Transactional Cost Definition

A transaction cost is a cost incurred as a result of conducting a business transaction. Transaction costs can include financial costs, such as fees and commissions, as well as non-financial costs, such as the time and effort required to complete the transaction.

Transaction costs are an important consideration for businesses when deciding whether or not to enter into a particular transaction. For example, if the transaction costs associated with a particular purchase are too high, the business may decide to forego the purchase and look for another supplier that can provide the same goods or services at a lower cost.

While some transaction costs are fixed, others may vary depending on the circumstances of the particular transaction. For instance, the fee charged by a broker to execute a trade will usually be a percentage of the total value of the trade. As such, the size of the trade will have an impact on the total amount of transactional costs incurred.