Plenty of importers think they are making money until they do the sums properly. The supplier's invoice looked cheap, the goods sold well, and yet the bank balance does not reflect the profit they expected. The reason is almost always that costs were left out. A full costing of each shipment tells you the truth, and lets you price to earn what you intended.

Start with the landed cost

The landed cost is the total cost of getting the goods to your store, ready to sell. It includes:

  • the price paid to the supplier, converted to shillings at the rate you actually paid;
  • freight and insurance;
  • customs duty and other import levies, including the IDF and RDL described in IDF and RDL explained;
  • import VAT, if you cannot reclaim it;
  • clearing agent fees, port charges, inspection and standards fees;
  • storage or demurrage if the cargo was delayed;
  • transport from the port to your premises;
  • bank charges and exchange costs.

The landed cost calculator adds these up for you, and the import duty calculator works out the duty. See how to calculate import duty on goods for the method.

Treat VAT correctly

If you are registered for VAT, import VAT is generally recoverable, and so is not part of your cost. If you are not registered, it is a real cost that must be built into the price. This single point can change the margin by 16% of the goods' value. Import VAT: how to claim it back explains the claim, and importing goods for resale: VAT and records shows the records to keep. The VAT return calculator shows how the claim fits into your return.

Work out the cost per unit

Divide the total landed cost by the number of units you can actually sell. Allow for breakage, shrinkage and samples. If 1,000 units arrive and 20 are damaged, your cost per sellable unit is higher than the invoice suggests.

Add overheads

A selling price must also cover the cost of running the business: rent, wages, marketing, utilities and the cost of tying up cash. Spread your monthly overheads across the units you expect to sell, or add a percentage. How to price your products and services in Kenya explains how to do it and break-even analysis for small businesses shows how many units you must sell to cover them.

Set the price

Add your target margin to the full cost. If your cost per unit is KES 800 including overheads and you want a 25 percent margin on selling price, the price is 800 ÷ 0.75, about KES 1,067. Then add VAT if you are registered. Compare with competitors: if the market price is lower, you must reduce cost, accept a lower margin or choose a different product. The pricing and markup calculator tests different margins.

Keep the costing for every shipment

Use a workbook so that the costing is done the same way every time, and so you can compare the estimate with the actual. The import duty and landed cost workbook holds the figures for each shipment and the product profitability analyser shows which products earn the most once costs are counted.

Reduce the cost legally

Small improvements add up: consolidating shipments, choosing the right classification, avoiding delays and negotiating freight. How to lower your landed cost legally and storage charges and demurrage explain how. Never reduce duty by under-declaring the value; the penalties far outweigh the saving.

Include the cost of money

If you borrowed to pay for the goods, add the interest. If you paid early, count the time your cash was tied up. A margin of 20 percent that takes six months to collect is worth far less than a 15 percent margin that sells in a month.

Review and adjust

After the stock has sold, compare the actual profit with your estimate. Where did costs differ? Update your next costing with what you learned. Done this way, every shipment improves your estimates, and your pricing becomes grounded in facts instead of hope.

Keep a margin of safety

Prices, rates and delays change. Build a margin of safety into each costing, perhaps five percent of the landed cost, so a small surprise does not erase your profit. If the real cost comes in under the estimate, the difference is a bonus, not a mistake.