How to calculate the profitability of sourcing from China: the landed-cost formula

“It’s cheaper in China” is only true if you count the final price, not the factory price. The profitability of sourcing is determined by what the goods cost “to your door” compared with the local price. Let us break down how to calculate this correctly.

What landed cost is

Landed cost is the final cost of the goods including all expenses to your door. That, not the factory price, is what you compare with the local price.

Comparing the “factory price” with the local price is the main mistake: logistics, customs and handling are added to the factory price.

The calculation formula

Landed cost = factory price + logistics + customs charges + sourcing fee + related costs

Let us break it down by component:

1. Factory price — the cost of production (on the agreed Incoterms).
2. Logistics — sea/road/air, charged by weight or volume (more on calculating shipping).
3. Customs charges — duty and VAT, depending on the country and category (HS code).
4. Sourcing fee — for search, vetting, quality control and handling (10% fixed at Dream View).
5. Related costs — samples, inspection, insurance, bank fees.

How to compare with the local price

1. Calculate the landed cost per unit.
2. Compare with the local retail/wholesale price of an equivalent.
3. The difference is your saving (or margin, if you resell).

Savings by category roughly: furniture up to 80%, tile up to 70%, plumbing up to 60%, kitchens and fronts up to 50%, almost any item from 20%.

Break-even and volume

Sourcing from China pays off more the larger the volume: part of the costs (logistics, clearance, handling) depends little on batch size, so per unit they “spread out” the more, the larger the order.

• A small one-off order — savings may be “eaten” by logistics and clearance; calculate landed cost carefully.
• A large order or project outfitting — fixed costs spread across the volume, savings are maximal.
• MOQ — for a small volume, account for factories’ minimum order quantities.

The rule is simple: the larger the volume, the lower the share of logistics and clearance in the unit price — and the more profitable the sourcing.

An example of the calculation logic (simplified)

Say the local price of an item is 100 units. The factory price is 35. Add logistics, customs, the fee and related costs — and you get a landed cost of, say, 55. Saving = 100 − 55 = 45 units, or 45%. The exact figures depend on category, volume and route — but the logic is always the same.

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