Cost Plus
What is Cost Plus? Cost Plus is a type of pricing whereby the buyer agrees to pay the seller’s costs, plus an additional fee. This additional fee is known as the markup, and it compensates the seller for their time, overhead, and profit.
There are two types of cost plus contracts:
1. Fixed-price cost plus: In this type of contract, the buyer agrees to pay the seller’s costs, plus a fixed mark-up percentage. The fixed mark-up percentage is determined at the beginning of the project and does not change, no matter how much the seller’s costs increase or decrease.
2. Variable-price cost plus: In this type of contract, the buyer agrees to pay the seller’s costs, plus a variable markup percentage. The variable markup percentage is based on a preset formula that factors in things like inflation and market fluctuations. It can increase or decrease over time, based on these factors.
Which type of cost plus contract is right for you will depend on your specific needs and objectives. If you’re looking for price stability and predictability, a fixed-price cost plus contract may be best. If you’re willing to accept some degree of risk in exchange for potential savings, a variable-price cost plus contract may be best for you.