What is should costing, and why does it pay off?
Price comparisons alone are no longer enough. In an economic environment full of uncertainty, global supply shortages and inflation-driven distortions, procurement needs more than good instincts. It needs solid arguments, robust facts and a sound methodological foundation, and this is exactly where should costing comes in.
The concept provides an objective basis for evaluating offers, one that is not anchored to a supplier's desired price but to the real production costs of a product or service, costs that can be justified on technical and market grounds. By systematically determining these "should-be costs," it becomes visible where excessive margins, inefficiencies or unjustified mark-ups are hidden.
Especially with complex products or custom-made parts, should costing creates the transparency that is so urgently needed, and equips buyers with arguments that go beyond gut feeling and experience.
Not just analysis, but negotiation strategy
One of the great advantages of should costing lies not only in the analysis itself, but in its function as a communication tool. Whoever enters a negotiation with a transparent, comprehensible calculation sends a clear message: "We understand the product, we know the market, and we are prepared."
This changes the tone of the conversation. Instead of taking a confrontational stance, for example with statements such as "Your offer is 35% above our calculation," should costing enables a factual, step-by-step line of argument conducted on equal footing.
Should costing can already make an important contribution during the tender phase, for instance by requiring a structured cost breakdown as a condition for submitting an offer. This makes it possible to clarify early on whether an offer is realistic, or whether later re-negotiations are already preprogrammed. Particularly in project procurement or with long-running series, this clarity pays off several times over.
Effective even with monopolies and oligopolies
Should costing also shows its strength in difficult market structures, such as monopolies or tight oligopolies. Where genuine comparative offers are missing, the method creates a well-founded basis for discussing what a product should actually cost, based on material prices, manufacturing processes and common market parameters.
Above all, when there is only one possible supplier, procurement can use this approach to argue objectively why a price is excessive, and which savings potential might exist technically or organizationally, for example through specification changes, alternative materials or economies of scale.
Even stronger as a pair: game theory plus should costing
Should costing becomes truly powerful, however, when combined with award processes structured along game-theoretic lines. When procurement deliberately shapes the award architecture alongside the substantive argument, for example through multi-stage bidding rounds, bonus-malus systems or a so-called agreement meeting at the end, a double lever emerges.
Game theory brings dynamics into price formation by deliberately building incentives and competitive pressure. At the same time, should costing ensures that this competition does not take place blindly, but is based on well-founded assumptions about realistic prices.
The interplay of the two methods is not a contradiction but a meaningful complement: game theory structures the process, should costing provides the substantive orientation. The result is strategic negotiation that not only achieves better prices, but also places cooperation with suppliers on a more factual and more sustainable footing.
Conclusion: clarity instead of pressure
Should costing is far more than a technical tool for evaluating prices. It is a lever for professional, fact-based and partnership-driven procurement negotiations. Combined with game-theoretic approaches, it becomes a method that achieves fair and economically viable prices even in difficult markets, entirely without pressure but with maximum clarity.
With this approach, Competitio has supported over EUR 35 billion in negotiation volume across 16 industries, scientifically grounded by the advisory board around Prof. Dr. Christian Rieck. Talk to us if you want to put should costing and game-theoretic awarding to work in your next negotiations.