Facts can be misleading without being untrue. Hotel rates are a good example of this. You want to stay in the nicest hotel you can afford, so you pick one with a room rate that’s at the very top of your price range. Then you get the bill and discover that by the time you add in taxes and other fees, the nightly rate was double what you expected. The quoted rate wasn’t a lie, but it wasn’t the whole truth, either. And it’s a discrepancy you feel right where it hurts—in your wallet.
Hotel rates are just one example. There are hundreds of transactions in which the final cost could end up being a lot higher than what you were quoted. If you’re involved in global trade, you know all too well that landed costs are one thing that can suck the profit right out of what you thought was a great business deal. That’s why it’s so important to have an inventory management system that gives you accurate visibility into the true cost of any item.
What are landed costs?
A product’s landed cost is the total cost of everything it takes to get the product from its origin to the end user. There’s no single formula for calculating it because there are too many potential variables, and not all of them apply to every situation. The most complex calculations involve international trade and include things like tariffs, duties, insurance, brokerage fees, and taxes, in addition to more standard costs like shipping and handling. To know your landed costs, you may need to take a look at your overall supply chain, but the results can give you valuable insight to your costs of goods sold as well as help you identify cost savings.
Why is it so important to understand landed costs?
The success of any business, in essence, comes down to profit and loss. You can’t calculate profit and loss accurately if you don’t know the true cost of the products you sell, and you can’t truly know your landed cost of the products you sell if you’re not accounting for landed costs. In fact, when you don’t account for them, it can cause a number of problems:
- When you’re trying to decide between two suppliers, you need to understand landed costs in order to make an apples-to-apples comparison. That’s especially true if the suppliers are in different countries, due to variations in things like taxes and tariffs.
- When you’re determining the selling price of your products, having visibility into landed costs helps you set a price that will get you to your target profit margin. If you don’t include landed costs, you could think you’re operating at a two percent profit margin, for example, when you’re really operating at a loss. And that just isn’t sustainable.
- Properly calculated landed costs are essential to accurate financial reporting. If you don’t account for landed costs, revenue will appear to be significantly higher than it really is. This can lead to unhappy investors, poor decision-making, and, in the case of public companies, even criminal charges.
How QStock Inventory can help
QStock Inventory gives you seamless visibility into the landed costs associated with your products.
- You can build a container in the system and then receive against that container at the dock.
- You can easily manage partial shipments.
- You can rely on QStock to handle the documentation, thereby reducing confusion and the potential for errors, all while decreasing your labor costs.
- You can choose the factors that need to be included in your landed costs and then let QStock make the calculations for you. You can then use those results to compare true costs between two (or more) different suppliers.
It can be difficult to know your landed costs without a system to help, and it’s easy to put off dealing with them. But if you want to have accurate visibility into your business, you have to think about landed costs today. Give QStock Inventory a call to learn how we can help.