Landed cost: how to calculate the real cost of a purchase order
By Raghav Saxena, founder of AsliRate, former audit associate at KPMG · 22 October 2026 · 2 min read
Short answer
Landed cost = cost of the goods you actually have to buy + freight + other charges + any GST you can't claim back. Divide it by the quantity you need to get the real rate per unit. For a GST-registered buyer with valid tax invoices, GST usually drops out because it's claimed as credit.
The rate on a quotation is where the cost starts, not where it ends. Landed cost is the total it takes to get the goods to your door and into use. It is the fairest single number for comparing suppliers.
The formula
- Quantity you must buy = your need, rounded up to the minimum order and to whole packs.
- Goods cost = quantity you must buy × rate before GST.
- Add freight, loading, packing, printing plates and any other charges (before GST).
- Add GST on the total, unless you can claim it back as credit.
- Real rate = landed cost ÷ quantity you need.
When a supplier delivers and bills freight on the same invoice, GST normally applies to the freight at the same rate as the goods, and it is claimable the same way.
Worked example: 5,000 boxes
Supplier A quotes ₹18 per box, GST 18% extra, freight ₹6,000 extra, minimum order 2,000. You need 5,000 and you are GST-registered.
| Line | Amount |
|---|---|
| Goods: 5,000 × ₹18.00 | ₹90,000.00 |
| Freight | ₹6,000.00 |
| Subtotal before GST | ₹96,000.00 |
| GST at 18% | ₹17,280.00 |
| You pay the supplier | ₹1,13,280.00 |
| Less GST credit | − ₹17,280.00 |
| Landed cost | ₹96,000.00 |
| Real rate per box | ₹19.20 |
The quoted ₹18 becomes ₹19.20 once freight is spread across the order. If you were not registered, the GST would stay in, and the real rate would be ₹22.66.
What people forget
- The minimum order. Buying 10,000 to get a lower rate can double your cost if you only need 5,000. See MOQ and the real price.
- Freight that isn't on the quote. If it's not mentioned, ask. "Ex-works" means you arrange the truck. See freight terms in quotations.
- GST you can't claim. Unregistered and composition suppliers can't give credit. See input tax credit on purchases.
- Small charges. Packing, loading, cylinder or plate charges are often written at the bottom of the quote.
Common questions
- What is included in landed cost?
- The cost of the goods you must buy (after minimum order and pack size), freight, loading and other charges, and any GST you can't claim back as input tax credit.
- Is GST part of landed cost?
- For a GST-registered business that can claim input tax credit, usually not, because the GST is recovered. If you can't claim it, GST is part of the landed cost.
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