Pricing · 7 min read · reviewed 2026-10-01
The tempting method is to take the landed-cost calculator, set the target total and read off the factory price. That works only if landed cost is a straight line in FOB. It is not.
Two things break the linearity. First, statutory fees with a floor and a ceiling: the US Merchandise Processing Fee charges 0.3464% of FOB value between a minimum and a maximum, so at low values the effective rate is higher than the headline and at high values it is lower. Second, any fixed charge in the stack — brokerage, documentation, a per-entry fee — is present even at a factory price of zero, and no amount of price reduction removes it.
So the solver has to bisect rather than divide: find the largest FOB whose landed cost still fits under the ceiling. The number it returns is exact to the cent, and it respects the caps. A closed-form inversion silently overshoots the moment a cap bites, which is precisely on the shipments where the answer matters.
Five steps, each one a decision that belongs to someone else:
| Step | Amount per unit | Note |
|---|---|---|
| Retail price | $24.99 | 100% |
| Retailer margin | $-11.25 | -45% |
| Your selling price to the buyer | $13.74 | 55% |
| Your margin | $-3.44 | -25% |
| Selling costs (commission, fees, outbound) | $-1.10 | -8% |
| Maximum landed cost | $9.21 | 36.9% |
| Maximum factory price (FOB) | $7.85 | 31% of retail |
Read it from the bottom: with $9.21 of landed cost per unit available, and $1.04 of that consumed by freight, duty and destination charges before a single unit of product is in the box, the factory price can be at most $7.85.
Note the two percentages that are opinions rather than measurements. The 45% retailer margin is what the channel will demand, not what it costs them. The 25% target margin is your policy. Change either and the factory ceiling moves — which is why this calculation is worth re-running at the start of every negotiation rather than once a year.
You now have a number your supplier does not have: the point at which the order stops working. That changes the shape of the conversation. Instead of arguing about percentages, you can say what specification fits at a given price — a lighter carton, a smaller pack, a simpler closure — because you know exactly how much cost each concession has to recover.
The 31% figure is the one to keep in your head. The factory gets 31% of the shelf price; the rest is freight, duty, your margin and the retailer's. That ratio is normal for imported consumer goods and it is also the reason a 5% factory price reduction only buys about 1.5% of the shelf price. Factories know this, which is why they resist 5% and will often agree to 2%.
Where the number is decisive: at the quotation stage, when a supplier's price is above your ceiling, and you need to know whether to walk away, re-specify, or accept a lower margin. It converts an argument into a choice.
VAT. If you are VAT-registered at destination, import VAT is a timing cost and should be excluded from the ceiling; if you are not, it is a cost and the ceiling drops sharply. Getting that switch wrong moves the answer by 20% in the EU and the UK.
Retailer margin is not the only channel cost. Slotting fees, promotional support, returns and markdown contributions all come out of your wholesale price, and none of them appear in a 45% margin. If you sell into a large retailer, add them to selling costs rather than to the retailer's margin — the arithmetic is the same but the negotiation is not.
The shelf price may not be the real one. If the product sells at a discount more often than at list, the effective retail price is the discounted one, and building the whole chain on the list price produces a factory ceiling that is 20% too generous.
It assumes you can buy the volume. The ceiling is per unit at a stated quantity. At a tenth of that quantity the freight per unit rises and the ceiling falls, so a quote that fits at 5,000 units may not fit at 500.
Each one runs the arithmetic above on your own numbers. The guide explains why the figure is what it is; the tool produces it.
Reverse Cost Calculator — the same engine that produced every figure on this page, with your carton, your route and your duty rate.
Working from an acceptable selling price backwards to the maximum you can pay for the goods. It is the standard method in retail and private label, because the shelf price is set by the market and the cost has to fit under it.
Because landed cost is not linear in the factory price. Percentage fees with a floor and a ceiling, plus fixed per-shipment charges, mean the relationship has kinks. It has to be solved numerically, not algebraically.
For imported consumer goods through a retail channel, typically 20–35%. The rest is freight, duty, your margin, selling costs and the retailer's margin. A higher share usually means a shorter channel, not a better deal.
Only if you cannot recover it. A VAT-registered importer should exclude it from the cost ceiling, because it is reclaimed. Including recoverable VAT makes the ceiling look far tighter than it is.
The guides that answer the question this one usually leads to.
Margin and markup from the same sale, why the cost input has to be landed cost, and how to find the break-even volume that covers fixed costs.
Read next → CostingThe five-line landed cost method, one 40HQ to the US worked line by line, and the four charges most costing sheets leave out.
Read next → TermsWhy a CIF price is not FOB plus freight, how the 110% insurance formula changes the arithmetic, and how to reverse a CIF quote correctly.
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