Ok, so now you have received a quotation from this Chinese supplier you selected.
Next step: calculate how this quote will convert into a successful, aggressive selling price that will help you win your client!
Import costing can be dangerous, as slight mistakes can have a disastrous impact on your margin, and you could end up running your import operation at your own costs…
So here are 5 tips on how to properly cost an import project:
1. Get your product purchasing cost (PPC) straight
You must make sure of what is and what isn’t included in the price you got from your supplier.
The first, obvious verification is to ensure that the price actually corresponds, point by point, to your product as specified: make sure that no option is left un-covered and that the quotation is really all-inclusive. Classic mistakes here are: not checking that the packaging or labelling are included, or that additional expenses will be needed such as mould setup.
Another important point to agree upon with your supplier is the incoterm included in the quotation. Are you supposed to take property of the goods right from the factory (ex-works pricing), or once the products are loaded onto the boat (FOB pricing)? This obviously greatly impacts your costs – be careful, as a lot of different terms can be used.
2. Calculate your freight cost
Here you will need to get quotations from Freight Forwarders. The first thing is for you to decide what freight mode you need. The 3 main options are: sea freight (cheapest, longest mode), air freight (most expensive, quickest mode) and sea & air (a mix of both, less used). Consider your shipment volume and weight as well: air freight can be cost-efficient if you have low quantities or very light products.
Once decided on the freight mode, make sure you get the origin and destination addresses correct; most forwarders are able to quote based on a region and not necessarily a specific city.
Ask for quotations, and make sure to check all the details; here as well, it is important to check that everything is included. Freight forwarders have to include in their quotation the basic freight cost as well as a number of taxes and fixed charges incurred when dealing with international logistics. You may also ask forwarders to include insurance in the quotation.
3. Estimate duties
This is where is becomes tricky. Importing products is subject to custom duties levied by the country where you plan to ship your goods. To get the applicable duty, you need to know what category your products fall in, under the Harmonized Tariff Schedule (HTS codes). Your Forwarder can help, your local custom bureau can help, and online services such as AsiaCalculator can help as well.
From one product category to the other, even for very similar products, duties may vary from 0 to 10% of the imported cost!
Remember that Custom duties apply to the total value of your imported goods as they enter the territory (e.g.: purchasing cost + freight + insurance).
4. Be sure to include all costs
Make sure you don’t forget to include any side cost into your landed cost calculation. Side costs may come from the quality control and testing you will need to implement, the specific logistic operations that will happen once the goods land at destination (ex: palletizing, storage…) or additional costs incurred at the source for your product manufacturing (design, moulding…).
5. Add up your margin
Once you have a proper and accurate sum of all your costs, it is time to make money! Add up your sales margin, and get your selling price.
It is wise to add up an extra few percent to your margin, to cover up for unexpected events such as currency exchange fluctuation, or raw material costs rise.
This is also why it is strongly advised to set a validity date to your sales quotation – 30 days is usually enough.