Every example and amount on this page is illustrative. It shows the method and is not a benchmark, a quote or advice.
What the Landed-Cost Number Is Measuring
Landed cost is the inventory cost required to bring purchased goods into sellable stock. It starts with the supplier’s product cost and adds inbound freight, cargo insurance, duties, tariffs, customs brokerage, and other import charges tied to getting those goods through the border and into inventory. For a US merchant importing from Canada, a tariff changes this inventory measure because it adds to the cost assigned to the imported units—not because it changes the supplier’s quoted product price.
Keep landed cost separate from the expenses required to sell and operate the business. Payment processing fees, advertising, payroll, software, customer service, and general operating expenses do not belong in landed cost. If a merchant includes any of them in a broader metric, that metric should be labeled separately rather than presented as inventory cost. This distinction matters when interpreting the US-Canada trade dispute’s ecommerce costs and profitability.
Landed cost also differs from cost of goods sold (COGS). Landed cost is attached to inventory units when they arrive; COGS recognizes the relevant landed cost when those units are sold. Unsold units remain in inventory value. Gross margin uses revenue and COGS, while net profit also reflects operating expenses and other costs. A tariff analysis should therefore begin with landed cost, then carry the changed unit cost into the margin measure being reviewed.
| Measure | What it captures | When to use it |
|---|---|---|
| Landed cost | Product cost plus freight, insurance, duties, tariffs, brokerage, and import charges | Value incoming inventory and assess unit economics |
| COGS | The landed cost assigned to units sold | Calculate gross profit and gross margin |
| Operating expenses | Costs such as advertising, payroll, software, and payment fees | Calculate contribution or net profit after inventory cost |
The Formula Behind the Calculation
The core calculation is:
Tariff duty = customs value × tariff rate. Landed cost per unit = product cost per unit + allocated inbound costs per unit + tariff duty per unit.
Customs value is the value used by customs to assess duty. It may differ from the supplier invoice total or the final landed cost, so do not substitute one figure for another without checking the applicable valuation rules. The tariff rate is the percentage assigned to the imported product under its classification, origin and trade treatment. Convert a percentage to a decimal by dividing it by 100 before using it in the calculation.
Per-unit allocation converts shared charges into an inventory cost. Divide a container’s freight, insurance, brokerage or duty across the units those charges relate to, using a consistent basis such as units, weight, volume or customs value. A weight-based allocation may be more representative for mixed-size goods; a unit split can distort costs when products differ materially.
These measures answer different operating questions. Product cost helps assess supplier pricing. Landed cost tells you the inventory cost of a sellable unit after import-related charges. Gross margin shows what remains after cost of goods but before operating expenses. Contribution margin goes further by subtracting variable costs such as advertising, payment fees and fulfillment. Cash impact tracks when money leaves the business; duties and freight may be paid before the inventory generates revenue, even if accounting recognizes the expense later. For broader context on cross-border exposure, see US-Canada Trade Dispute Ecommerce Costs and Profitability.
| Measure | What it includes | When to act on it |
|---|---|---|
| Product cost | Supplier price for the goods | Review sourcing and purchase terms |
| Landed cost | Product cost plus allocated import and inbound costs | Set or test unit economics and inventory valuation |
| Gross margin | Revenue minus cost of goods | Assess product pricing before operating expenses |
| Contribution margin | Gross profit minus variable selling costs | Decide whether products or campaigns contribute after acquisition costs |
| Cash impact | Timing and amount of cash paid for goods, duty and logistics | Plan funding and purchasing capacity |
A Worked Example From Purchase Order to Margin
Assume a US merchant imports 1,000 units from Canada at a supplier price of $20 per unit. Product cost is therefore $20,000. The selling price is $40 per unit, with all 1,000 units eventually sold and no returns.
Before the tariff, total inventory spend is $20,000 + $3,000 = $23,000. That produces a landed cost of $23 per unit. After a 12% tariff, duty adds $20,000 × 12% = $2,400. Total inventory spend becomes $25,400, or $25.40 per unit.
At a $40 selling price, revenue from the shipment is $40,000. Pre-tariff gross profit is $40,000 − $23,000 = $17,000, or a 42.5% gross margin. Post-tariff gross profit is $40,000 − $25,400 = $14,600, or a 36.5% gross margin. The same shipment therefore produces $2,400 less gross profit, exactly equal to the added duty, before advertising, payment fees, returns, and operating costs.
The result depends on the tariff classification, customs value, currency, and which costs are dutiable. Treat these figures as an operating model, not a classification ruling. For context on the broader relationship between cross-border policy and ecommerce economics, see US-Canada Trade Dispute Ecommerce Costs and Profitability.
| Measure | Pre-tariff | Post-tariff |
|---|---|---|
| Supplier product cost | $20,000 | $20,000 |
| Inbound freight and insurance | $3,000 | $3,000 |
| Tariff at 12% of $20,000 customs value | $0 | $2,400 |
| Total inventory spend | $23,000 | $25,400 |
| Landed cost per unit | $23.00 | $25.40 |
| Revenue at $40 × 1,000 units | $40,000 | $40,000 |
| Gross profit | $17,000 | $14,600 |
| Gross margin | 42.5% | 36.5% |
What canada tariff impact on landed cost actually measures
The Canada tariff impact on landed cost measures the additional inventory cost created when goods entering the United States from Canada are subject to an import duty. It is not automatically the same as the total duty paid, total freight bill, or the difference between a Canadian supplier price and a US selling price. The relevant question is which costs become part of the inventory required to place each unit into sellable stock.
Shipment origin and supplier location are not interchangeable. A product purchased from a Canadian company may contain components made elsewhere, while a product manufactured in Canada may qualify for different treatment if its origin and documentation meet the applicable rules. Classification, customs value, origin, exclusions, and any preferential treatment determine whether a tariff applies and how much it adds. A rate quoted without those inputs is a scenario, not a reliable unit cost. For related context, see US-Canada trade dispute ecommerce costs and profitability.
Operators should separate the tariff effect from the measures used to manage it. The tariff effect isolates the duty-driven change. Duty-inclusive landed cost is the broader inventory view used for purchasing and margin analysis. Cash paid at import is a liquidity measure and may include charges that accounting treats differently. Gross margin shows the effect after the product is sold, while inventory value shows the effect before sale. Each answers a different operating question.
That distinction matters when deciding what to change. Use the tariff effect to validate a customs assumption or compare sourcing scenarios. Use duty-inclusive landed cost when evaluating a purchase order, reorder economics, or product profitability. Use margin after realized revenue when deciding whether the selling price and advertising economics still work. ORVX can show product- and collection-level profitability, inventory position, dead stock, and remaining stock value, so the tariff assumption can be reviewed alongside the store's actual commercial results rather than revenue alone.
| Measure | What it is for | When to act on it |
|---|---|---|
| Tariff impact | Isolates the incremental duty caused by the import treatment | When checking classification, origin, exemptions, or sourcing scenarios |
| Duty-inclusive landed cost | Captures the inventory cost used to assess unit economics | When reviewing purchase orders, replenishment, or product margin |
| Cash import cost | Shows the amount paid or payable during import clearance | When planning working capital and payment timing |
| Gross margin impact | Shows how the higher product cost affects sold units | When reviewing price, promotion, and advertising economics |
The formula, stated plainly
The tariff effect is the extra duty created by the policy change, not the full landed cost. Start with the customs value that the tariff applies to, then apply the duty rate. If the tariff rate changes, calculate the difference between the old duty and the new duty. That difference is the incremental landed-cost burden.
Keep the measures separate because they answer different operating questions. Landed cost tells you what each sellable unit costs after product cost, freight, insurance, duty and other import charges. Tariff impact tells you how much of that cost comes from the tariff, or how much it changed. Gross margin then shows what remains after product cost and other cost-of-goods inputs are compared with realized revenue.
Use the per-unit figure when reviewing a SKU or resetting its product cost model. Use the purchase-order total when checking the cash requirement for an inbound shipment. Use the margin effect when deciding whether the current selling price still supports the required economics. A tariff can add a small amount per unit but materially reduce margin on a low-priced product; the reverse can also be true for a high-priced product with more room above cost.
- Tariff duty = applicable tariff rate × dutiable customs value
- Incremental tariff impact = new tariff duty − previous tariff duty
- Tariff impact per unit = incremental tariff impact ÷ units in the shipment
- New landed cost per unit = previous landed cost per unit + tariff impact per unit
- Gross margin = (realized revenue − cost of goods) ÷ realized revenue
| Measure | What it answers | When to act on it |
|---|---|---|
| Tariff duty | What the current tariff adds to the shipment | When reviewing an import entry or purchase order |
| Incremental tariff impact | How much the tariff change increases cost | When comparing old and new trade-policy assumptions |
| Landed cost | What each unit costs once it is available to sell | When updating product economics and inventory value |
| Gross margin | How much realized revenue remains after cost of goods | When assessing price, product, or assortment economics |
A worked example with real numbers
Consider 500 units imported from Canada. Assume the supplier price is $32 per unit, so the customs value is $16,000. Freight adds $4 per unit ($2,000), insurance adds $0.40 per unit ($200), and other import charges total $900. These figures are in USD, and the example assumes the tariff applies to product value only.
Before the policy change, assume the duty rate is 10%. Duty is $16,000 × 10% = $1,600, or $3.20 per unit. Total inventory cost is therefore $16,000 + $2,000 + $200 + $1,600 + $900 = $20,700, equal to $41.40 landed cost per unit.
Now assume the applicable rate rises to 25%. Duty becomes $16,000 × 25% = $4,000, or $8 per unit. The new total is $23,100, or $46.20 per unit. The tariff change adds $2,400 to the purchase order and raises landed cost by $4.80 per unit. That is an 11.6% increase in landed cost, even though the tariff rate increased by 15 percentage points.
The per-unit change can also be reconciled directly: the duty increase is $4,000 − $1,600 = $2,400, and $2,400 ÷ 500 units = $4.80. The freight, insurance, and other charges remain unchanged in this example, so the entire difference comes from duty. If the merchant sells each unit for $50, gross profit before other selling expenses would move from $8.60 per unit ($50 − $41.40) to $3.80 ($50 − $46.20). Gross margin would therefore move from 17.2% to 7.6%, assuming the selling price does not change.
This calculation is appropriate for isolating the effect of the stated rate change. It does not establish the correct rate or customs value for every shipment: a different tariff base, product classification, exemption, or treatment of freight could change the result. Those inputs should be checked before using the figure to revise pricing, purchase quantities, or margin expectations.
General information only: tax, duty and import rules change and depend on your situation, so check with an accountant or the official source before acting.