One of the keys to the success of your import business is cost calculation. If you want to your new imported product to successful, you have to have a good idea of the landing cost of the product. Without that in mind, you may be faced with all kinds unexpected cost and eventually find your business plan unprofitable. In this tutorial, we will learn how to calculate the landing cost of your products land how to price them.
Here is a list of costs that may incur when importing from China:
- Creating product specification
- Supplier research
- Sample development
- Factory sample
- ODM sample
- OEM sample
- ·Production & Quality Inspection
- Mold and tooling cost may incur
- Quality Control
- Lab testing
- Shipping & Customs
- Import duties
- Other taxes
Keep in mind that not all costs could be calculated. You can keep your cost in a table.
Add all the costs together, then you can get your own landing cost.
Landing Cost Calculation: An Example
Say you are importing 800 pieces of true wireless Bluetooth earbuds from a manufacturer in Shenzhen, China. The factory quotes you an FOB price of $15 per unit as well as $1 per unit for packaging. They provide their own factory design. You required the logo of your own brand to be engraved on the surface of the earbuds. As a result, there is an extra tooling cost of $500. To be able to legally sell those earbuds in your country, you need to acquire a few certificates for them. You paid $500 to arrange for the lab test.
When the production was finished, it is time to ship them. Since you’ve chosen FOB as your shipping term, the supplier paid for the customs clearance in China and loaded the goods on the airfreight service supplier you’ve arranged and paid for. The shipping cost they quote you is $5 / kg. You bought a shipping insurance, just in case. The insurance cost you $50. Finally, it arrived at the customs of your country. The duty rate was 5% of the total product value. Let’s see how much the landing cost of your product is.
|Product||$15||800 pcs||800 pcs x $15||$12,000|
|Packaging||$1||800 pcs||800 pcs x $1||$800|
|Tooling||$500||1 SKU||1 SKU x $500||$500|
|Airfreight||$5||100 kg||100 kg x $5||$500|
|Duty||5%||($12000+ $800 + $500) x 5%||$665|
|Total||Total: $15,315 Unit: $19.14|
According to the table above, the total landing cost is 15,315. If we divide the total landing cost by the unit number (800 pcs), we get the landing cost of a single product, which is $19.14
If you want to cut down your own cost, please keep the following tips in mind.
- Launch only one product at a time, because some costs are calculated according to SKU.
- Tooling, quality insepection, Lab testing are all calculated by SKU.
How to Price Your Product?
After calculating your landing cost, you can take the following steps to price your product.
Cost-plus pricing involves calculating the total cost of producing the product, then adding it to your desired level of profit, and you get your final price. Some sellers calculate the price of a product by doubling the cost, a simplified version of cost-plus pricing.
Calculation method: Cost+profit margin/markup (%)= price
Example: If you want to price your coffee cup, and the total cost of one cup is $30, and you want to make a profit of 50%. Product price= $30x(1+50%)=$45 It’s a simple and quick way to price your product. But it does not take into account factors such as customer preferences, brand image and competition. It also largely ignores the laws of supply and demand. If you ignore hidden costs, such as inventory discounts or holiday pay, you may undercharge your customers and reduce profits.
Market Penetration Pricing
Market penetration pricing, also known as competition-based pricing strategy, is a pricing strategy to compare price of competitive products in the market. When entering the market at the beginning, many people will choose to gain more customers with lower prices than the market. When the value of a product increases as the number of people who use it increases, you can raise the price accordingly. Luckin Coffe in China is a good example. At the beginning, it attracted customers by lower price, and now it has raised its price and made a big success.
Dynamic pricing, also known as demand pricing, means that the price of a product changes as demand changes. When the demand is high, the price goes up; when the demand is low, the price goes down. This is common with ride-hailing apps such as Uber, where fares rise sharply when demand rises during bad weather or peak hours. Using this pricing method requires you to pay close attention to the changing market demand for your product and adjust your pricing accordingly.
In a highly competitive market, enterprises prices based on their own competitive strength, cost, supply and demand compared to their competitors. This pricing method is usually called the competition-oriented pricing method. In markets where it is hard to differentiate products, such as airlines, companies tend to use a competitive pricing model. Often a market leader sets the standard and competitors follow suit. If one company raises or lowers its prices, others are forced to follow suit.
In a competitive pricing model, if you want to charge more than your competitors, you have to convince consumers that you offer a better product or service — and that requires investing in the right marketing strategy.
No matter which method is adopted for pricing your product, landing cost must be taken into account. So cost calculation is an indispensable part when import from China.