Tracking landed costs accurately is the only way to know if your e-commerce business is actually profitable on a per-unit basis. Yet, many brands unintentionally sabotage their own accounting by mismanaging how these costs are recorded and allocated.
Here are the top five mistakes e-commerce brands make when tracking their landed costs:
1. Categorizing Freight and Customs as Operating Expenses (OPEX)
Many brands look at their factory invoice, record that as their Cost of Goods Sold (COGS), and then dump their freight, duties, and customs brokerage fees into a generic “Shipping and Handling” or “General Expenses” bucket on their Profit and Loss (P&L) statement. This is a massive accounting error. Because these costs are directly tied to acquiring the inventory, they must be capitalized into the value of the inventory and recognized as COGS when the goods are sold. Putting them in OPEX artificially inflates your gross margin, making your product look far more profitable than it actually is.
2. Allocating Freight Costs Incorrectly Across Mixed Shipments
When a shipping container holds multiple different SKUs, brands often take the lazy route: they take the total freight bill and divide it evenly by the number of units. This destroys pricing accuracy. For example, if you ship 1,000 heavy cast-iron skillets and 1,000 lightweight spatulas in the same container, splitting the freight cost 50/50 means you are drastically under-costing the skillets and over-costing the spatulas. Freight should be allocated proportionally on a basis that matches how the carrier charged you: usually volume for ocean containers, and chargeable weight (the greater of actual and dimensional weight) for air freight.
3. Ignoring Currency Fluctuations and FX Fees
If you are purchasing goods from overseas, there is often a time gap between when a Purchase Order (PO) is issued, when the deposit is paid, and when the final balance is settled. If the exchange rate shifts favorably or unfavorably during that window, your actual landed cost changes. Furthermore, banks and payment processors charge foreign exchange (FX) markups and wire fees. Brands frequently record the initially forecasted PO cost and forget to reconcile it against the actual cash that left their bank account, leading to hidden margin erosion. One accounting nuance: if you pay the balance after the goods have been received, the exchange movement between receipt and payment is normally booked as a foreign exchange gain or loss rather than added to inventory, so agree the treatment with your accountant.
4. Treating Surcharges and Penalties the Same Way
Global supply chains are volatile, and shipments rarely go perfectly to plan. Carriers tack on Peak Season Surcharges (PSS) and fluctuating fuel fees, containers get held up at the port (incurring demurrage fees), and trucks wait too long to unload (incurring detention fees). Because these charges often arrive on separate, delayed invoices from the freight forwarder, brands tend to handle them all one way: either everything gets dumped into overhead, or everything gets loaded into inventory. Both are wrong.
Sort them first. Surcharges that are a normal part of moving the goods, such as PSS, fuel adjustments and routine accessorials on the freight bill, are part of what it cost to get that shipment to your warehouse. Tie them back to the specific batch of inventory that incurred them, even when the invoice arrives weeks after the goods. Penalties for something going wrong are different: demurrage from a customs hold, detention because a container missed its return window, or expedited air freight to cover a stockout. Under GAAP (ASC 330), abnormal freight and handling costs are expensed in the period they occur, not added to inventory. Capitalizing them inflates your inventory value and carries one bad month into the next quarter’s margins. Agree where the line falls with your accountant once, then apply it the same way every time.
5. Relying on Static Spreadsheets for Dynamic Costs
Many founders calculate their landed cost once during the sourcing phase, put it in a master spreadsheet, and use that static number to set their retail pricing for the rest of the year. However, freight rates, fuel surcharges, and customs duties change constantly. What cost $12 to land in February might cost $16 to land in October due to holiday freight spikes. E-commerce brands that fail to use automated inventory management software or ERPs to dynamically track these costs on a per-shipment basis often end up selling Q4 inventory at a loss. Shopify’s Cost per item field has the same blind spot: it keeps whatever number you entered, and every order after that inherits it.