Enter your idea

“Additional Item Costs” for Xero Products & Services
Executive Summary
Xero currently allows businesses to track basic purchase and sale prices for inventory items through its Products & Services functionality. However, in many industries, the true cost of an item extends far beyond its base purchase price — including shipping, customs, storage, Amazon FBA fees, handling charges, and other operational costs.

Currently, these additional costs are not captured at the item level in Xero’s core inventory and reporting features, resulting in understated COGS and inflated profit figures.

This proposal introduces an “Additional Item Costs” feature within Xero’s Products & Services and Invoicing modules. The enhancement will allow businesses to allocate supplementary costs to inventory items — either at purchase, upon receipt, or periodically — ensuring that financial reports reflect true profitability. The feature will be optional, designed to integrate seamlessly without disrupting existing workflows.

By implementing this, Xero can differentiate itself from QuickBooks and other competitors by offering richer, more accurate profitability reporting for inventory-based businesses, especially in eCommerce, wholesale, and import/export sectors.

Problem Statement
Current Limitation:

Xero’s inventory tracking records a single purchase price per item.

COGS reports only reflect that base purchase price, ignoring significant additional costs such as:

Freight and shipping fees

Customs duties and tariffs

Amazon FBA / 3PL fulfillment fees

Warehousing or storage fees

Special handling or packaging costs

These costs are either:

Recorded in unrelated expense accounts (making item-level profitability analysis impossible), or

Spread manually across purchases outside of Xero’s automated workflows.

Impact:

Inaccurate Profit Analysis: Profit margins are overstated, sometimes by large percentages.

Inefficient Manual Workarounds: Businesses manually adjust margins in spreadsheets outside of Xero.

Poor Decision-Making: Pricing, supplier negotiations, and purchasing decisions are made on incomplete data.

Competitive Weakness: Rival platforms and ERP systems (e.g., Unleashed, DEAR Systems) offer landed-cost allocation features, attracting advanced inventory users away from Xero.

Example Scenario:
A business purchases 1,000 units of a product at £10 each (£10,000 total). Shipping costs £2,000 and customs duties add £500. Xero currently records the purchase cost as £10/unit and ignores the £2,500 in additional costs. Reports show a COGS of £10/unit instead of £12.50/unit, leading to inflated profits and misleading financial KPIs.

Proposed Solution – “Additional Item Costs” Feature
Core Functionality
Additional Costs at Purchase

When entering a bill or purchase order for stock items, users can add supplementary cost lines tagged as “Additional Item Costs.”

These costs can be:

Applied proportionally across all items in the purchase (default).

Applied to specific SKUs only.

Post-Purchase Cost Allocation

Users can add costs after stock is received (e.g., separate freight invoice), and Xero will retroactively adjust the average cost per unit for remaining stock.

Cost Categories (configurable by the user):

Shipping & Freight

Customs & Duties

Storage/Warehousing

Fulfillment Fees (Amazon FBA, 3PL)

Miscellaneous Handling Costs

Integration with COGS Calculation

Additional costs are rolled into the item’s cost price for COGS purposes.

Reports (Profit & Loss, Inventory Item Summary) will reflect the true landed cost of items sold.

Optional Feature

Businesses that do not require complex cost tracking can keep current workflows unchanged.

Enabled via a toggle in Inventory Settings.

Business Benefits
For Users:

Accurate Profitability: Real margin visibility, enabling better pricing and purchasing decisions.

Time Savings: Elimination of manual landed-cost spreadsheets.

Better Cash Flow Planning: True cost per unit supports more accurate forecasting.

Scalability: Feature supports growth into importing, multi-channel selling, or high-volume fulfillment.

For Xero:

Competitive Differentiation: Matches or exceeds functionality in QuickBooks, Zoho Books, and ERP-lite competitors.

Retention of Growing Businesses: Prevents migration to specialist inventory systems as users scale.

Upsell Potential: Could be offered as part of an “Advanced Inventory” tier.

Market Appeal: Stronger fit for eCommerce, wholesale, and import/export — high-growth sectors for cloud accounting adoption.

Technical Implementation Considerations
1. Data Model Changes

Extend InventoryItem schema to include an AdditionalCosts[] array or linked ItemCostAllocation table with:

Cost Type (enum)

Amount (numeric)

Allocation Method (pro-rata by quantity, weight, value)

Allocation Date

I agree that the two requests are similar and should be combined.

When I order Goods for inventory the cost of shipping is charged by the seller to me and itemised on the bill. From my perspective, this forms part of the cost of the products purchased on the same bill.
The COST price ought include specifically the shipping on inwards inventory (averaged over all the items on a bill) to calculate the cost price when the items are entered on inventory items.

How I do it today : I make a complex calculation of all overheads including shipping which is manually added to the cost price plus profit margin to make the selling price. Its pretty laborious, and subject to errors in calculations.
But technically, the inwards shipping is part of the actual cost of the product, and separate to general overheads.
I would like the option to prorate a shipping charge on a bill by value across all the non-shipping items on a bill to determine the cost price entered into inventory by way of a form control added to the billing form.
This would act to transact shipping costs directly attributable to inventory assigned directly to inventory costs, as they are not really overhead expenses. It will make the reported cost of inventory more accurate.

Then, other overheads (Advertising, Power, Internet etc) and profit margin are later added to the cost price to form the selling price.

Further, it ought to be possible for Xero to automatically have a set of rules to calculate overheads and margins that are automatically used to adjust selling price, perhaps a periodical batch process. Is this even possible ?

The option to allocate additional costs to inventory, such as freight, customs duty, modifications, and alterations, is a basic feature for most traders. To Accurately calculating the actual cost and margin of inventory the option to allocate cost is essential for the organisation.
It is surprising that Xero does not offer this feature, which is a crucial requirement for many organizations. As a result, many of my customers choose not to use Xero, despite its numerous other beneficial features.

Xero can implement a basic Goods Receipt screen where users can confirm the actual quantities received against a purchase order, as well as record additional costs documents for freight and duty costs.

These additional costs documents can be entered against an "Inventory" account type (say for Importation Costs), so that the costs are associated as cost of inventory.

On the screen the user can see the additional costs being apportioned to each item in the Goods Receipt screen. With the newly calculated item costs now appearing on the screen, Xero can use this new value to set the product costs value when posting the product into inventory. This new cost (which includes the import and duty costs) will be used in the PL to calculate the COGS when an invoice is created.

As a distributor of imported goods, not being able to allocate Duty and Freight Costs to inventory is motivating me to look for another accounting package.

Definitely need this

Yes, we definitely need this!

This would be invaluable. Yes please.

Ability to include freight into the cost of inventory.

Purpose: For some businesses, freight is a significant portion of the value to determine the cost of an item.