Tariffs, Duties, and Freight: How to Calculate True SKU Costs

If you’re an Amazon or Shopify seller, you already know this: profitability doesn’t come from revenue alone — it comes from precision. One of the most overlooked areas in eCommerce is how sellers calculate the true cost of their products.

Most sellers stop at factory cost. They take the supplier invoice, divide by units, and call it “cost per unit.” But this is a trap.

Why? Because factory cost is just the tip of the iceberg. Beneath it lies freight charges, customs duties, tariffs, insurance, brokerage, and countless “invisible” fees that quietly eat away at margins. Without tracking these at the SKU level, you’re scaling blind.

In this article, we’ll break down tariffs, duties, and freight — the biggest drivers of landed cost — and show you how to calculate true SKU costs that protect your margins and improve Amazon FBA profitability.

What is Landed Cost in eCommerce?

Landed cost is the total cost of a product delivered to your warehouse.

That includes:

• Factory unit cost (supplier invoice)

• Freight costs (air, sea, trucking, consolidation)

• Customs duties and tariffs (HS code–based)

• Insurance and brokerage fees

• Packaging, labeling, and inspection

Formula:
Landed Cost per Unit = (Factory Cost + Freight + Duties + Tariffs + Fees) ÷ Units

This landed cost is the foundation for CM1 (Contribution Margin 1) and all downstream profitability analysis.

If your landed costs are wrong, every decision — from pricing to reordering to ad spend — is built on shaky ground.

Why Factory Cost Alone Isn’t Enough

Let’s say you buy 5,000 units of a product for $5 each. You assume cost per unit = $5.

But after freight, customs duties, and tariffs, your true landed cost might actually be $6.25 per unit.

That $1.25 difference is everything:

• At $20 retail, you think your margin is 75%.

• In reality, your margin is closer to 69%.

• Over 5,000 units, that’s $6,250 in lost profit.

Now multiply that by 10 SKUs and 12 months — suddenly you’re leaking tens of thousands in hidden costs.

Freight Costs: The Silent Margin Killer

Freight is one of the most volatile costs in eCommerce. It includes:

• Sea freight (container shipping)

• Air freight (faster, but expensive)

• Trucking & last-mile delivery

• Fuel surcharges & peak season fees

The Mistake Most Sellers Make

They divide freight evenly across SKUs — e.g., $10,000 ÷ 5,000 units = $2 per unit.

But freight should be allocated by cubic meter (CBM) or weight.

Example:

• SKU A: 1 CBM per 100 units

• SKU B: 1 CBM per 500 units

If you divide freight evenly, SKU B looks unprofitable (too much cost allocated), while SKU A looks better than it really is.

The Fix:
Always allocate freight by CBM or weight. Many advanced tools (like SellerVue) automate this process, ensuring accurate SKU-level landed costs.

Duties and Tariffs: The Hidden Costs Most Sellers Miss

Tariffs and duties are another overlooked cost. These are charges imposed by customs based on your product’s HS code(Harmonized System code).

Why HS Codes Matter

Every product is classified under a specific HS code. That code determines:

• Duty rate (0% to 25% or higher, depending on product and trade policy)

• Tariff eligibility (Section 301 tariffs on Chinese imports, for example)

• Regulatory requirements (certifications, safety, compliance)

Example:

• Product: Insulated water bottle

• HS Code: 9617.00.10

• Base duty: 5%

• Section 301 Tariff: 25%

• Total duty = 30%

If your landed cost per unit = $5 factory + $1 freight = $6,
→ Duties = $1.80 per unit
→ True landed cost = $7.80 per unit

Without tracking HS code duties, you’d assume cost = $6, not $7.80 — a 23% underestimation.

Common Tariff & Duty Mistakes Sellers Make

1. Using the wrong HS code
   → Misclassification = fines, back-payments, or seizures.

2. Not updating rates when trade policies change
   → Section 301 duties (China), Brexit rules, or EU VAT shifts can change overnight.

3. Not applying First Sale Doctrine
   → In some cases, duties can be reduced by valuing goods at the first sale price (factory-to-trader) instead of the final resale price.

4. Ignoring free trade agreements (FTAs)
   → Countries like Mexico, Canada, and the EU may have preferential duty rates.

The Fix:
Work with a customs broker, update HS codes regularly, and integrate duty/tariff costs into your SKU-level landed cost calculation.

Variance Tracking: Estimate vs. Actual Costs

Here’s a secret: your estimated landed cost is almost always wrong.

Why? Because real-world costs fluctuate:

• Fuel surcharges increase freight

• Customs adds a random inspection fee

• Currency conversion adds hidden costs

If you’re not reconciling estimated vs. actual costs, your financials are misleading.

Example:

• Estimated freight per unit: $2.00

• Actual freight after surcharges: $2.25

• Variance = $0.25 per unit

• On 50,000 units, that’s $12,500 in hidden costs

The Fix:
Use variance reports at the shipment and SKU level. Spot patterns, negotiate better rates, and adjust future forecasts.

Why Spreadsheets Fail for Landed Cost Tracking

Many sellers use Excel or Google Sheets for cost tracking. But spreadsheets fail when you have:

• Multiple SKUs

• Multiple shipments (air + sea + truck)

• Different HS codes with changing tariffs

• Variance between estimates and actuals

Problems with spreadsheets:

• Human error: Broken formulas misallocate costs

• No variance tracking: You miss actual vs. estimate differences

• No audit trail: Investors and buyers don’t trust the numbers

• Scaling issues: As you grow, spreadsheets become unmanageable

The Fix: Move to a dedicated cost tracking system like SellerVue that automates freight allocation, tariff calculation, and variance reporting.

How Accurate SKU Costs Drive Amazon Seller Profitability

When you calculate true landed cost per SKU, you unlock:

• Smarter pricing decisions
  → Price with full knowledge of COGS + fees.

• Better ad spend allocation
  → Scale only SKUs with healthy margins.

• Improved inventory planning
  → Avoid tying up cash in margin-killing SKUs.

• Stronger exit valuation
  → Buyers pay more when they see clean, SKU-level landed cost data.

On average, sellers who track landed costs properly recover 2–3% of revenue in hidden leaks. For a $5M seller, that’s $100k–$150k in profit recovered every year.

The SellerVue Advantage

SellerVue was built specifically for Amazon and Shopify sellers struggling with cost tracking.

With SellerVue, you can:

• Automate freight and duty allocation by CBM/weight.

• Centralize invoices, customs docs, and freight bills.

• Track estimate vs. actual costs in real time.

• Build dashboards for CM1, CM2, and SKU-level profitability.

• Stay audit-ready for investors or an eventual exit.

The result? Sellers protect margins, recover profit leaks, and enter due diligence with confidence.

Final Thoughts

Tariffs, duties, and freight aren’t optional — they’re the core drivers of landed cost. If you’re not allocating them accurately per SKU, your margins are distorted, your financials are unreliable, and your growth is at risk.

By centralizing documents, automating allocations, and tracking variances, you can turn cost chaos into clarity — and protect 2–3% (or more) of your revenue every year.

👉 Ready to calculate true SKU costs with confidence? Watch the SellerVue demo and see how accurate landed cost tracking transforms your profitability.