What 'landed cost' actually includes

When a founder tells me their unit cost is "$8," I always ask the same question: eight dollars where? Ex-works at the factory gate is a very different number than landed in a warehouse in Ohio, and the gap between them is where margins quietly disappear.

Here's everything that sits between the factory quote and your real cost per unit.

The factory price is the floor, not the cost

The quoted unit price (EXW or FOB) is just the starting point. On top of it:

• Tooling, amortized. If your mold cost $12,000 and you run 10,000 units, that's $1.20/unit on the first run. Spread it honestly across the volume you'll actually make, not the volume you hope to.
• Freight. Sea is cheap per unit but slow; air is fast and can cost more than the product. Which one you pick changes your landed cost dramatically — and it's worth modeling both. (I built a freight calculator for exactly this.)
• Duties and tariffs. Your HTS classification sets the rate, and for China-origin goods into the US there may be additional tariffs on top. This line surprises people the most.
• Customs brokerage and port fees. Clearance, handling, demurrage if your container sits.
• Inland freight. Port to your warehouse.
• Inspection and QC. A third-party inspection per run is cheap insurance; bake it in.
• Payment and FX costs. Wire fees and the spread on currency conversion are small per transaction but real.
• Defect / scrap allowance. Some percentage of every run won't be sellable. Plan for it.

A quick worked example

Say the factory quote is $8.00 FOB. A realistic landed cost might look like:

Line item	Per unit
Factory price (FOB)	$8.00
Tooling amortized	$1.20
Sea freight	$0.60
Duty + tariff	$1.50
Brokerage / port / inland	$0.40
Inspection	$0.15
Defect allowance (3%)	$0.24
Landed cost	≈ $12.09

That's 51% on top of the quote — and none of it is exotic. It's the normal cost of getting a product from a factory floor to your dock.

Why it matters before you tool

If you set your retail price off the $8 number, you've already lost. Model landed cost before you commit to tooling, so you know your real margin and your break-even volume while you can still change the design, the materials, or the supplier.

The teams that get burned aren't the ones who paid too much for the product. They're the ones who never counted everything else.