The sixty-second answer
Start from landed unit cost, not the invoice: product price plus freight, duty, brokerage and stocking costs, minus any GST/HST you recover [1][4]. Then divide that cost by one minus your target margin. Pricing off invoice cost, or confusing markup with margin, quietly hands part of every sale's profit to your shipping bill [3].
The invoice is not what the product cost you
A supplier invoice tells you what the supplier charged. It does not tell you what it cost to get that product onto your shelf, ready to sell. The CRA's inventory bulletin makes this distinction explicitly: cost means the original cost of an item plus the costs reasonably incurred to bring it to its condition and location, and for merchandise bought for resale that means laid-down cost, including invoice cost, customs and excise duties, transportation and other acquisition costs, and storage where significant [1]. International accounting standards say the same thing in different words [2].
If you import, the gap can be large. The Canada Border Services Agency's importing guide walks through classifying goods, working out value for duty, and paying the duties and taxes that apply before goods are released [5]. Add a customs broker and an inbound freight bill and a product that looked cheap on the invoice can cost noticeably more by the time it is on a shelf.
Even domestic purchases carry freight, fuel surcharges and the labour of receiving, labelling and shelving. None of that appears on the supplier invoice.
What goes into landed unit cost
A practical landed cost has four parts:
- Actual product cost from the supplier invoice, net of any discounts.
- Duties and non-recoverable taxes, such as customs duty on imported goods.
- Shipping: inbound freight, brokerage, fuel surcharges and any courier fees.
- Local stocking costs: receiving, labelling, repackaging or handling that you choose to capitalise.
Freight and duty usually arrive on a separate bill covering several products at once, so they have to be spread. Spreading by value suits duty, which is charged on value. Spreading by quantity suits freight on similar-sized goods. Either is defensible if you apply it consistently.
Recoverable GST/HST is the one line to keep out. A registrant recovers the GST/HST paid on purchases used in commercial activities through input tax credits [4], so that tax is not part of what the product cost the business. If you are not registered, or the item is used in exempt activities and the tax cannot be recovered, it belongs in cost.
Spreading one freight bill across a mixed shipment
Suppose one delivery holds a hundred small parts worth one dollar each and ten tools worth forty dollars each, and the freight bill is fifty dollars. Spread by quantity, each of the hundred and ten units carries about forty-five cents of freight, which adds nearly half to the cost of a one-dollar part and barely touches a forty-dollar tool. Spread by value, the parts carry a fifth of the bill and the tools four fifths, which is usually closer to how freight and duty are really charged.
Neither answer is wrong in law, but the choice changes which products look profitable. Pick the basis that matches how the cost was really incurred, apply it the same way every time, and your per-item margins stay comparable from one shipment to the next.
Markup and margin are not the same number
This is the second place money leaks. Markup is profit expressed as a percentage of cost. Margin is profit expressed as a percentage of the selling price. BDC defines gross margin as gross profit divided by revenue, times one hundred, where gross profit is revenue less cost of goods sold [3]. That is the same gross profit your corporation reports on its return, where GIFI item 8519 is total sales less cost of sales [6].
Take a product with a landed cost of ten dollars. Mark it up fifty percent and you sell it for fifteen. Your profit is five, which is fifty percent of cost but only thirty-three percent of the price. If your plan assumed a fifty percent margin, you are about seventeen points short, on every unit.
The conversion is simple once you see it. A margin target of forty percent means cost must be sixty percent of the price, so price equals cost divided by 0.6. A landed cost of twelve dollars gives a price of twenty. The general formula is price equals landed cost divided by one minus the target margin.
How invoice pricing quietly loses money
Put the two mistakes together. Suppose the invoice cost is ten dollars and freight, duty and brokerage add two dollars more, so landed cost is twelve. The owner prices at a fifty percent markup on the invoice: fifteen dollars. The real profit is three, which is a twenty percent margin, not the thirty-three they thought they had and nowhere near the fifty they believed they were charging.
Nothing breaks on the day. Sales look healthy, the till balances, and the freight bill is paid from the general account. The shortfall only appears at year end, when cost of sales is higher than expected and gross profit is thin. BDC calls gross margin the first stage of analysing financial performance and warns that inconsistent cost allocation makes it hard to compare periods [3]. Pricing off the invoice is exactly that kind of inconsistency: one set of costs sets the price, another set shows up in the accounts.
Recheck prices when landed cost moves
Landed cost is not fixed. A supplier increase, a freight rate change, a switch from sea to air, a new duty rate or a smaller order that loses a volume discount all move it. If you use a running average cost, every receipt nudges the average and the margin on your existing price moves with it.
The fix is a habit, not a formula: after each significant receipt, look at the margin on the items it touched. If the real margin has dropped below target, decide deliberately whether to reprice, absorb it for now, or change supplier or shipping method. The mistake is not noticing.
The calculated price is a floor, not the answer
A price derived from landed cost and target margin tells you the lowest price that still delivers the margin you planned. The market sets the rest. You may round to a familiar price point, match a competitor, or charge more for something customers value highly. What matters is that you know the margin you are accepting when you do.
The same thinking applies at year end in reverse. Inventory is carried at the lower of cost and net realisable value [2], so a product priced below its landed cost, or that will only clear at a deep discount, may need writing down [1]. Pricing from landed cost from the start makes those write-downs rarer.
Doing this without a spreadsheet for every shipment
MapleInventory records each receipt with its product cost and then lets you add the freight and duty bill, spreading it by value or by quantity across the items on that receipt, with local stocking costs as a separate line. Recoverable GST/HST stays out of cost by default. The item's weighted-average landed cost updates on receipt, you set the retail price, and if you set a target margin it suggests a price using the margin formula above.
The resale inventory report then shows, for each item, the unit cost split into actual, tax and duty, shipping and stocking, alongside the landed cost, retail price and margin percentage, by category, location or vendor, with a CSV export and a Maple-AI written summary of what the report shows.