Cost-Plus Pricing
Pricing method where you charge your costs plus a markup percentage for profit.
Definition
Cost-plus pricing (or markup pricing) calculates your price by adding a predetermined percentage or fixed amount to your actual costs. If materials cost $1,000 and labor $2,000, with a 50% markup, you charge $4,500 total.
This pricing model is transparent and ensures you cover costs while making a profit. It's common in construction, manufacturing, and wholesale businesses where costs can be accurately tracked.
Why It Matters
Cost-plus ensures profitability and simplifies pricing when costs fluctuate. However, it doesn't account for value delivered—you could be undercharging for high-value work or overcharging for commodity services.
The model requires accurate cost tracking and clear communication about what "costs" include. Disputes arise when clients question which expenses are legitimate costs versus overhead.
Examples
- 1
A contractor tracks $50,000 in materials and labor, applies 20% markup, invoices $60,000.
- 2
A consultant uses cost-plus: actual expenses $5,000, time at cost $10,000, 30% markup = $19,500 invoice.
- 3
A manufacturer offers cost-plus: raw materials $100/unit + 40% markup = $140 selling price.
Related Calculators
Apply this concept with our free calculators
Related Terms
Quick Navigation
Ready to put this into practice?
InvoiceLaunch automates invoicing with built-in payment terms, late fees, and more.
Get Started