Cost Plus
Definition
Cost plus is a pricing model where the customer pays the contractor's actual costs plus a fixed percentage or fee as profit.
What Cost Plus Means for Your Business
What it means
Cost plus billing is full transparency. The contractor opens the books on labor, materials, and subcontractor invoices, and tacks on an agreed markup, often 15% to 25%, as their fee.
Why it matters
Cost plus is common in high-end custom work and commercial construction where scope is fluid. It protects the contractor from cost swings and gives the customer visibility. It requires disciplined bookkeeping and trust.
How contractors use it
Custom builders, remodelers, and commercial specialty contractors use cost plus for projects where fixed bids are impossible. They share monthly cost reports and bill progress against actuals.
Real-World Example
A custom home builder runs a $1.8 million project at cost plus 18%. The customer pays $1,530,000 in actual costs and $275,000 in builder fee, with monthly transparency on every invoice.
Related Terms
Time and Materials
Time and materials is a pricing model where the customer pays for actual labor hours worked plus the cost of parts used, usually with a markup.
Flat Rate Pricing
Flat rate pricing charges a fixed amount for a specific task, regardless of how long the technician actually takes to complete it.
Progress Billing
Progress billing is the practice of invoicing the customer in stages as work is completed on a long project, rather than waiting until the end.
Change Order
A change order is a written amendment to an existing contract that adjusts scope, price, or timeline after the work has started.
Gross Margin
Gross margin is revenue minus the direct cost of labor and materials, expressed as a percentage of revenue.
Put This Into Practice with Free Software
Kaldr Tech handles cost plus and everything else you need to run your shop. $0/month, 3.5% + 30¢ per transaction.