Landed cost is the total price a business pays to get a product to its final destination. This includes the product cost, shipping fees, customs duties, taxes, and insurance. Managing landed costs correctly helps businesses set accurate prices, calculate real profit margins, and avoid financial surprises.
NetSuite makes it easy to manage landed costs, offering tools that help you track all the costs associated with bringing a product into your inventory. In this guide, we’ll walk you through everything you need to know about setting up and managing landed costs in NetSuite.
Why Are Landed Costs Important for Your Business?
Landed costs affect several key areas of your business:
- Pricing: To set the right price, you need to know your total cost. Including landed costs ensures your pricing is accurate.
- Profit Margins: Without accounting for landed costs, you might miss out on important expenses, making your profit margins appear higher than they are.
- Inventory Valuation: Landed costs are included in your inventory’s value. Incorrect cost tracking leads to inaccurate financial reporting.
Without proper management, businesses risk losing money due to miscalculated costs or underpriced products. NetSuite helps you get accurate, real-time data on these costs to make informed decisions.
Understanding NetSuite’s Landed Cost Feature
NetSuite’s Landed Cost feature simplifies the process of allocating additional costs to your inventory. It allows you to track extra expenses like shipping fees, taxes, and customs duties, and add them to the product cost automatically.
Here’s what it does:
- Accurate COGS (Cost of Goods Sold): The Landed Cost feature helps you allocate all expenses to the right inventory item.
- Streamlined Operations: It integrates with NetSuite’s procurement and financial systems, making it easier to track and report landed costs.
With this feature, you ensure that all your products’ total costs are accounted for, which leads to better financial insights.
Step-by-Step Process of Setting Up Landed Costs in NetSuite
1. Activating the Landed Cost Feature
To begin using landed costs in NetSuite, you must first enable the feature. Here’s how to do it:
- From the Setup menu, navigate to Company.
- Select Setup Tasks and then click on Enable Features.
- Under the Inventory subtab, find the Landed Cost section.
- Check the box next to Landed Cost to activate it.
- Hit Save to complete the process.
2. Setting Up Landed Cost Categories
Next, you’ll need to create categories for your landed costs (e.g., shipping, taxes, customs duties). Here’s how you can configure them:
- Navigate to Setup > Accounting > Setup Tasks.
- Click on Accounting Lists and then New.
- In cost type click Landed.
- Choose an Expense Account that will track the landed cost for each category.
- Enter a name for the new category (e.g., shipping, duties).
- Click Save to complete the setup.
3. Configuring Item Records for Landed Costs
Finally, ensure that your item records are set to track and apply landed costs. Here’s how to do this:
- Go to Lists > Accounting > Items and select the item you want to modify.
- In the item record, check the box to Track Landed Costs.
- Save the changes.
Allocating Landed Costs to Transactions
NetSuite makes it easy to allocate landed costs to the right transactions. You can distribute costs based on:
- Weight
- Volume
- Quantity
- Percentage-based allocation
When you receive goods from a supplier, NetSuite allows you to apply the landed costs directly to the purchase order or item receipt. This ensures the product cost reflects the true total cost, including shipping, taxes, and customs.
Landed Costs for International Transactions
Managing landed costs for international shipments can be tricky. You need to account for things like currency conversions, customs duties, and taxes, which vary by country. NetSuite helps simplify these processes.
- Currency Conversions: NetSuite automatically handles currency exchange rates, so you can track landed costs in the correct currency.
- Customs Duties and Taxes: You can set up landed cost templates that account for these fees based on the destination country.
- Compliance: NetSuite helps ensure that your international transactions comply with import/export laws by tracking all necessary costs.
By setting up the right templates and tracking tools, you can ensure that your international transactions are as smooth as your domestic ones.
Using Estimated Landed Costs in NetSuite
NetSuite allows you to estimate landed costs before goods arrive. This can help you plan ahead and budget for future expenses. You can create templates for recurring landed costs, like shipping and customs, so you’re prepared even before the product is received.
Once the goods are received, you can compare the actual costs with the estimates to make sure everything aligns. If there are discrepancies, you can adjust accordingly.
Here’s how to make the most of this feature:
1. Plan Ahead with Estimates
NetSuite allows you to input estimated costs for items like shipping, customs, duties, or taxes even before the goods arrive. This gives you a clearer picture of your total expenses and helps avoid unexpected financial surprises.
- Use historical data or vendor quotes to estimate costs for specific shipments.
- Apply these estimates to Purchase Orders, so they’re accounted for during the procurement process.
2. Save Time with Landed Cost Templates
For recurring expenses like shipping or customs, NetSuite lets you create templates to simplify the process. Templates ensure consistency and save time by automatically applying common landed costs to new transactions.
- Create templates for fixed or frequently occurring costs (e.g., $200 shipping per container).
- Apply templates directly when creating purchase orders or item receipts.
3. Reconcile Estimates with Actual Costs
When the goods arrive, you can compare your estimates with the actual costs incurred. NetSuite allows you to adjust and reconcile these costs easily:
- Review the Landed Cost Reconciliation Report to see discrepancies between estimated and actual costs.
- Adjust any differences directly in the system to ensure your inventory values and expense tracking are accurate.
Challenges in Managing Landed Costs and How NetSuite Solves Them
Managing landed costs can be challenging. Here are a few common issues businesses face:
- Complex Calculations: Landed costs involve multiple factors, like shipping, duties, and taxes. It’s easy to miss something.
- Manual Errors: Allocating costs manually can lead to mistakes and misreporting.
- Inaccurate Reporting: Without proper tracking, financial reports might not reflect the true cost of goods.
NetSuite solves these issues by automating cost allocation and integrating with your procurement and financial systems. This reduces the risk of errors and ensures accurate reporting.
Benefits of Managing Landed Costs with NetSuite
Managing landed costs with NetSuite brings several benefits to your business:
- Accurate Pricing: You can set the right price by knowing the exact cost of goods.
- Better Profit Margins: By tracking all costs, you ensure accurate margins.
- Improved Financial Reporting: NetSuite integrates with your financial systems, ensuring that your reports reflect the true cost of your inventory.
- Streamlined Operations: The automation saves time and reduces manual work, helping your business run more efficiently.
Practical Tips for Effective Landed Cost Management
Here are some tips to manage landed costs effectively:
- Regularly Update Categories: As your business grows or changes, make sure your landed cost categories are up to date.
- Train Your Team: Ensure your team knows how to input and allocate costs correctly to avoid errors.
- Use NetSuite’s Reporting Tools: NetSuite offers reporting tools that help you track and analyze your landed costs. Use them to optimize your processes.
Conclusion
Landed cost management is crucial for accurate financial reporting, pricing, and profit analysis. With NetSuite’s Landed Cost feature, you can easily track all associated costs, whether they’re local or international. By following the steps in this guide, you’ll have a clearer picture of your true product costs, helping you make better decisions and avoid costly mistakes.
