Cost-Plus Pricing
Cost-plus pricing sets the price as cost plus an agreed markup or fee.
Under cost-plus pricing, the client reimburses the provider's actual costs and pays an additional fee — either a percentage markup or a fixed amount. It is common where costs are unpredictable, such as construction or R&D. The client usually gets audit rights over the costs, so record-keeping must be meticulous.
Example
A builder charges actual material and labour costs plus a 15% fee under a cost-plus contract.
Related terms
Frequently asked questions
What is the risk of cost-plus for the client?
There is little incentive for the provider to control costs, since higher costs mean a higher fee. Clients manage this with audit rights, cost caps, or a fixed fee instead of a percentage.
How should cost-plus be invoiced?
Show the actual costs with supporting detail, then the agreed fee as a separate line. Transparency is the whole point of the model — a single lump sum defeats it.
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