Photovoltaic systems for terrestrial uses have as their central goal cost reduction. Since this must be achieved without excessive loss in performance, there is a need for some quantitative means of optimizing the cost vs. performance tradeoffs. A general analytical procedure is developed that provides the first quantitative method for optimizing any element or process in the fabrication of a photovoltaic energy conversion system by minimizing its impact on the cost per Watt of the complete system. By determining the effective value of any power loss associated with each element of the system, this procedure furnishes the design specifications that optimize the cost-performance tradeoffs for each element. A general equation is derived that optimizes the properties of any part of the system in terms of appropriate cost and performance functions, although the power-handling components are found to have a different character from the cell and array steps.