Exporting goods to foreign customers is a great way to scale your company but fulfilling orders to other countries comes with additional costs that can increase your price of doing business. As you may know, every dollar counts in a competitive market. That’s why you need to know how to calculate your product’s landed cost, which can help you be more competitive and make adjustments to improve your market entry strategy.
Here are a few basics to help you understand the total price of your export shipment, a metric also known as a landed cost.
What is a landed cost?
Your landed cost is the total expense associated with getting a shipment to its destination. This includes the original price of your product, insurance, freight, tariffs and taxes and other fees. Knowing how to calculate your product’s landed cost is important because you may be asked to provide an estimate when negotiating a sale. Your freight forwarder or carrier can help you price freight and insurance costs, but you need to know how to look up tariffs and taxes before you can accurately calculate your landed cost.
Looking up tariffs and taxes to calculate landed costs
To get started, you need to know your product’s Harmonized System Classification code (HS code) for the importing country. The HS code for the importing country is not the same as your Schedule B number. While HS codes and Schedule B numbers are different, the first six digits of both numbers are often the same for most countries. If you know your product’s Schedule B number, enter the first six digits in the below tariff look-up tool and follow the product descriptions to figure out the rest.
Tips to help your export strategy
Our friends at the U.S. Commercial Service and the West Virginia District Export Council have offered the following tips to help you calculate the price of your product for the international markets.
Export Pricing Tips
- Exclude from your product cost any fixed costs that support U.S. sales. By not passing fixed costs on shipments to foreign buyers, you make your pricing more competitive. You can view this as a marketing investment technique.
- Adjust your product price based on the market characteristics and the size of the order.
- Add any export related added costs, such as export crating or heat-treated wood pallets.
- Add truck freight to port or other applicable logistic expenses.
- Add the cost of credit your insurance policy.
- Add interest charges if offering credit.
- Increase your product price by 5 percent to allow room for negotiation. In many countries, bargaining is an expected part of the negotiation process. This does not apply in markets like Germany and Japan.
- Ocean insurance rates should be 0.25-0.50 percent of the insurance value of shipment. Make sure your ocean insurance covers general average.
- For additional insurance savings, consider buying an insurance policy for international shipments instead of paying your freight forwarder to insurance each outgoing shipment.
- To save time and have more control on the transaction, avoid using your foreign buyer’s freight forwarder.
- Avoid having your freight forwarder file your EEI filing. It’s better if you do it yourself. It saves money and gives you better control of your export clearance.
- Offer your foreign buyer a quote for shipping. It can save your customer money and give you more control of the shipment. Make sure you add any related shipping and handling costs to your invoice.
If you’ve never gone through this process before or need help calculating your product’s landed cost, contact one of our export experts today.
Manager, International Trade
Enybe works with the West Virginia Department of Economic Development. She contributes to West Virginia’s economy by helping businesses sell their products and services around the world. #YesWV #YesExports.