What's Actually in Your Landed Cost? A Breakdown for Food and Beverage Brands
Key Takeaways
Landed cost includes far more than ingredients and packaging—founders must account for freight, customs, co-packer fees, warehousing, shrink, and insurance to get an accurate per-unit cost.
Misunderstanding the difference between COGS and landed cost leads to inaccurate contribution margin calculations and pricing errors that can quietly erode profitability.
Building a dynamic landed cost model that tracks per-unit inputs, batch-level fluctuations, and SKU variations is essential for making informed pricing and margin decisions.
Promo planning, break-even analysis, and pricing strategy only work if your cost assumptions are accurate—otherwise, fast-growing brands risk scaling unprofitably.
Most founders think they know exactly what their products cost. After all, you know the cost of your ingredients and packaging down to the cent. However, ingredients and packaging are only two of the factors involved in calculating landed cost in CPG. You also need to think about freight and customs fees, co-packer labor, and warehouse receiving fees — the hidden expenses that can erode your margin.
Over the past 9 years, I've helped CPG founders gain actionable insights from their financial data. If you're only tracking what's going into a pouch or a bottle, I can guarantee you're underestimating your true cost per unit.
Think of this guide as a checklist for calculating landing cost. I'll walk you through every component, giving you the confidence you need to protect your margins and make smarter pricing decisions. Knowing your cost of goods sold vs. landed cost isn't optional — it's essential for building a healthy brand.
What Is Landed Cost in CPG, and Why Do Most Founders Undercount It?
Landed cost is different from your cost of goods sold (COGS). You can do a detailed COGS breakdown and still not know the true landed cost of your products. In simple terms, landed cost is the total cost of getting your product into your warehouse or ready for sale. Landed cost in CPG includes the following components:
Purchase price/production cost
Freight frees
Customs duties and taxes
Handling fees
Storage fees
Transaction fees
Brokerage fees
Compliance costs
Overhead
In other words, landed cost includes every cost incurred until the product is in your inventory, including expenses associated with production, logistics, and final delivery.
Example: If you produce kombucha for $0.80 per can, but shipping, duties, and warehousing add another $0.20, your landed cost is $1.00 — 25% higher than what you expected.
Every brand's cost structure is different, but the risk of missing key items is universal. Failing to calculate your landed cost properly can make it difficult to price CPG products accurately down the line.
The Purpose of Calculating Landed Cost
Calculating your landed cost helps you understand a product's true cost per unit, which enhances the accuracy of your gross margin calculations. Unfortunately, many founders focus too much on ingredient costs vs. packaging costs. This causes them to completely underestimate their landed costs, leading to serious pricing mistakes down the line.
Pricing mistakes have a domino effect, resulting in thinner margins and unsustainable levels of growth. Without knowing the landed cost of each product, it's also impossible to figure out your contribution margin.
Landed Cost vs. COGS
Landed cost gives you an accurate picture of what it really costs to get a product into your warehouse or on your shelves. In contrast, COGS only includes ingredients, packaging, and direct labor.
Landed Cost vs. Contribution Margin
Contribution margin measures how much revenue is left after you subtract variable costs. These variable costs typically include COGS (which is based on landed costs) and sometimes direct selling/fulfillment expenses, such as commissions, merchant fees, or pick-and-pack.
To calculate your contribution margin, subtract your variable costs from your net sales. Here's the formula for easy reference:
Contribution Margin (CM) = Net Sales - Variable Costs
Example: If you sell a can of kombucha for $2.50 and your landed cost is $1.00, plus $0.25 in pick/pack and credit card fees, your contribution margin works out to $1.25. In this example, you had net sales of $2.50 and variable costs of $1.25 ($1.00 for your landed cost and $0.25 for pick/pack and credit card fees).
Why do you need to know about the differences between landed cost and contribution margin? Because they have different uses. Landed cost is an accounting measure focused on product acquisition, while contribution margin is a profitability margin that focuses on what's left after you sell a product.
Knowing your landed cost helps you make pricing, inventory valuation, and margin planning decisions. Later, you can use your contribution margin to conduct a break-even analysis, refine your sales strategy, or optimize your sales channels.
What Goes Into Landed Cost: A Line-by-Line Breakdown
Calculating your landed cost is a bit like conducting an in-depth investigation. You'll quickly discover that landed cost is a lot more than just ingredients and packaging. Here's a line-by-line breakdown to help you with your planning:
Ingredients: This category includes everything that goes inside the pouch, bottle, or bar. Due to changes in seasonal demand, ingredient costs can have wild swings throughout the year.
Packaging: Pouches and bottles are just a few of the packaging materials you need to include in your calculations. Don't forget cartons, labels, and master cases.
Co-packer fees: Co-packers typically charge a per-unit run rate, but that's not the only cost to think about. You might have extra costs associated with downtime, testing, or changeovers.
Duties and customs: If you import any of your ingredients or packaging materials, you'll need to account for tariffs and other customs-related fees.
Freight to warehouse: Even if you pay by the truckload, you need to know exactly how much freight adds to the cost of each product. For example, a $5,000 fee spread across 100,000 units is an additional cost of $0.05 per item.
Broker fees: If you use a customs broker or freight forwarder, you can expect to pay a flat fee for each shipment. The fee varies based on shipment volume and other factors.
Receiving and 3PL intake: Many founders forget to account for receiving and logistics fees, leaving them unaware of their true landing costs. If you have 20 pallets of merchandise at $10 per pallet, that's another $200 to spread across each unit.
Palletization and dunnage: Dunnage refers to the protective materials used to secure goods in transport and storage. Slip sheets, stretch wrap, and other materials quickly add up. You also need to consider the cost of pallets. All these "extras" are a common blind spot.
Shrink and spoilage: Shrink and spoilage hurt your bottom line by preventing you from selling items that you've already paid to produce. You need to account for spoiled products, theft, damage, and errors when calculating your landed costs.
Cold storage premiums: If you sell frozen or refrigerated products, expect to pay higher freight and storage costs. I've seen storage rates increase by as much as 30%.
Insurance: Another common blind spot is the cost of insurance, specifically cargo and product liability insurance. Spreading these expenses across thousands of products has an impact on your landed cost.
Build a Landed Cost Model That Matches Your Supply Chain
Once you understand your inputs, you need a way to track and update them. You don't have to use spreadsheets — stick with whatever matches your current approach to operations. At minimum, track per-unit cost, batch-level swings (e.g., fluctuating freight costs), and attribution across SKUs. I also recommend adding versioning for promos and alternate packaging sizes — this can help you see the full impact on your margin.
Most importantly, update your model regularly. Ask your operations lead, finance partner, or BBG contact to help. Your model should grow with your business, as market changes can quickly affect your bottom line.
Let Landed Cost Shape Your Price — Not Surprise You Later
Knowing your landed cost is only half the job; after all, a landed cost calculator for food brands can't tell you if you're losing money on one SKU or barely breaking even on another. Pricing is where everything comes together to determine if you'll turn a profit.
Contribution margin fuels growth in the CPG industry, so you need to know the actual cost of every item. If you don't, hidden costs can quickly erase your gains. Imagine that you set a $2.00 price based on $1.50 in costs. What would happen if you forgot to include freight and storage in your calculations? Now your true cost is $1.65, and your margin is either razor-thin or negative.
That's how brands grow their revenue quickly without having any real profit to show for it. Promo planning and break-even analysis only work if you use accurate inputs. When you get your costs right, you can get your pricing right. Protecting your margin from the beginning gives you a solid foundation for sustainable growth.
The Best Time to Fix Your Cost Model Is Now
If you don't know the landed cost of every product you sell, you're missing out on the opportunity to optimize your pricing and boost your profits. Contact Balanced Business Group for help calculating your true unit costs, modeling pricing and margin by channel, or stress-testing your financial assumptions.
We're ready to provide ongoing support for your accounting, finance, HR, operations, and compliance teams.
