Figuring out the Landed Cost, also called Validation, is a great place to set the foundation for sourcing your product. During Validation, you can organize your project and get everything in place for the full sourcing. For most projects, this should be the first natural step in starting your sourcing journey or second only to selecting your product idea and developing a product spec sheet. This step also calculates the landed costs of an item.

Most of the time, we feel it’s wise to validate the final product specification sheet or when you have a vague idea about a product or a niche a client wishes to tackle. Validation allows you to determine if your product can be made, and if so, will it be profitable?

Validation is NOT full sourcing, but it is a complimentary service done in advance to set the foundation for sourcing later. Its purpose is to determine a product's feasibility and get an early cost analysis.

What is Landed Cost?

Knowing the Landed costs helps determine if your product can be manufactured, estimates how much it will cost, and provides insight into any regulatory, customs, or manufacturing challenges you might encounter.

The goal of a product validation report is:

To determine if your product can be made.
If a factory can make it, can it be profitable and made as you want
To determine what manufacturing capabilities are needed.
A high and low examination of the total landed cost.
A high and low estimation of the lead time for manufacturing
Regulatory issues or compliance needed for product
Any tariffs or duties on your product.

This section will cover each step to source your product confidently.

Why Validate Your Product?

There are several reasons to validate your product before starting with sourcing: Due Diligence, cost analysis, and anticipating challenges in advance.

Due Diligence

Product validation is about doing due diligence on a product to ensure it is feasible and worth the money and effort to manufacture it. It will uncover your product’s duties, tariffs, customs, and import fees. Validation should also find any certification and compliance issues your product may have. Unfortunately, too many buyers trust their suppliers or freight forwarders to resolve these issues. In reality, the buyer is responsible for knowing what is needed to import a product into their respective country.

Figure out the Landed Cost

The landed cost is the total cost to get your product made and shipped to its final destination, which is usually an Amazon fulfillment center, a 3rd party fulfillment center, or your business.

Landed Cost = Total Manufacturing Cost + Fixed cost + Shipping + packaging + Duty/Fees/Customs

Product Validation will give you an early cost analysis of your product to determine the cost and see if your product will be profitable. The goal is to determine the total landed cost to manufacture, ship, prep, and fulfill a product batch. In the end, you should get the total manufacturing cost + fixed cost + shipping + duty/fees/customs to end up with the total. Next, you should research similar products already on the market to determine their feasibility.

The rule of thumb is ⅓ for making and shipping your product +⅓ to pay to Amazon + ⅓ for yourself (profit).

Many people will start at the end and determine the ideal landed cost, while others will start with the manufacturing cost and determine the final target price. Ultimately, the profit margins and final pricing (what you’ll charge the end customer) are up to you.

A screenshot of a completed pricing breakdown

OF NOTE: Two types of product validation are pretty different–manufacturing and marketing validation. Marketing validation is when you test the market to see if there is any demand for your product, while manufacturing validation determines if and what it takes to make it. While Cosmo offers manufacturing validation, we do not currently provide market validation.

What do you need to start?

A product specification sheet is the only thing you need to start validation. How detailed the product specifications sheet is will depend on the product and your progress. Since this is early sourcing, the goal is to get basic quotes and determine if a product can be made and what it takes to make it. There is no need to worry if you don’t have every tiny detail of your product figured out. If you don’t have a product specification sheet yet, check out our guide on creating one: https://www.cosmosourcing.com/blog/how-to-create-a-great-product-specification-sheet.

Some people know exactly what they want and will have a fully detailed product spec sheet before they start validation. Some people will begin product validation with a basic product specification sheet and then refine and finalize the product spec sheet at the end of the validation phase. There are many reasons to keep your product specification sheet flexible. For example, you may not know what it takes to create your product, so you make the final sheet based on the manufacturing requirements. Perhaps you learn that a supplier offers a broader range of customization than expected.

To be clear, the more detailed your product specification, the more precise your responses will be. Since we are getting estimations, the highs and lows will align with the end numbers with a more detailed product spec sheet.

How to do Product Validation

Product validation isn’t overly complicated. We broke it down into a few simple steps for you to complete. When you are done, you should have all the necessary information to start souring.

Find Suitable Factories for Quotes

As mentioned earlier, product validation should set the foundation for the sourcing stage. Thus, when looking for factories and suppliers for this step, you ensure they are good enough to use later. Generally, I do a simple search for factories in this step, while in the sourcing step, I go into extreme depth, using a wide range of resources such as customs data, trade shows, and more.

During the product validation phase, you only need to use websites such as Alibaba, Global Sources, or Made in China. You can see a complete list of sites where you can find suppliers here: https://www.cosmosourcing.com/blog/how-to-create-a-great-product-specification-sheet. Then, search for your product; you should get a decent list of potential suppliers. Once you find suppliers, you can move on to the next step.

Reach out to the suppliers, get quotes & manufacturing details

During the product validation phase, you should seek soft quotes. Soft quotes are quick quotes provided by a supplier to give you a solid idea of the price instead of a hard quote that is definitive and can be acted on.

In the previous steps, you should have prepared a product spec sheet and a request for a quote (RFQ). When you message a supplier, this is the first time you should send messages to potential suppliers. You should use the previously created RFQ and attach your product spec sheet. You should also use the free “request for quote” tools that Alibaba and other sourcing websites offer.

You can Follow the “Submit RFQ” or “One Request, Multiple Quote” to submit your RFQ. Both links go o the same page.

When messaging suppliers, you should include all relevant product details, your expected order quantity, and which country you are shipping to, and ask them to create a quote for you. Since, at this point, you’re just getting a basic soft quote, you do not need to pry into too much detail. Please keep it simple for now, as we’ll get into much more complexity later in the sourcing process.

I usually only message a few factories at first. I like to use one trick to start with factories that I think are good but not great. The reason for this is I want to gauge the response of the factories and tweak my message to get a better response from my preferred potential suppliers.

When you have established contact with a few factories, please ask them for details about their factory and what it takes to make your product. For instance, if you need fabric printing done, ask about sublimation or screen printing; if you don’t know the difference, ask them to show you. They’ll likely answer in detail; as a result, you’ll know more about that aspect of manufacturing, and you can tweak your product spec sheet or message accordingly. So take advantage of this step to learn all the details about your product.

A good factory, or at least one good at establishing a relationship with their customers, will be able and willing to answer most of your questions, including the basic ones. When you first talk to a supplier, it is the best time to ask about the items you want and need to know about the product. Once you get to the complete sourcing phase, you should be an expert in your product and what it takes to make it. Then, after a bit of back and forth, be sure to thank them for their time and tell them that you will get back to them later about the full order.

Organizing Quotes

As stated earlier, validation sets a foundation for the full sourcing phase. Because organizing your quotes and responses is one of the critical building blocks of sourcing, we use the same Excel spreadsheet in the full sourcing report.

You should have responses from about a dozen or more suppliers by now. Using Excel, separate the following information into different cells:

Input this info across the top row:

Suppliers name
Website
Contact name
Supplier Email
MOQ (Minimum Order Quantity)
Cost Per Unit
Product Cost
Shipping
Notes
Total Cost (MOQ x Cost per unit)

And down the first column, add the names of your suppliers.

With this info, you should have a basic but well-organized spreadsheet to manage the quotes and factories. Our spreadsheet has significantly more details, but this should be sufficient for most people.

When making the estimations, only include quotes you view as legitimate. Since there is no correct method, it ends up as something you’ll perfect the more you do it. Regardless, we did try to summarize the best strategies here: https://www.cosmosourcing.com/blog/how-to-avoid-scams-when-sourcing-for-fba-china-vietnam.

Get Shipping Quotes

When talking to some of your potential suppliers, you should ask them about the packaging method. Usually, items are placed individually in a box, and then those boxes are placed in a larger box, often called a master carton. So first, you should ask them about the weight, dimensions, and quantity of the master carton, and from there, use one of the free online tools to get shipping quotes.

I have a few freight forwarders that I reach out to get early quotes, but there are some free tools that you can check out:

The below items are the information you’ll need to get a quote from a freight forwarder.

HS or HTS code
Master Carton Dimensions (HxWxD)
Total number of cartons
Carton weight
Carton gross weight
Incoterm
Origin
Destination

Since we are just getting a solid estimation, most people do not need to contact freight forwarders, which we will discuss in more detail. Shipping by sea will be significantly cheaper than shipping by air. However, shipping by air will be quicker.

Another aspect to keep in mind is the Incoterms. These are the shipping terms for your products. Incoterms will be discussed in a later chapter, or you can read the blog post about them here: https://www.cosmosourcing.com/blog/incoterms-defined-fob-exw.

Since we are keeping it simple, ask your supplier to quote EXW (items available at the factory) and FOB (available to pick up at the closest port to the factory). When getting a quote from your factory, you must specify shipping terms and inform the freight forwarder of the terms. It’s much easier for a freight forwarder to pick up the goods at a port, and most of our projects use FOB.

How to find the tariffs of your product

By now, you should know that the US has imposed a 10% tariff on around $200 Billion worth of goods exported from China into the United States and is expected to rise to 25% on March 1st, pending a lack of a trade agreement. [Update May 2020: No agreement was reached, and there are now tariffs on $550 Billion, or 83%, of all Chinese goods imported into the US] Now, there is a great deal of uncertainty with the tariffs, but we will let you know how you can navigate it the best that you can. Even before the current trade dispute, buyers still had to pay duties and customs fees on a wide range of products shipped into the United States.

We wrote a more in-depth guide here: https://www.cosmosourcing.com/blog/guide-to-tariffs-customs-duty-import.

This section is written from an American perspective, but the process is relatively similar in Canada and the European Union.

Figuring out the HTS Code

One of the big things you need to know about your product is the HTS Code. HTS stands for Harmonized Tariff Schedule, and the US’s system determines what tariffs are placed on a product. Therefore, any product imported into the US must be accurately classified by its HTS code, and USCBP will apply the tariffs accordingly. The HTS code is based on the International Harmonized System, a globally recognized trade classification system.

This part can be difficult, especially if it’s a new product that takes a decent amount of searching to find the right product category. Of course, if you’re importing an existing product, then it should have a classification. But if you are importing a new product that does not exist in the market, the easiest way to do it is to look for similar items or items made of the same material.

You can freely search the US database here: https://hts.usitc.gov/.

In the end, you should have an 8-10 digit number (####.##.####) that corresponds to your product. Now that you have that figured out, you can look up the tariffs.

Looking up the Tariffs of Your Product

This is for importing into the United States; however, almost every other country posts the rates on a publicly available government website. Mostly, the rates will be done by the department or ministry that handles trade. You can use the same HTS tool to look up your tariffs as you did to look up the HTS code: https://hts.usitc.gov/.

If you are importing from China into the United States, you can view the complete list of affected products and their tariffs here [PDF Warning]: https://ustr.gov/sites/default/files/2018-13248.pdf

Want to avoid tariffs?

Are you looking to avoid tariffs on Chinese goods? Sourcing from Vietnam is one of your best options. Cosmo Sourcing has been helping clients find suppliers in Vietnam since 2013 and will expand our services in the coming year. If interested, check out our Vietnam Sourcing page or contact info@cosmosourcing.com.

Existing Tariffs and Duty Taxes

Remember that there are still existing duties and fees applicable to most products in addition to the new tariffs. You should find the existing duties using the same link to the HTS database. This database has the duty listed: https://hts.usitc.gov/

In the above, you’ll notice multiple columns from left to right. They are

Heading/Subheading, which is the HTS Number (4, 6, and 8 digits) Stat Suffix, combined with the Heading/Subheading, is the ten-digit HTS Number.
Article Description
Unit of Quantity
Tariff Rates
- General Rate of Duty
- Special Rate of Duty
- Column 2 Rate of Duty

This is just a quick summary; the full in-depth guide can be found here [PDF Warning] http://www.usitc.gov/documents/hts_external_guide.pdf

How to figure out Regulatory Issues when Importing from China

The most challenging aspect of the validation step is looking up regulatory issues. Unfortunately, there isn’t a centralized database for the regulations needed for each product.

The US’s best resource is Customs and Borders Protection (CBP), which publishes several guides across a huge range of products and classifications. Not sure if what you are importing is a bolt or a screw? They have a guide for that. Are you importing mittens? If they are crocheted or knitted, then–surprise–you’re getting tariffs! You’ll want to sit down for this one … Check out this groundbreaking decision on The difference between candle holders and decorative glass!

To add further complications, agencies such as the FDA and FCC regulate importing goods but defer the enforcement to CBP. If you are importing anything relating to health or food, it’s most likely subjected to FDA approval or regulations. If you are importing an electronic item, particularly one that has radio waves, including but not limited to cellular, wifi, or Bluetooth, you need to get FCC approval. If you are importing natural food items, they are regulated by the Department of Agriculture and may also be subject to the FDA. More agencies have regulations, but the FCC and FDA are the two we encounter the most. Ultimately, it’s up to you to research and find out the regulations.

The CBP is the agency in charge of clearing goods for export, so they are the final authority on this issue. If unsure, you can message the CBP and request a letter to classify or clarify the goods. However, because it is a government agency, it is affected by government shutdowns–so at the time of this writing, it does not respond to any requests. Furthermore, even when the agency is open, there are no guarantees it will respond; if they do, the response can take weeks. Therefore, we recommend you do the research yourself.

You can go to Customs and Border Protection’s website and see the complete list of guides. https://www.cbp.gov/trade/rulings/informed-compliance-publications

You’re Finished with Validation, Now What?

When you finish the product validation report, you will have a Yes or No answer if a product can meet your requirements. If a factory can make it, you will also estimate the total landed cost (manufacturing cost + shipping + duty/fees +, etc.) and any potential regulatory issues.

If the validation comes up with No, a factory cannot make it, or a manufacturer cannot make it profitably, you have two options.

Move on to another product.
Use the info to make radical fundamental changes to your product.

When you come up with Yes, your product can be suitably made to your specifications, and then you can move to the full sourcing phase.

At the end of the product validation step, you should have a much better understanding of your product, the manufacturing requirements, and more. It is common for people to go back and change parts of their product based on the information they learned during validation. One of the reasons is to make it cheaper or easier to make and source. So, at this point, you may want to go back and update your product specification sheet. You can start sourcing your product once you finish the new product spec sheet.

Cosmo Sourcing // Go Straight To The Source!

Do you want our team to find great manufacturers, get quotes, and introduce you directly to great suppliers?

Our Simple Sourcing service is designed to do everything to turn your idea into a shipped product. Our services are designed to do everything to take your idea, turn it into a product, and ship it to the final destination. Cosmo can do everything from creating a product spec sheet to validating, sourcing, ordering, evaluating samples, arranging inspections, finding freight forwarders, quality assurance, negotiations, and shipping. We aim to handle every single step of your business in Vietnam for you.

If you start a new business, finding products and suppliers for your products is one of many things you need to handle. Our services are designed to handle every part of your business in China and Vietnam so you can focus on the rest of growing your own business.

We have helped clients from Fortune 500 companies, brick-and-mortar stores, FBA sellers, and brand-new businesses. So don’t hesitate to contact us and let us know how we can help you.

How To Calculate Landed Costs For Product Sourcing // What Is Landed Cost?