Blended cost vs. list price
Blended cost is the effective average price actually paid across a mix of usage after volume discounts and negotiated rates are applied, while list price is a vendor's undiscounted published rate — the two diverge whenever any usage qualifies for a discount tier or contract-negotiated rate.
Why the distinction matters
Using list price to estimate cost or margin overstates true cost for any company that has negotiated a discount, committed to a volume tier, or otherwise pays less than a vendor's sticker rate — which is most companies with meaningful usage volume. Blended cost reflects what was actually paid; list price reflects only the starting point before any discount is applied. A margin analysis built on list price will understate real gross margin, sometimes significantly.
Where blended cost comes from
Blended cost typically results from mixing usage across tiers within a single vendor's own volume-discount schedule, from committed-use or prepaid-capacity discounts, or from usage split across multiple vendors or models at different price points that then gets reported as a single average rate for reporting purposes.
Worked example
A company sends 20,000,000 tokens to a vendor in a month. The first 8,000,000 tokens are billed at the vendor's list price of $5.00 per 1,000,000 tokens (below the committed-use threshold); the remaining 12,000,000 tokens qualify for a negotiated, post-commitment rate of $3.50 per 1,000,000 tokens.
List price vs. actual blended cost
- Cost if fully billed at list price = 20,000,000 tokens × ($5.00 ÷ 1,000,000) = $100.00
- Actual cost, tier 1 = 8,000,000 tokens × ($5.00 ÷ 1,000,000) = $40.00
- Actual cost, tier 2 = 12,000,000 tokens × ($3.50 ÷ 1,000,000) = $42.00
- Actual (blended) cost = $40.00 + $42.00 = $82.00
- Blended rate = $82.00 ÷ 20,000,000 tokens = $4.10 per 1,000,000 tokens, versus the $5.00 list rate