Landed cost is the total cost of a product from inception to creation through delivery of that product to its final destination – most likely your customer’s hands or front door step.
Reducing your landed costs will result in higher profits – via smaller expenses – as long as you don’t sacrifice quality. In order to lower your landed cost without reducing your quality, you first need to understand what your landed cost is.
The elements that make up landed cost can include everything from the original cost of the product to shipping costs, insurance, crating, handling, and, in the event that you’re importing or exporting, tariffs under the Harmonized Tariff Code. It was this code that set the stage for an interesting court room debate recounted by the NPR show Radiolab. The case involved Marvel Comics and its crown jewel: the X-Men.
The story began when two tax lawyers were perusing the Harmonized Tariff Code and made an interesting discovery. Under the tax code, human dolls (any doll that is made to represent a human being) was taxed at 12 percent, while toys (anything made to represent a non-human form) were taxed at 6.8 percent.
This meant that a Dora the Explorer doll, something clearly made to represent a human, would be taxed at 12 percent. A Tickle-Me-Elmo, however, would be taxed at 6.8 percent.
The difference in tax rates meant a company that could convince the United States government that their actions figures or dolls were not made to represent human forms could end up saving massive amounts on import taxes each year.
For those who are not fluent in geek-speak, the most engrossing part of the X-Men universe is the question it forces the reader to contemplate: “What does it mean to be human?” Marvel’s writers and artists come down firmly in favor of calling the X-Men and all the members of their humanoid universe humans, but the execs who found an interesting way to save nearly 50 percent on taxes (and thus dramatically reduce their landed costs) saw the benefits of classifying the members of the X-Men as non-humans.
After a decade-long legal battle, Marvel won the right to call their action figures non-human and have since saved millions on import taxes for their highly successful action figure franchise.
This provides an important lesson for your eCommerce business on the magnitude of landed cost. If you can find a way to reduce your landed cost – whether it’s through utilizing a new shipping method or arguing what it means to be human – you can save your company money and improve your bottom line.