Landed cost is the number that decides whether you have a business

Ask a first-time product founder what their product costs to make and they will tell you the unit price on the supplier’s quote. Four dollars and twenty cents. Ask what it costs to have that unit sitting on a shelf in Edmonton, ready to sell, and most of them will pause. That pause is the gap between a hobby and a business, and it has a name: landed cost.

Landed cost is everything it took to get the unit from the factory floor to your hand. It is the number your margin turns on. If you price from the invoice instead of from the landed cost, you can sell out every batch and still lose money, and it will take you two or three batches to work out why.

The six numbers after the invoice

1. Freight. Sea, air or road, from the factory to a Canadian port or border, and then inland to you. Sea is cheap per unit and slow; air is fast and, per unit, sometimes more than the product itself.
2. Duty. Set by the tariff classification of your product and its country of origin. It can be zero. It can be eighteen percent. You need to know before you order, not when the broker calls.
3. Brokerage. The customs broker’s fee for clearing the shipment, plus disbursement fees for paying duty on your behalf. Small per shipment, large per unit on a small order. The $35 brokerage bill on a $180 box of courier samples is most founders’ first landed-cost lesson.
4. GST at the border. Five percent on the value for duty plus the duty. If you are GST-registered you get it back as an input tax credit; if you are not, you do not, which is the argument for registering. Either way you pay it now and claim it later, which is a cash-flow cost even when it is not a profit cost.
5. Foreign exchange. The quote was in US dollars. Between quote, deposit, balance and arrival the rate moves, and it moves against you more often than you would expect, because you are not hedging.
6. Damage and shrinkage. Some units arrive broken, some go missing, some are unsellable. Two to four percent is normal. Founders budget zero.

A worked example

Say you order one thousand units of a small housewares product at US$4.20. The numbers below are illustrative, but the shape of them is real, and it is the shape that matters.

Twenty-seven percent. If you priced the product at CA$14.99 thinking your cost was CA$5.75, you believed you had a sixty-two percent gross margin. You have fifty-one. Wholesale it at half of retail, which is what a retailer will expect, and your CA$7.50 wholesale price now covers the landed cost with eighteen cents to spare. Eighteen cents per unit to pay for packaging, marketing, your time, returns and the next order.

This is not a scary story. This is the normal story, and every founder who has been through it recognises it immediately. The founders who survive it are simply the ones who did the arithmetic before the order, not after.

What to do about it

• Build the landed-cost sheet before you accept a quote. Ask the supplier for the tariff code. Ask a broker for the duty rate. Ask a freight forwarder for a real quote. All three will answer a serious question for free.
• Ask where it is made, not just where it ships from. Origin sets the duty and, lately, whether a surtax applies on top. Ask before the deposit.
• Price from the landed cost, and price for wholesale even if you only sell direct today. If the numbers do not work at half of retail, they do not work; direct-to-consumer margin is borrowed, not earned.
• Order more than you need or less than you want, but never the number that makes the freight per unit absurd. A pallet costs about the same to ship half full.
• Revisit the sheet on every reorder. The rate moved. The duty changed. The supplier raised the price four percent and mentioned it in the footer.
• Bring it to the supply chain masterclass and fill it in with your own numbers next to people doing the same. It is the session members asked for most.

The invoice price is what the factory charges. The landed cost is what the business pays. Only one of them decides whether you have a business.