Volume Banding

A technique where a buyer and supplier agree on a fixed price at various volume thresholds. Prices remain constant within a pre-specified band of purchasing commitment. If volumes increase above the band, price per transaction typically goes down. If volumes decrease, the buyer agrees to pay a higher price for each unit/transaction. Volume banding is an especially important concept when there is a great deal of variability in volume and is used to maintain fair profits for suppliers in the event of volume changes.