Price Break
Definition
A quantity threshold at which a supplier's unit price drops, so ordering more units per order earns a lower price per unit.
In Practice
Price breaks reflect the supplier's economics: larger orders spread setup, handling, and freight costs over more units, and the supplier shares part of that saving to encourage bigger orders. A quote might read 1 to 499 units at 4.00, 500 to 1,999 at 3.60, and 2,000 plus at 3.25. The buyer's job is to decide whether jumping to the next break genuinely saves money once inventory carrying cost is included.
The analysis mirrors quantity-discount EOQ logic: compare total annual cost, purchase cost plus ordering cost plus carrying cost, at each break quantity and pick the lowest. Chasing discounts blindly is a classic way to fill a warehouse with stock that ties up cash and eventually gets written off.
Example: jumping from 500 to 2,000 units saves 9 percent on price but quadruples average inventory of a part with uncertain demand. The total-cost comparison shows the 500-unit tier is cheaper overall, so the buyer declines the bigger break.
Related Calculators
Related Terms
The smallest quantity of an item a supplier is willing to sell in a single order, driven by their setup costs, batch sizes, or packaging units.
Supplier NegotiationThe structured process of reaching agreement with suppliers on price, terms, and conditions, using preparation, market data, and leverage to secure the best total-value outcome.
Purchase Price VarianceThe difference between the standard or budgeted price of a purchased item and the price actually paid, multiplied by the quantity bought.