Managing Your Landed Costs with Zoho Books in the UAE
For any business in the UAE that imports goods, the price paid to the supplier is only the beginning of the story. The true cost of a product—the cost that should be used to determine your selling price and profit margins—is its **landed cost**. This is the total expense incurred to get a product from the factory floor to your warehouse door. Failing to accurately track and allocate these costs is one of the most common yet significant errors an import business can make.
- Managing Your Landed Costs with Zoho Books in the UAE
- What Are Landed Costs and Why Do They Matter?
- How to Manage Landed Costs in Zoho Books: A Step-by-Step Guide
- Expert Zoho Books Implementation with Excellence Accounting Services (EAS)
- Frequently Asked Questions (FAQs)
- Do You Know the True Cost of Your Products?
Manually calculating landed costs using spreadsheets is a complex, error-prone nightmare. How do you accurately spread a single shipping and customs bill across hundreds of different items in a container? The result of guesswork is almost always inaccurate inventory valuation, flawed profitability analysis, and poor pricing decisions. This is where a powerful accounting tool with a dedicated feature for this exact problem becomes indispensable.
This guide provides a deep dive into managing landed costs using the built-in features of Zoho Books. We will explain what landed costs are, why they are critical, and provide a step-by-step walkthrough of how to use Zoho Books to automate this process. Mastering this feature is essential for any UAE importer looking to gain true visibility into their product costs and overall profitability.
Key Takeaways
- Landed Cost is the True Cost: It includes the original purchase price plus all associated costs like shipping, customs duties, insurance, and handling fees.
- Capitalize, Don’t Expense: Landed costs must be added to the value of your inventory on the Balance Sheet (capitalized), not immediately expensed on the Profit & Loss statement.
- Manual Tracking is Inaccurate: Using spreadsheets to allocate freight and customs costs across multiple items is inefficient and almost always leads to incorrect product costs.
- Zoho Books Automates Allocation: Zoho Books has a dedicated Landed Costs feature that allows you to automatically allocate these additional costs to your inventory items based on quantity or value.
- Accurate Data Drives Better Decisions: By tracking true landed costs, you can set correct selling prices, understand true product margins, and make informed decisions about which products are most profitable.
What Are Landed Costs and Why Do They Matter?
The landed cost is the total cost of a product or shipment. It’s not just the price on the supplier’s invoice; it’s the sum of all costs associated with bringing that product into your possession and ready for sale. The core components include:
- Purchase Price: The original cost of the goods.
- Shipping & Freight: Costs for ocean, air, or land transport.
- Customs & Duties: UAE customs duties, excise tax, and other import taxes.
- Insurance: The cost to insure the goods during transit.
- Handling & Port Fees: Charges for loading, unloading, and port services.
- Other Fees: Bank charges, inspection fees, or agent commissions.
From an accounting perspective, these costs are part of acquiring the asset (your inventory). Therefore, they must be capitalized—added to the inventory’s value on your balance sheet. When you eventually sell the product, this full landed cost becomes your Cost of Goods Sold (COGS). If you incorrectly expense shipping costs immediately, you understate your inventory’s value and overstate your COGS in the initial period, leading to a completely skewed view of your gross profit.
If your business imports goods and you aren’t tracking landed costs, you don’t know your true product profitability. It’s that simple.
How to Manage Landed Costs in Zoho Books: A Step-by-Step Guide
Zoho Books removes the complexity of manual allocation with its dedicated Landed Costs feature. Here’s how it works.
Step 1: Record the Bill for Your Products
First, create a standard bill in Zoho Books for the goods you purchased from your overseas supplier. This bill will only contain the items and their purchase prices. This is the base cost of your inventory.
Step 2: Record the Bills for Additional Costs
You will receive separate invoices from your shipping agent, your customs broker, and your insurance provider. Create separate bills in Zoho Books for each of these services. For example, you will have one bill from DHL for freight and another from a clearing agent for customs duties.
Step 3: Associate Landed Costs with the Product Bill
This is the crucial step. Open the original bill for the products (from Step 1). You will see a button or option to **”Add Landed Costs”**. When you click this, Zoho Books will allow you to select the other bills you created in Step 2 (the bills for shipping, customs, etc.).
You are essentially telling Zoho Books: “The costs on these other bills belong to the items on this product bill.”
Step 4: Allocate the Costs
Once you’ve selected the cost bills, Zoho Books will ask you how you want to allocate these additional costs across the different items on the product bill. You have two primary options:
- Allocate by Quantity: This method distributes the cost based on the number of units. It’s best used when the items are of similar size and weight (e.g., a container of 1000 identical t-shirts).
- Allocate by Value: This method distributes the cost based on the value of the items. It’s ideal when a shipment contains items of vastly different sizes, weights, and values (e.g., a container with a few large, expensive machines and many small, cheap accessories).
After you choose the allocation method and save, Zoho Books automatically does the math. It calculates the portion of the freight, customs, and insurance that applies to each individual item and adds it to that item’s value in your inventory system.
The Result: True Inventory Valuation
Your inventory asset account on the Balance Sheet now reflects the true, full cost of your products. When you sell an item, the COGS recorded on your Profit & Loss statement will be this accurate landed cost, giving you a precise measure of your gross profit on that sale. This level of accuracy is fundamental to a well-managed accounting and bookkeeping function.
Expert Zoho Books Implementation with Excellence Accounting Services (EAS)
The Landed Costs feature is powerful, but like any advanced tool, it needs to be set up and used correctly. EAS provides expert accounting system implementation services to ensure your import business leverages the full power of Zoho Books.
- Chart of Accounts for Importers: We design and set up a Chart of Accounts specifically for businesses that import, including the necessary clearing accounts for landed costs.
- Inventory Management Setup: We ensure your inventory items are set up correctly in Zoho Books to enable features like landed cost tracking.
- Hands-On Training: Our team provides practical training for your staff on the end-to-end process, from creating bills to allocating landed costs, ensuring they can manage the process efficiently.
- Process Review and Optimization: For existing Zoho Books users, we can review your current processes, clean up historical data, and optimize your setup for better inventory and cost management. This is a key part of our CFO services.
Frequently Asked Questions (FAQs)
This is a common problem, as the freight bill might arrive weeks later. The best practice is to use a reasonable estimate. You can create a bill for the estimated landed costs and allocate it. Later, when the actual bill arrives, you can adjust the original bill to reflect the actual cost. Zoho Books will then re-allocate the correct amounts.
In this case, you would need to manually split the single shipping bill. You would determine what portion of the cost applies to each product shipment (e.g., based on weight or volume) and then apply the relevant portion as a landed cost to each respective product bill within Zoho Books.
Imagine a shipment with one heavy, cheap item (100kg of iron bars worth AED 1,000) and one light, expensive item (1kg of electronics worth AED 10,000). A AED 500 freight charge allocated by **Quantity** (or weight) would put most of the cost on the iron bars. Allocated by **Value**, it would correctly put most of the cost on the valuable electronics, giving a more accurate reflection of the true cost of each item.
No. Landed costs must be added before the items are sold. This is because the cost allocation adjusts the inventory value, and that value is used to calculate the Cost of Goods Sold at the moment of sale. If the item is already sold, its COGS has already been recorded, and Zoho Books will prevent you from changing its historical cost basis.
The landed cost allocation itself is an internal accounting adjustment and doesn’t directly affect your VAT calculation. Your input VAT reclaim is based on the VAT charged on the individual bills (the product bill, the shipping bill, the customs clearance bill). However, having an accurate product cost is essential for setting a selling price that ensures you are profitable *after* accounting for the 5% output VAT you must charge your customers.
Yes. Zoho Books is designed to handle this. When you allocate landed costs, the additional cost is applied to the specific batch or serial-numbered items in that shipment, ensuring precise cost tracking for each unit.
While this is a common shortcut, it’s highly inaccurate. Shipping and customs costs are rarely a flat percentage of the product value. A heavy, low-value item might have a very high landed cost as a percentage of its price, while a light, high-value item might have a very low one. Using a flat percentage will over-cost some items and under-cost others, distorting your entire profitability analysis.
This is an accounting technique used by professionals. When you create a bill for a landed cost (like freight), instead of booking it to a “Freight Expense” account, you book it to a temporary balance sheet account called “Landed Cost Clearing.” When you then allocate this cost to your inventory, the entry moves the value from the clearing account to the inventory account. This ensures the cost is never accidentally expensed.
No. You will receive a bill from your customs clearing agent that details the exact amount of customs duty paid. You then enter this amount into Zoho Books as a bill and allocate it as a landed cost. Zoho does not integrate directly with customs authorities to pull rates.
It’s fundamental. If you think a product costs you AED 100 but its true landed cost is AED 120, you might price it at AED 150 thinking you have a 50% markup. In reality, your markup is only 25%. Knowing the true landed cost allows you to set prices that guarantee your target profit margin on every single product.
Conclusion: From an Estimated Cost to a True Cost
For any UAE business involved in importing, moving from an estimated product cost to a true landed cost is a crucial step in maturing your financial operations. It replaces guesswork with certainty and provides the accurate data needed for sound strategic decisions. By leveraging the powerful, built-in Landed Costs feature in Zoho Books, you can automate this complex process, ensuring your inventory is correctly valued, your profit margins are accurately measured, and your business is positioned for sustainable success.
Do You Know the True Cost of Your Products?
Partner with Excellence Accounting Services to implement Zoho Books correctly and master the tools you need for precise inventory and cost management.
