Comparing quotes and pricing
Landed Cost: What Your Supplier's Price Doesn't Include
A supplier's unit price is what the goods cost at the supplier. Landed cost is what they cost once they've reached you or your customer: the price plus everything it takes to get them there. If you compare suppliers or price your quote on the unit price alone, freight, duties and fees come out of your margin.
What goes into landed cost
Not every order has all of these, but check each one:
- The supplier's price, after any discount.
- Freight: from the supplier to you, and from you to your customer if you deliver.
- Insurance for the goods in transit.
- Duties and import taxes when goods cross a border.
- Customs brokerage: the fee for clearing the goods.
- Handling and packaging: palletizing, crating, port or terminal charges.
- Payment costs: bank transfer fees and the currency conversion spread on foreign suppliers.
Incoterms: who pays what
On international orders, the Incoterms rule on the supplier's quote tells you which of these costs are already in their price. The most common ones (Incoterms 2020, published by the International Chamber of Commerce):
| Rule | The supplier's price covers | You pay |
|---|---|---|
| EXW (Ex Works) | The goods, ready at the supplier's premises | Everything from there: loading, export, freight, insurance, import |
| FOB (Free On Board, sea) | The goods loaded on the ship at the port of shipment | Main freight, insurance, import |
| CIF (Cost, Insurance and Freight, sea) | Freight and minimum insurance to the destination port | Unloading, import clearance, duties, onward transport |
| DAP (Delivered at Place) | Delivery to the named place, ready to unload | Import clearance and duties |
| DDP (Delivered Duty Paid) | Delivery to the named place, duties paid | Unloading |
So two quotes for the same item can't be compared until they're on the same basis: an EXW price will look cheaper than a DDP price for the same goods, because the buyer still has to pay for everything the DDP supplier already included.
Comparing suppliers on landed cost
Example (illustrative figures): you need the same goods from one of two suppliers.
| Supplier A | Supplier B | |
|---|---|---|
| Quoted price | $9,600 (EXW) | $10,100 (DAP, your warehouse) |
| Freight to your warehouse | $650 | included |
| Insurance | $40 | included |
| Export and handling charges | $110 | included |
| Landed cost | $10,400 | $10,100 |
Supplier A's price is $500 lower, but it costs you $300 more by the time the goods arrive. (Import duties would apply to both here, since DAP leaves clearance and duties to you, so they don't change the comparison.)
Spreading shared costs over the lines
Freight usually comes as one charge for the whole shipment. To know each line's real cost, spread it over the lines. Common ways:
- By value: simple and the most common when the goods are similar.
- By weight or volume: fairer when heavy or bulky items share a shipment with small, valuable ones.
- By quantity: only when the items are much alike.
Example: $800 of freight on a shipment worth $9,600, spread by value:
| Line | Value | Share | Freight | Landed |
|---|---|---|---|---|
| Upright frames | $6,000 | 62.5% | $500 | $6,500 |
| Beams | $2,400 | 25.0% | $200 | $2,600 |
| Wire decks | $1,200 | 12.5% | $100 | $1,300 |
| Total | $9,600 | $800 | $10,400 |
Price on landed cost, not on the supplier's price
This is where landed cost matters most. Using Supplier A from the first example:
- Markup on the supplier's price: $9,600 × 1.12 = $10,752. Your real cost is $10,400, so your profit is $352, a 3.27% margin.
- Markup on landed cost: $10,400 × 1.12 = $11,648, a profit of $1,248, the 10.71% margin you intended.
Same supplier, same markup, three and a half times the profit, just by marking up the right number. (See margin vs markup for how markup and margin relate.)
Doing this in RFQ Manager
- Add costs as extra lines. In Proposal Studio, add freight, insurance, duties or handling as an extra line: a name, a quantity and unit (for example, 1 shipment), your cost, and your markup. No supplier offer is needed; enter your forwarder's or broker's price, converted to your proposal's currency.
- They count in your margin. The summary's total, profit and overall margin include every extra line, so the freight is part of the real margin you see before you send.
- They're on the proposal. Extra lines appear on your proposal and its Excel export like any other line, so your customer sees freight priced separately. If you'd rather include it in the goods' prices, leave it out and raise the markup on those lines instead; spreading a shared cost over the lines is a calculation you make yourself (see above).
- Delivery terms on both sides. Each supplier offer can carry its delivery terms (for example, "EXW Hamburg"), and Proposal Studio shows them next to each offer, so you see which prices include freight while you choose. Your proposal has its own Delivery terms field (for example, "DAP your warehouse").
Summary
- Landed cost = the supplier's price plus everything it takes to get the goods to you or your customer.
- Check the Incoterms rule before comparing quotes.
- Spread shared costs over the lines, by value, weight or volume.
- Mark up landed cost, never just the supplier's price.
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