Price & Cost Benchmarking
A transparent comparison scenario
Fictional worked example. All organisations, transactions, scores and comparison figures in this report are illustrative. This is not customer data or a current market benchmark.
Comparison overview
The reference prices below are invented inputs used to demonstrate the calculation.
Two alternatives, not one combined saving
This sample shows how matching units, specifications and volumes can expose a price gap. Reference A and B are hypothetical alternatives. They are not industry medians, peer percentiles, supplier quotes or a live benchmark database.
Inputs and calculations
All prices are USD per comparable unit, excluding tax, freight and implementation costs.
| Purchase group | Annual units | Current price | Reference A | Reference B | Current annual spend |
|---|---|---|---|---|---|
| Indirect materials | 200,000 | $120 | $110 | $100 | $24,000,000 |
| Freight shipments | 200,000 | $90 | $84 | $81 | $18,000,000 |
| Professional service days | 12,000 | $1,000 | $900 | $850 | $12,000,000 |
| MRO items | 100,000 | $60 | $54 | $51 | $6,000,000 |
| Total | — | — | — | — | $60,000,000 |
Calculation: annual opportunity = annual units × (current unit price − reference unit price). For indirect materials, reference A gives 200,000 × ($120 − $110) = $2,000,000.
Where the price differences matter
| Purchase group | Reference A gap | Reference B gap |
|---|---|---|
| Indirect materials | $2,000,000 | $4,000,000 |
| Freight shipments | $1,200,000 | $1,800,000 |
| Professional service days | $1,200,000 | $1,800,000 |
| MRO items | $600,000 | $900,000 |
| Total | $5,000,000 | $8,500,000 |
The totals represent alternative scenarios: 8.3% and 14.2% of current spend. Do not add them together. Neither amount is a realised saving.
Validate before negotiating
A lower unit price is useful only when the commercial and service scope is comparable.
| Check | Required evidence |
|---|---|
| Specification and service | Matching product, quality, service level and delivery terms |
| Volume and timing | Comparable quantities, order pattern and quote validity |
| Currency and cost scope | Aligned exchange-rate date, freight, duties, tax and rebates |
| Supplier feasibility | Qualified alternatives, capacity and transition costs |
| Benchmark provenance | Named source, permission to use it, observation dates and sample definition |
No external benchmark dataset was used in this fictional example. A real report should show the provenance and date of each comparison, explain exclusions and leave unsupported comparisons unavailable.
Action plan
Use validated differences to prioritise a sourcing decision.
From a price gap to a sourcing decision
- Match the purchase Confirm specification, units and volumes
- Test alternatives Get qualified quotes and validate service
- Approve the case Include transition costs and constraints
- Measure the result Compare actual paid prices to the baseline
| Stage | Action | Decision |
|---|---|---|
| Weeks 1–2 | Confirm volumes and comparable units | Approve the comparison baseline |
| Weeks 3–6 | Obtain qualified quotes and test service assumptions | Select feasible sourcing options |
| Months 2–4 | Negotiate terms and assess transition costs | Approve a net business case |
| After implementation | Compare paid prices and volumes to the agreed baseline | Validate benefits with Finance |
Price changes, demand changes and avoided cost should be reported separately. Realised savings require evidence from actual transactions after implementation.