The Procurement Glossary » Cost Breakdown

Cost Breakdown

Sourcing & RFx

Definition

An itemised disclosure of the components that make up a supplier's price, such as materials, labour, freight, overhead and margin.

Explanation

Requesting a cost breakdown (or 'open-book' pricing) improves transparency and gives the buyer targets for negotiation and cost reduction. It is common in strategic categories and long-term partnerships where both sides work to take cost out.

Example

The supplier's cost breakdown shows freight is 18% of price, prompting a switch to consolidated monthly deliveries.

Related terms

• Should-Cost Analysis — A bottom-up estimate of what a product or service ought to cost, built from its materials, labour, overhead and reasonable margin.
• Open-Book Costing — A pricing arrangement in which the supplier discloses its actual costs and agreed margin, so the buyer can see how the price is built up.
• Negotiation — The discussion between buyer and supplier to agree price, terms and conditions before a contract or order is placed.
• Total Cost of Ownership (TCO) — The full lifetime cost of a purchase — not just the price, but delivery, installation, operation, maintenance, downtime and disposal.

Frequently Asked Questions

What is Cost Breakdown?

An itemised disclosure of the components that make up a supplier's price, such as materials, labour, freight, overhead and margin. Requesting a cost breakdown (or 'open-book' pricing) improves transparency and gives the buyer targets for negotiation and cost reduction. It is common in strategic categories and long-term partnerships where both sides work to take cost out.

Can you give an example of Cost Breakdown?

The supplier's cost breakdown shows freight is 18% of price, prompting a switch to consolidated monthly deliveries.

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