Sourcing Cost vs Landed Cost: What FBA Sellers Need to Know
Sourcing cost vs landed cost is the most important cost distinction every Amazon FBA seller must understand. Sourcing cost (also called FOB price) is what you pay the factory for the product. Landed cost is the total cost to get one sellable unit into Amazon's warehouse, including every expense from factory floor to FBA check-in: freight, duties, customs brokerage, trucking, 3PL prep, labeling, and inspection.
The gap between sourcing cost and landed cost is where many FBA sellers miscalculate their profitability. A product with a $4.50 sourcing cost might have a $7.80 landed cost once you add ocean freight, a 25% Section 301 tariff, customs brokerage, domestic trucking, and prep fees. That's a 73% markup before you've even listed the product. If you're using sourcing cost as your COGS in profitability calculations, you're overstating your margin by that entire gap.
Understanding sourcing cost vs landed cost is critical for pricing decisions, product selection, and supplier negotiations. Your contribution margin and net profit per unit calculations are only as accurate as your landed cost inputs. Get this wrong and you could be selling at a loss without knowing it.
The Full Cost Breakdown
Here is a line-item breakdown of a typical product going from a China factory to an Amazon FBA warehouse:
| Cost Component | Per Unit | Notes |
|---|---|---|
| Factory price (FOB) | $4.50 | This is your sourcing cost |
| Ocean freight (LCL) | $0.85 | ~$1,200 for 8 CBM / 1,400 units |
| Import duty (base MFN 3.4%) | $0.15 | Duty rate x customs value |
| Section 301 tariff (25%) | $1.13 | Additional tariff on Chinese goods |
| Customs brokerage | $0.11 | ~$150 formal entry / 1,400 units |
| Domestic trucking | $0.18 | Port to 3PL or FBA warehouse |
| 3PL prep (label + poly-bag) | $1.20 | FNSKU label + poly-bag + box label |
| Inspection (pre-shipment) | $0.07 | ~$100 inspection / 1,400 units |
| Freight insurance | $0.04 | ~1% of cargo value |
Total landed cost: $8.23/unit vs $4.50 sourcing cost. The non-sourcing costs add $3.73 per unit (83%) on top of your factory price.
The tariff and duty costs alone ($1.28/unit) represent 28% of the FOB price. For sellers importing from China, duties are often the second-largest cost component after the factory price itself.
Worked Example
You're evaluating a new stainless steel water bottle with a $5.80 FOB price from your Guangzhou supplier. Your target retail price on Amazon is $29.99. Let's calculate whether this product is viable.
Landed cost build-up:
FOB price: $5.80. Ocean freight (shared container, 12 CBM for 2,000 units): $0.72/unit. Import duty at 7.5% MFN rate: $0.44. Section 301 tariff at 25%: $1.45. Customs brokerage: $0.08. Trucking (port to 3PL): $0.15. 3PL prep (FNSKU + poly-bag + bubble wrap): $1.65. Pre-shipment inspection: $0.05.
Landed cost: $10.34/unit.
Now subtract Amazon fees (~$10.50 for referral + FBA fulfillment on this size/weight) from your $29.99 selling price:
$29.99 - $10.34 (landed cost) - $10.50 (Amazon fees) = $9.15 contribution margin (30.5% margin).
If you had used the $5.80 sourcing cost as COGS instead, you'd have calculated a $13.69 margin (45.6%). That's a $4.54/unit error. Over a 2,000-unit order, you'd overestimate profit by $9,080.
FBA-Specific Context
For FBA sellers, landed cost has a few components that brick-and-mortar importers don't face. Amazon's inbound placement fee (charged when you ship to fewer destinations than Amazon prefers) adds $0.21-$0.68/unit depending on product size. Some sellers include this in landed cost; others treat it as an Amazon fee. Either way, it needs to appear in your profitability model somewhere.
Another FBA-specific wrinkle: prep requirements vary by product category. Items requiring suffocation warnings, fragile stickers, or special packaging add to your 3PL prep fee. Category-specific requirements can add $0.30-$1.00/unit in unexpected prep costs if you don't research them before sourcing.
Your landed cost also feeds directly into your FBA fee stack analysis. The fee stack shows every cost between your selling price and your net profit. Landed cost is the largest seller-controlled component, making it the primary lever for improving profitability through supplier negotiation, freight optimization, or duty planning.
Common Mistakes
1. Using FOB price as COGS in profitability tools. This is the most common and most expensive mistake. Every Amazon profit calculator asks for "product cost" or "COGS." If you enter your factory price instead of your landed cost, every margin calculation, pricing decision, and product viability assessment is wrong. Always enter landed cost.
2. Forgetting to update landed cost when tariff rates change. Section 301 tariff rates have changed multiple times since 2018. If your spreadsheet still uses a 10% tariff rate but your actual rate is now 25%, your landed cost is understated by 15% of customs value. Review your duty rates quarterly.
3. Not calculating landed cost BEFORE placing a purchase order. The time to discover that duties and freight push your margin below breakeven is before you commit to 2,000 units, not after they arrive. Build a landed cost estimate into your product research process. If the landed cost doesn't leave at least a 25-30% contribution margin after Amazon fees, the product isn't viable.
Related Glossary Terms
Sourcing Cost vs Landed Cost FAQ
What is the difference between sourcing cost and landed cost?
Sourcing cost is what you pay the factory for the product (FOB price). Landed cost includes sourcing plus every expense to get the product sellable at Amazon: ocean freight, import duties, customs brokerage, domestic trucking, 3PL prep, labeling, and inspection fees.
How much does landed cost add to sourcing cost?
Landed cost typically adds 40-80% on top of sourcing cost for products imported from China. A product with a $4.50 FOB price commonly lands at $7-9 per unit after freight, duties, and prep. The exact markup depends on product weight, freight method, HTS code, and prep complexity.
Should I use sourcing cost or landed cost as my COGS?
Always use landed cost as your COGS for profitability analysis. Using sourcing cost overstates your margins and leads to pricing decisions that lose money. Landed cost is the true cost to get one sellable unit into Amazon's warehouse.
What costs are included in landed cost for FBA sellers?
Landed cost includes: factory price (FOB), ocean or air freight, import duties and tariffs, customs brokerage fees, domestic trucking, 3PL prep and labeling, inspection fees, and freight insurance. Some sellers also include Amazon's inbound placement fee.
Why is sourcing cost still useful?
Sourcing cost is the right number for supplier negotiations and benchmarking factories against each other. It is the only component of landed cost that's directly negotiable with your supplier. Use sourcing cost for supplier conversations and landed cost for everything else.