As a WooCommerce merchant seeking to expand your business, one option is going international. A world of opportunity awaits merchants who can tap overseas markets, and that opportunity is only growing. Global retail ecommerce sales are expected to total more than $4 trillion by 2020.

Great news! WooCommerce merchants can now automatically estimate and optionally charge landed cost fees using WooCommerce AvaTax.

Selling internationally can not only vastly increase the numbers of your potential customers, but you may find that your products fill a niche that does not exist domestically.

However, international selling requires a lot more than just translation or currency conversion. The costs of exporting goods to other countries can be complicated and considerable. The cost of getting a physical product from the seller’s facility in one country to the buyer’s door in another is known as the landed cost. The landed cost includes the price of the item along with everything it takes to get a product from you to your international customer, such as door-to-door shipping, insurance, taxes and all customs duties and fees.

Why is landed cost important?

Correctly calculating landed cost is crucial to success in international selling. Without a full and accurate accounting of how much it costs you to get your products to your customer, you can’t correctly calculate your profit margins on international sales. Failing to take certain costs into consideration or miscalculating them can result in transactions where your profit gets wiped out altogether.

Accurately adding up landed costs is also important to attracting and keeping your international customers. A transparent and accurate depiction of the full cost of an item — including all landed costs for which customers may responsible — is essential for a good customer experience.

In fact, if the entire cost of your product is not clear as early as possible, international customers may not even get as far as checking out. Lack of clarity on the total cost of a sale is a key driver of online cart abandonment, Research from PayPal shows. For example, in Italy, 27% of shoppers have abandoned a shopping cart from an overseas seller because the amount of extra fees was not clear. In Canada, 42% have done so.

And if your customer does buy a product that comes with extra unexpected costs, they could refuse the shipment altogether, meaning that you lose a sale, most likely lose a customer for good, and pay both the initial and return shipping costs out of your own pocket.

In the worst scenario, getting customs costs and international taxes wrong can result in fines or even seizure of merchandise by international authorities. So it pays to get it right.

Export process

The export process

In order to better understand landed cost, it helps to be familiar with the process that a shipment undergoes when it is exported from your country of origin to that of your customer.

All countries have laws and regulations about what items can and cannot enter their borders and under what circumstances. Those regulations often require a fee to be paid in order for the product to be admitted. These fees are called customs duties or tariffs. Duties make imported goods more expensive, often to discourage imports with the aim of protecting the country’s domestic industry, while also generating revenue for the country’s government.

When you ship something out of your country, it does not officially enter the destination country until it clears customs, or in other words, the destination country determines that it can legally enter. This often means that items are held when they first enter the destination country until they are released for delivery.

At this point, the customs office determines whether the item can be admitted and how much, if any, customs duty needs to be paid. Depending on how the item is being shipped, the recipient, the seller or a third party may act as the “Importer of Record,” responsible for paying any duty, taxes or fees due.

What makes up landed cost?

Landed cost consists of all the amounts paid to get a product from you to your customer. While every shipment is unique, here are some common costs that you may encounter in international sales.

Shipping costs

There are three main ways to ship items internationally: postal service, courier, or freight.

  • If you use the U.S. Postal Service, the shipment will originate with USPS and then transfer to the national postal service of the destination country.
  • Courier or express services include door-to-door carriers such as UPS or FedEX.
  • Freight shipping means contracting directly with a shipping company to get your item transported by land, air or sea.

The carrier that provides your shipping can give you an estimate of the shipping costs to the destination country.

If you store, package or crate items separately from shipping services, these may represent additional costs. Insurance may be another additional cost if is not included as part of the shipping fee.

Customs duties

Determining customs duties can be one of the trickiest parts of calculating landed costs because the duty rate is specific to a particular item in a given country. That means that one type of item may have vastly different duty rates in different countries.

The duty rate is determined by the harmonized tariff code for each product. These 8-to-10+-digit codes are part of the Harmonized System, an internationally standardized system of names and numbers maintained by the World Customs Organization (WCO).

The first digits of tariff codes are the same for a product regardless of where you’re exporting it, while the last characters vary by country. Each tariff code corresponds to its own customs duty rate. It’s essential to get the right code for your products in each country for correct duty calculation.

The duty rate can be levied as a percentage of the value of the product or other factors, such as weight or number of units, again, depending on the rules of the destination country.

Each country typically has a minimum value below which duties are not assessed, called the de minimis value. If your shipment’s value is below this threshold, customs duty may not apply. For example the de minimis in the United States is $800 US (with certain exceptions), but in Canada, it is $20 CAD. So a retail shipment from Spain valued at $700 and shipped to the US may not be subject to import duty, but it would be in Canada.

Other customs costs

Customs officials may also charge a processing fee for clearing an item through customs. In some cases, private customs brokers may clear the item on behalf of their clients (sellers, couriers or recipients, for example), who will be charged fees for that service.

Additional taxes

Just as US states add sales taxes to the purchase price of items sold to their residents, other countries may also levy sales taxes, Goods and Services Tax (GST) or Value Added Tax (VAT) to the price of products sold to their citizens. More than 160 countries charge VAT, including China, India and most of Europe.

The tax rules for every country are different, and the complexities of VAT and other national taxes are outside the scope of this post. But as part of calculating landed cost, merchants need to ensure that they know which national taxes apply to their sales and who is responsible for collecting/paying those taxes.

Currency conversion

You may incur fees when you convert your customer’s foreign currency into your own currency, and these costs should be incorporated into your accounting of landed cost.

Who pays landed cost?

There are two ways to approach landed cost for international shipments. One is to charge the customer a price that covers the landed cost. The other is to require the customer to pay some of those costs directly.

On the one hand, you can use Delivered Duty Paid, in which the seller calculates the cost of the duties into the price charged to the customer. The customer pays the total amount to the seller at the time of purchase and the seller acts as the Importer of Record and takes care of paying the customs fees once they are charged.

When Delivered at Place is used, customers act as the Importer of Record and must pay any duties due in order to receive their package. If you are a merchant using this method, it’s crucial to make it clear to customers that duties will be due upon receipt of the package and help them out by calculating the estimated customs duties.

When you are thinking about having your customer pay costs directly, the key is to know your options and how they may affect your customer’s experience. If you are charging all costs up front, correct calculations are key for making sure you are covering your margins.

Solutions for sellers

For WooCommerce users who want to get landed costs right, the U.S. International Trade Administration of the US Department of Commerce offers information on export processes, finding tariff codes and more.

But even with the right resources, keeping up with landed cost on your own can be a daunting task. Automation, such as Avalara’s LandedCost, can help. Avalara’s LandedCost calculator determines duty rates and accounts for all costs, duties, tariffs and taxes in order to calculate the correct total landed cost. It integrates seamlessly into WooCommerce to provides a simple solution for getting landed cost right.

There are many reasons a company can run in to sales tax hurles, to learn more download this FREE white paper: 5 reasons why growing companies create sales tax challenges

Published by Whitney Williams

Whitney is a Partner Alliance Manager at Avalara. She helps eCommerce partners and merchants learn more about sales tax automation and management.


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