A low cost producer is a firm within a specific industry with the lowest cost-of-goods-sold. Cost of goods generally consists of fixed and variable costs of production and logistics, and manufacturing and corporate overhead. The total cost-of-goods-sold therefore includes direct and indirect costs associated with producing and delivering a product or service. Only one, or very few organization within an industry enjoy this status. This serves as a competitive advantage. The low cost producer within an industry is able to price products and services lower than competitors and yet achieve a competitive return on assets.

Alternatively, low cost producers may price their product at the same level as competitors to reap a higher return on assets, which enables them to invest greater amounts into research and development, capital improvements, etc. In most manufacturing industries, 55–60% of total cost-of-goods-sold is comprised of material costs. Therefore, most low cost producers focus on...