Pay attention to landed cost to grow your business
The truth is, if you are a retailer in the United States, you probably don’t care much about an accurate total landed cost. The majority of your customers are domestic so it may not be on your mind. But, if you are serious about expanding business, growing revenue, and reaching your full market potential, you need to have your sights set on catering to more customers in countries all over the world. Don’t overlook the power of worldwide sales to increase and diversify your revenue opportunities. It’s not as hard as it seems.
Customers (both domestic and international) expect to see shipping and carrier information at checkout. These shipping estimates give insight to customers before they checkout so they feel confident in their order. Likewise, a total landed cost calculation also provides transparency for international customers. International shoppers are happier when they know exactly how much they will be spending on duties, taxes, and fees for their international order.
Here's what we'll cover in this review of landed cost and why it will help with your international selling strategy:
- Cross-border frustrations for retailers without landed cost
- What is a landed cost calculation?
- Landed cost and international duties and taxes
- International shipping options
- Manage cross-border risk with accuracy
- Landed cost is the key to international selling success
- Selling internationally to the top cross-border markets
- Do this -> Top 4 tips for successful online selling to international customers
- Avoid this -> rejected packages, costly returns, and bad reviews
- A final word on landed cost calculations
- More resources for cross-border commerce
Cross-border frustrations for retailers without landed cost
Growing your business can be a frustrating process when trying to mitigate international trade and compliance. Retailers that are focused on growing revenue, reaching more customers, and fulfilling orders from countries around the world find these common frustrations:
- Confused customers: If customers do not know the final price of a product, including taxes, customs duties, and other fees, they may hesitate to purchase from your business. This can lead to confusion and frustration, and may ultimately result in lost sales resulting in:
- Abandoned shopping carts
- Refused or rejected packages
- Reduced customer loyalty
- Increase in returns and support requests
- Unforeseen costs = negative reviews: Without a landed cost estimate, customers may be hit with unexpected costs at the time of delivery, such as customs fees or taxes. This can lead to unhappy customers and negative reviews, which can damage your business's reputation.
- Shipping delays: Customs clearance can cause significant shipping delays if the necessary paperwork is not completed correctly. Without a landed cost estimate, there may be additional paperwork that needs to be completed, which can further delay shipping times and result in unhappy customers and compliance issues for your business.
- Restrictive ecommerce platform: If your ecommerce platform doesn’t display a true total landed cost with all of the fees estimated for your customer, this will restrict your ability to sell internationally. Don’t let your ecommerce platform hold you back!
Learning about these frustrations can prevent mistakes as you grow your cross-border business. Avoid counterproductive business decisions by incorporating a total landed cost for your customers.
How does providing a total landed cost make cross-border easy?
Growing your cross-border business is not as complicated as it may seem. We’ll do a deep dive into the ins and outs of international transactions including information about how accurate hs code classification helps with the landed cost. Learn why landed cost is the best strategy for implementing and automating easy features for selling internationally to grow your business with happy, loyal customers. Finally, we’ll examine and explore growing business around the world with strategies for reaching more customers. Cross-border doesn’t have to be difficult. A little landed cost knowledge can go a long, long way.
What is a landed cost calculation?
Landed cost calculation is the process of determining the total cost of a product, including all expenses incurred in getting the product to its destination, such as shipping, handling, insurance, customs duties, taxes, and any other charges.
Landed cost is the total amount that a buyer pays for a product, including the cost of the product itself and all associated fees and charges. It is typically calculated per unit of product.
It is essential to calculate landed costs accurately, especially when importing or exporting products internationally. This is because customs duties, taxes, and other fees vary widely between countries, and failure to account for these costs can result in unexpected expenses and delays, which can ultimately impact the profitability of the business.
How does landed cost work?
When you buy something from one country, while living in another country, you will need to pay duties and taxes in order to import the item into your country. These are estimated based on the type of product being sent and where it is being sent to. There are also international shipping fees to take into consideration.
When is the landed cost estimated?
Total landed cost is the full list of expenses for an international customer to pay when completing a transaction online. The best experience for international customers provides a total landed cost estimate at checkout, while reviewing the order details, and before entering payment information.
This creates transparency for the customer because they understand what they are agreeing to when completing their order. By providing a total landed cost for international customers, you are giving them the confidence to complete their order knowing exactly how much it will cost, without abandoning the cart or rejecting the package when it arrives at their door.
Landed cost calculation is a way to figure out the total cost of a product that is being sold internationally. This includes the cost of the product itself, as well as any additional costs that are associated with bringing the product to the country of import where it is being sold. Some of the expenses that are included in a landed cost calculation are the cost of shipping the product, customs fees, and import taxes. That is why it is critical to show the landed cost before the customer completes their order in the checkout system. By adding up all of these costs, the total cost of the product can be determined, which is the landed cost. This is important for business strategy to help determine how much retailers should charge for their products in order to have a comfortable profit margin on international and domestic orders.
Landed cost and international duties and taxes
Customs authorities assess duties and taxes for all shipments that are imported or exported from different regions or countries around the world. These international duties and taxes are based on what materials the product is made from, what the product is used for, and where the product originated from (country of origin). The destination country is also taken into consideration when estimating duties and taxes. These fees are paid by the customer and should ideally match up to the landed cost calculation so that the customer doesn’t get surprised with fees when the package is delivered. Duties and taxes may not account for shipping or other carrier fees, whereas landed cost takes into account all costs to the customer.
International organizations cooperate through international trade agreements and regional restrictions decided by governing bodies. Zonos provides detailed country guides in our documentation if you are curious about regional restrictions or country-specific trade agreements. Countries use code conventions with 6-12 digits to provide categorization for goods. The harmonized code system, or harmonized tariff, is used to classify products with classification codes (HS codes).
Harmonized System and estimating costs
Duties and taxes are calculated by taking a product description and matching it with a product classification code. The Harmonized System or Harmonized Tariff System uses HS or HTS codes to classify and calculate duties on products. The Harmonization number (tariff number) is determined through a standardized numerical system for classifying trade products. This number system uses a universal six-digit code, with more country-specific codes up to 12 digits.
Harmonized classification codes represent different categories of goods so that they can be evaluated for taxes and security purposes. Want to learn more about the Harmonized System codes? Read our blog: What is an hs code
Simplify foreign tariffs and taxes
An international tax is a fee imposed by the importing country based on the value and type of goods being imported or exported, while an international tariff is a fee imposed by the importing country on the quantity of the goods being imported or exported. The tax is calculated as a percentage of the value of the goods and is typically paid by the importer, while the tariff is calculated as a percentage of the value of the goods but is based on the quantity of the goods, and it is often used to protect domestic industries.
Determining foreign tariff is difficult. There are a plethora of resources online and offline to classify products, but business owners get overwhelmed easily by the legal jargon and international trade laws. That’s why most opt to hire legal counsel and international tax experts.
Zonos has an extensive library of country guide resources. However, machine learning and AI technology advancements have shown us that we can automate the process of identifying HS codes. Automating this process is the best for fast, accurate, and efficient product classification for international shipments without the added cost of hiring a third party or legal counsel. Automating product classification for international shipments also reduces the risk of non-compliance. For a business owner, this significantly reduces the overall risk of selling internationally.
Duty and tax vs. landed cost calculation
Duty and tax are not the same as landed cost.
Landed cost is different from duty and tax alone because it includes the total cost of the product including all of the additional costs associated with bringing the product to the country where it is being sold. In addition to the cost of the product itself, landed cost also includes the cost of shipping the product, customs fees, and any taxes that need to be paid.
Duty and tax, on the other hand, only refer to the fees and taxes that are applied to the product when it is imported into the country. Duty is a tax that is applied to imported goods, while tax is a general term that refers to any government-imposed fees or charges. By contrast, landed cost includes not only the duty and tax on the product, but also the cost of shipping and any other additional costs associated with importing the product.
There is even more to learn about choosing landed cost over duty and tax. Be sure to keep your business up to date by learning all of the best practices for cross-border commerce. If you are offering duty and tax without providing the rest of the fees to your international customers, you are not giving them the best experience possible.
Prepaying duties, taxes, and fees at checkout
Landed cost is calculated using product classification, destination tax schemes, and automating the full landed cost calculation for your customers. The total landed cost is shown to the customer in the international checkout. When a customer sees that there are duties and taxes due for their order, Zonos allows business owners to give their customers the option to pre-pay those duties, taxes and any other fees.
Consequences of mistakes with international duties, taxes, and fees
What if a retailer decides to overlook landed cost, the international customer’s experience, and let the chips fall where they will? You might end up with some of these consequences:
- Fines. Carriers that move shipments are required to submit packages for inspection at a customs authority with the proper paper work. If anything is out of order, one of the consequences is a fine for the retailer. You can do some light reading of the Informed Compliance Publication for more details.
- Restrictions, sanctions, or a ban for non compliance on cross-border transactions. If you’d like to learn more about cross border distribution non-compliance, here is a resource from a legal risk management firm, Aosphere.
- Returned or rejected packages. Returns and rejected packages cut into your profit margins eating away at your revenue and costing your business precious time negotiating refunds, additional fees, and logistics.
- Package destroyed or delayed indefinitely at customs. When the customs authority doesn’t want to bother with returning a package, they may choose to destroy or delay a package indefinitely at their discretion.
International shipping options
When a retailer allows a customer to pay the total landed cost at checkout, this is called delivering with duties paid or a DDP shipment. When orders are shipped without the landed cost being paid at checkout, this is delivering the package with duties unpaid or DDU. Sending packages DDP has less risk involved and is considered a best practice for both the retailer and the customer. Depending on who you are talking to, you may also see these expressions written as DAP/DDU vs. DDP in international shipping terms.
Avoid delays with DDP shipments
If an international order gets stuck in customs and they refuse to deliver the item, it is a costly situation for both the seller and the buyer. Customs officials may refuse to deliver the item if they believe that the seller has not accurately declared the value of the product or paid the correct amount of taxes and duties. In this situation, the seller may be required to pay additional fees or fines in order to release the product and have it delivered to the buyer.
If the seller is unable to pay these fees or if the product is seized by customs officials, the buyer may not receive the product they purchased and may be entitled to a refund from the seller. In some cases, the seller may be able to recover the product and have it delivered to the buyer at a later date, but this can be a time-consuming and costly process.
There are even more reasons to keep DDP at the top of your list if you are planning on selling internationally. Learn more about the benefits of shipping DDP.
Top 5 benefits of offering delivery with duties paid (DDP) on international orders:
- The buyer does not have to worry about any additional costs or paperwork.
- The seller has more control over the delivery process.
- The seller can offer a more accurate and comprehensive pricing structure to potential buyers, which can help to make their products more competitive in the international market.
- The seller can avoid any disputes or issues with customs officials by accurately declaring the value of the product and paying the correct amount of taxes and duties.
- The seller can offer a better overall customer experience by providing a more seamless and hassle-free way for buyers to receive their products.
What happens to packages that get stuck in customs?
When a customs authority decides to destroy a package instead of returning it, it usually means that the package has been found to be in violation of customs regulations, or it contains prohibited or illegal items. In such cases, the customs authority may decide to destroy the package to prevent the prohibited or illegal items from entering the country or to prevent any potential harm to the country.
If a package is destroyed by the customs authority, the sender or recipient may not be entitled to any compensation or refund, as the package was found to be in violation of customs regulations. However, if the sender or recipient believes that the package was wrongly destroyed, they may be able to file an appeal with the customs authority or take legal action to recover any damages.
Shipping restrictions for international orders
It's important for senders and recipients to be aware of the customs regulations and restrictions of the countries they are shipping to or from, and to ensure that they comply with these regulations to avoid having their packages destroyed or confiscated.
Manage cross-border risk with accuracy
One of the biggest risks is that the business owner may be required to pay additional fees or fines if they have not accurately declared the value of the product or paid the correct amount of taxes and duties. This can be costly and can also lead to delays in the shipment of the product, which can damage the reputation of the business and lead to lost sales.
In some cases, customs officials may even seize the product if they believe that the business owner has not accurately declared its value or paid the correct amount of taxes and duties. This can be devastating for a business, especially if the product is perishable or time-sensitive. Additionally, making mistakes with international duties, taxes, and fees can also lead to negative reviews and feedback from customers, which can damage the reputation of the business and make it difficult to attract new customers.
Product information for an accurate total landed cost
If the product description is incorrect or incomplete, customs officials may assign a higher value to the product than is accurate, resulting in the business owner having to pay higher taxes and duties than they should.
Poor product descriptions can be costly and cause delays in the shipment of the product, damaging the business' reputation and leading to lost sales. Providing an accurate, detailed product description can help avoid disputes with customs officials, saving the business time and money and protecting its reputation.
Automating HS codes to reduce compliance risk
There are a few factors that contribute to calculating a landed cost. If you are using a duty and tax application or plugin, you’ll want to take note that they include accurate product descriptions and HS codes. If you are not using accurate product descriptions, or getting HS codes for your entire product catalog, you will not have what you need to calculate landed cost. In fact, when researching landed cost claims, Zonos is the only true landed cost on the market to date.
Accurate product information will impact the landed cost calculation. There are new requirements for product descriptions based on security measures to regions like the EU that make this a critical step in setting up your online store. If you haven’t read about ISC2 for the EU countries, then you’ll probably want to educate yourself on the updated standard for product descriptions and HS codes for all international shipments.
Detailed product descriptions with item classification codes will ensure compliance with international import and export laws. If an order doesn’t comply with international import standards, this can cause costly delays.
Prevent fraud and chargebacks with landed cost
Prepaying landed cost fees can help prevent international fraud by providing additional information to verify the transaction, reducing chargeback risks, and preventing shipment delays. It is a proactive measure that can help protect both the customer and the seller from fraudulent transactions.
When customers pay the total landed cost at checkout, it reduces the risk of chargebacks. Chargebacks occur when a customer disputes a transaction with their credit card company. By paying the fees upfront, the customer is less likely to dispute the transaction and potentially initiate a chargeback.
Landed cost is the key to international selling success
Landed cost calculations are the key to selling internationally. If retailers do not provide their international customers with a landed cost total at checkout, then they will be surprised with a bill when their product is delivered for unpaid duties and taxes.
When customers can see an estimate of the total cost of the transaction at checkout, you are building a solid foundation for a good customer and retail relationship. Transparency and easy access to fees can be a critical differentiator between your online store and your competitors. Customers are more loyal when they feel they can trust the company that they buy products from and this is even more important for international transactions.
Landed cost is important for international shoppers to see at checkout because it gives them a complete picture of the total cost of the product they are purchasing. Without this information, shoppers may not be aware of all of the additional costs that are associated with importing a product from another country, such as customs fees and taxes. This can lead to misunderstandings and potentially even disputes between the shopper and the seller.
Top 3 benefits of selling cross-border with total landed cost:
- Increased transparency: Offering a total landed cost calculation to international customers at checkout provides transparency and clarity to customers about the total cost of their purchase, including all applicable taxes, duties, and fees. This can help build trust and confidence in the retailer, which can result in increased customer loyalty and repeat business.
- Avoidance of compliance delays: Providing accurate landed cost calculations can help retailers stay compliant with international regulations, reducing the likelihood of shipping delays or returns due to unexpected customs or import fees. This can help improve overall efficiency and reduce costs associated with managing compliance-related issues.
- Improved revenue: By providing a total landed cost calculation at checkout, retailers can improve their conversion rates and drive higher sales from international customers. Customers are more likely to complete a purchase when they have a clear understanding of the total cost upfront, and are less likely to abandon their cart due to unexpected fees or charges. This can help retailers increase their revenue and grow their customer base.
By providing shoppers with the landed cost at checkout, sellers can help ensure that the shopper is aware of all of the costs associated with their purchase, which can help prevent misunderstandings and build trust between the seller and the shopper. Additionally, being transparent about the landed cost can also help sellers to be more competitive in the international market by allowing them to offer more accurate and comprehensive pricing information to potential buyers.
Landed cost as a cross-border strategy
The best strategy for growing business with international sales relies upon providing a total landed cost in your international checkout. This ensures that your customer is aware of all of the costs associated with their purchase and prevents misunderstandings. Building trust between the seller and the buyer develops a loyal relationship. By being transparent about the total cost of the product, including any additional costs for shipping, customs fees, and taxes, retailers can avoid surprises for the buyer and provide them with accurate and comprehensive pricing information.
Landed cost increases the competitive advantage for retailers in the international market by allowing them to offer more transparent and accurate pricing information to potential buyers. If the competition doesn’t offer VAT-inclusive pricing and landed cost, then a retailer would be wise to separate themselves with these features that are in high demand from international customers.
Providing a total landed cost in checkout can also avoid disputes or issues with customs or other regulatory bodies by ensuring accuracy. Declaring the total cost of the product and paying any applicable fees or taxes is a simple way to avoid customs delays.
Selling internationally to the top cross-border markets
Giving your customers the courtesy of providing a landed cost is the best strategy for success because it opens doors; literal doors. Retailers that are focused on delivering their products to more customers all over the world care about the experience of opening their customers' doors. They want the success that comes from loyal customers that are excited about their products.
To be successful, don’t overlook the international buying experience for your customers. Carefully review your international shipping policies, return policies, and ensure that your customers are getting exactly what they expect when they checkout of your online store no matter where they are.
Popular international markets for expanding business
Expanding an online store to new countries can bring many benefits to a retailer, including increased revenue, customer base, and brand recognition. By tapping into new markets, a retailer can reach a wider audience and potentially increase sales. Additionally, expanding to new countries can help to diversify a retailer's revenue streams and reduce reliance on a single market.
Canada and the UK are both countries that are relatively easy to sell to. They have large and developed ecommerce markets, with high levels of internet penetration and consumer trust in online shopping.
Top countries of recent purchases
Not sure where to expand your international business? If you are based in the US, consider expanding to the UK or Canada as they are one of the top 3 countries that consumers purchase from.
| USA | Canada | China | Australia | UK |
|---|---|---|---|---|
| China 38% | US 46% | Japan 21% | China 32% | China 32% |
| UK 12% | China 34% | S. Korea 14% | US 26% | US 21% |
| Canade 10% | UK 4% | US 13% | UK 13% | Germany 9% |
Source: IPC 2021 Cross-border Survey
Providing a landed cost estimate - a better online customer experience
No matter where your customer is located, they are not looking for a poor experience. Customers all over the world are buying more online now than they have in the past. They have expectations for how the buying experience should play out.
Couple the international experience with the fact that selling online is easier than ever. In fact, the US retail growth rate has skyrocketed since 2020 going from 3.1% growth to a whopping 19.4% in 2022. Source
If a business opportunity is presenting itself, and capitalizing on selling online is part of the strategy, get on board. But how can you ensure success with selling online? You can start by having a great checkout experience and providing a total landed cost calculation. In addition, knowing that international customers may not be happy with an unpaid invoice when their package arrives, brush up your return policy and get to know your international shipping carrier services.
Return policy for international orders
International product returns can be one of the biggest headaches for retailers and their customers. Updating return policies for international orders is a best practice for retailers expanding to new countries because it helps them avoid extra costs and provides a positive order experience for their customers. In international markets, customs and import regulations can vary widely, and retailers may be responsible for additional duties, taxes, and fees associated with returns. By updating their return policies, retailers can provide clear guidelines and information to their customers, reducing confusion and potential disputes. This can help build trust and loyalty with customers, leading to repeat business and positive reviews.
Bad customer reviews on international orders
Customers who have a negative experience with a business are more likely to leave negative reviews, which can be seen by other potential customers and can influence their decision to make a purchase.
For example, if a customer has a bad experience with an international seller, such as receiving a damaged product or having difficulty with customs, they may leave a negative review that describes their experience. Other customers who see this review may be less likely to make a purchase from the same seller, which can negatively impact the seller's ability to generate sales and revenue.
Ecommerce platforms for international orders
It is difficult to say which ecommerce platform is the best for international orders because different platforms may offer different features and benefits that are more or less suited to different businesses and customers. Some of the top ecommerce platforms for international orders include Amazon, eBay, and Shopify, which all have a large global customer base and offer a range of tools and services to help sellers manage and fulfill international orders.
To determine the best platform for your business, it is important to carefully consider your specific needs and goals, as well as the preferences of your customers. Some factors to consider when choosing an ecommerce platform for international orders include the platform's reputation, the range of payment and shipping options it offers, its customer support and fulfillment services, and its fees and commissions.
Do this -> Top 4 tips for successful online selling to international customers:
Let’s break down the critical components of what it takes to successfully sell online.
- Know your ecommerce system.
- There are critical integrations that not only let you calculate a full landed cost estimate but they also base the total landed cost calculation on product descriptions and classification. Know what your ecommerce systems offer for calculating duties and taxes. Often, they don’t have enough information to get to a TOTAL landed cost. Don’t half-bake the experience, make sure your ecommerce system is set up with the best plugins to support international transactions.
- Find your customers wherever they are and SELL THERE.
- Speaking of product descriptions and classification, did you know that in order to ship your order internationally, a product description with accurate harmonized classification is now required by some of the most popular commerce regions? If your customers are in the EU, you’ll need to have full product descriptions with accurate classification codes to ensure there are no delays with customs. Don’t let this extra step stop you from reaching your customers where they are. Go there! Don’t deny your customers the opportunity to enjoy your product!
- Make selling international easier.
- Integrated systems that automate a total landed cost calculation will make selling international a breeze. Don’t overcomplicate it, because it is definitely easy to do. You have a business to run, so don’t lose your focus and waste resources on complicated international details. Find an international friendly technology company that can take your ecommerce business and expand business by reaching customers all over the world. (I think Zonos might have some ideas on that one!)
- Create trust with your customers with transparent cost calculations.
- This is where it gets really fun. Calculating shipping fees, taxes, applicable duty rates based on products, finding accurate HS or HTS classification codes for your products, and getting all of that tied up in a little boy is the perfect way to create a loyal international customer. They often know duties and fees are coming, but these estimates need to be integrated into your customer success story.
Avoid this -> rejected packages, costly returns, and bad reviews
The unfortunate truth about selling internationally is that the door isn’t always open. If your innovative new product is shipped internationally to a customer and they get a big bill with unexpected fees, they may not open the door. The door to the opportunity of building customer loyalty has just slammed in your face.
International customers my choose one of these options when they are surprised with fees at the door. Your customer can take action by:
- Rejecting the package
- This is an outright refusal to accept the package. The fate of the delivery is then left in the hands of the carrier to attempt to return the item. In the event that you are sending packages internationally, it is advisable to read up on what their policy is for rejected packages.
- Returning the package
- Customers can choose to return the order entirely and demand compensation or a full refund. In this event is is advisable to brush up on your return policy and be sure to inform all of your online customers on what to expect for a return.
- Keep it and leave a bad review
- This is probably the worst outcome for an international transaction. Building trust with your customer is what keeps them coming back for more. When customers are happy, they tell all of their friends! Unfortunately, the inverse is also true. Having an unhappy customer leave a bad review can be detrimental to future orders.
A final word on landed cost calculations
Landed cost calculations are the key to selling internationally. If you do not provide your international customers with a landed cost total at checkout, then they will be surprised with a bill when their product is delivered. By providing an estimate of the total cost of the transaction at checkout, you are giving your customer transparency and building a solid foundation for a good customer and retail relationship. Customers are more loyal when they feel they can trust the company that they buy products from and this is even more important for international transactions.
Remember, providing your customers with a total landed cost calculation at checkout can help to build trust, improve the customer experience, and make your products more competitive in the global market. Don't forget to factor in all of the costs associated with bringing your products to your customers, and continue expanding your business so that you can reach more customers all over the world.
Total landed cost calculations; the best strategy for selling internationally
Selling online has become easier with ecommerce platforms that offer convenient integrations and plugins. Shipping and fulfilling orders placed online can be a little more complicated. Now factor in an international order process and retailers start to second guess growing their business globally. When total landed cost calculations are shown to international customers at checkout, it prevents a poor shopping experience.