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The cost-performance ratio is an equation used to balance the cost of an item against its effectiveness. This process can help buyers with making purchasing decisions by assigning rankings to a series of items based on a variety of factors. Cost-performance can also be used to analyze trends in production. It is also known as price/performance ratio.
There are essentially four major outcomes possible when determining cost-performance ratio. The most desirable outcome is that the item is low cost, but high performance. In the middle of the scale are products that are either high performance and high cost, or low performance and low cost. The least desirable ranking tends to be for a product that is high cost, but low performance.
These cost-performance ratio outcomes can be charted for increased clarity as to where each product falls in relation to the others. A chart with four quadrants, with the high performance products in the top two sections, the low performance products in the lower sections and the low and high costs on the left and right sides respectively tends to be the most effective. By charting each item it is possible to both find the most desirable product and to analyze trends in quality and price.
While the cost-performance ratio can be a useful tool for finding the best quality for the price, items with high ratios are not necessarily the best to purchase. Particularly with more complex products, there can be elements outside of basic performance or price that may be more important. For this reason, cost-performance can be helpful in reaching a decision, but may not be the only factor considered.
The cost-performance ratio can be used to analyze changes in production as well. It can track variances in cost and quality for specific products, industries or even the whole economy. Some products go through dramatic changes as they develop and are assimilated by the public, while others remain essentially static.
Some products, such as computers, tend to have a highly fluctuating cost-performance ratio. For example, the first computers were extremely expensive, but had limited processing power. As technology has advanced, computers have become more powerful and increasingly more accessible to consumers. Even home computers that were once a significant investment can now be purchased for a fraction of their original cost. Products which are made of limited resources, such as paper and fossil fuels, tend to have static performance and a steady increase in price.