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Aavenir Atlas early access is open Contractflow on the ServiceNow Store since 2019 Runs on ServiceNow, or standalone ProcureTech100 2025/26 Pioneering Digital Solution ISO/IEC 27001:2022 certified, SOC 2 Type 2 compliant

Glossary

What is a direct cost?

A direct cost is a cost that can be traced directly to producing a specific product or service, such as the materials and labor that go into it.

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How direct costs work

A direct cost can be traced to a cost object, which may be a product, a service or a department. Any cost involved in producing a good counts, even if only part of it is allocated to the production facility. Examples include:

Direct and indirect costs

Direct and indirect costs are the two main kinds of expense. Direct costs are often variable, rising and falling with production volume. Indirect costs, such as rent, administration or utilities for the whole building, are harder to assign to any one product and are spread across them.

Why it matters

Knowing direct costs tells a business what each product or service really costs to make, which drives pricing, margin analysis and decisions about what to make or buy. In procurement, direct costs are largely set by supplier contracts for materials and components, so contract rates feed straight into product cost.

How Aavenir handles it

Invoiceflow checks that supplier invoices for materials and services match the rates in the contract, so the direct cost you record is the cost you agreed.

Keep reading

Should cost analysis Should cost analysis estimates what a product ought to cost from its materials, labor and overhead.Read more Supply chain optimization Supply chain optimization is running a supply chain to deliver at the lowest total cost while meeting service goals.Read more Invoice matching Invoice matching checks a supplier invoice against the purchase order and the receipt before the invoice is paid.Read more

Frequently asked questions (FAQ)

Common questions

What is the difference between direct and indirect costs?

A direct cost can be traced to a specific product or service, such as raw materials. An indirect cost supports the business as a whole, such as rent or office staff, and is shared across products. Read about how to calculate direct cost.

Are direct costs always variable?

Often but not always. Materials usually rise with production volume, but some direct costs, such as a machine dedicated to one product, can be fixed for a period. Read about direct spend in procurement.

How does procurement affect direct costs?

Procurement negotiates the prices of materials, components and outsourced services that make up most direct costs. Making sure invoices match those contract prices protects margin. Read about should cost analysis.

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See your contracts run on one record.

  • 1 A 30 minute walkthrough Built around your team, whether that is procurement, legal, IT or finance.
  • 2 Your contracts, not ours Bring a few sample agreements and watch Aavenir AI extract and review them.
  • 3 ServiceNow or standalone We show the deployment that fits the systems you already run.

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