
Pricing rule of thumb:
Always calculate your retail price as a multiple of landed cost, not factory cost. Target retail = 3–4× landed cost for DTC brands; 2–2.5× landed cost for wholesale.
Sourcing Guide
Reducing landed cost:
- Consolidate shipments: Combine multiple orders into single shipments to reduce per-unit freight
- Source locally: Factories in your city/region eliminate most logistics costs
- Negotiate freight rates: Get quotes from 3–5 logistics providers
- Optimise packaging: Lighter, smaller packaging reduces shipping costs
- Claim GST input credits: Proper GST documentation lets you offset input tax against output tax
Logistics partners in India:
- Delhivery, BlueDart, DTDC: B2B shipping for garment businesses
- Freight aggregators: FreightBro, Cogoport for bulk shipping
- Factory pickup: Many Tirupur and Delhi factories offer door-to-door delivery
Pricing & Costs
Example landed cost breakdown (100 cotton kurtas from Tirupur to Delhi):
| Component | Cost |
|---|---|
| FOB price (₹300 × 100) | ₹30,000 |
| GST (5% on garments) | ₹1,500 |
| Freight (Tirupur to Delhi) | ₹2,000 |
| Packaging (cartons, polybags) | ₹500 |
| Insurance | ₹300 |
| Inspection (if applicable) | ₹1,000 |
| Total landed cost | ₹35,300 |
| Landed cost per piece | ₹353 |
The ₹300 FOB kurta actually costs ₹353 landed — an 18% increase. Price your retail accordingly.
Frequently Asked Questions
Create a spreadsheet listing every cost between factory and your warehouse: FOB price, GST, freight, insurance, packaging, inspection, handling, and banking charges. Sum them for total landed cost. Divide by number of units for per-piece landed cost. Update this calculation for each production run as costs change. A simple Excel template is sufficient for most startups.
As a quick estimate: add 10–15% for local sourcing (same city), 15–25% for domestic sourcing (different state), and 30–50% for international imports. These are rough percentages — always calculate actual landed costs for your specific situation. The biggest variables are freight distance and applicable duties/taxes.
GST affects cash flow but not final cost if you are GST-registered. You pay GST on purchases (input) and collect GST on sales (output). The input GST is credited against output GST. However, for non-registered entities or composition scheme businesses, GST becomes a real cost. Get GST registration if your revenue exceeds ₹40L (₹20L for some states) — it is essential for claiming input credits.
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