Lapasar
Spend & Cost Management

Cost Driver

A cost driver is a factor that causes the cost of an activity or product to rise or fall, such as volume, complexity or raw-material prices.

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Understanding cost drivers explains why something costs what it does. In procurement, drivers might include the price of a key raw material, order volume, delivery distance, specification complexity or the number of suppliers involved. Isolating them turns a fixed-looking price into a set of levers that can be pulled to reduce cost.

Cost-driver analysis underpins should-cost modelling and negotiation: if a buyer knows that a metal component's price is driven mainly by the underlying commodity, it can index the contract or time purchases sensibly rather than simply haggling. Managing the biggest drivers is usually where the largest, most durable savings sit.

Frequently asked questions

What is a cost driver?
A cost driver is a factor that causes a cost to rise or fall — such as order volume, specification complexity, delivery distance or raw-material prices. Identifying them reveals where costs can be influenced.
Why are cost drivers important in procurement?
They explain why a price is what it is and expose the levers that can lower it, making negotiation, should-cost analysis and category strategy far more effective.

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