What Is Cost Plus Pricing? Definition & Guide
Quick Definition
Cost plus pricing is a pricing strategy where a countertop fabrication shop calculates the total cost of a job - material, labor, overhead - and adds a fixed percentage markup to determine the selling price. If a kitchen countertop costs $2,000 to produce (all costs included) and the shop applies a 40% markup, the selling price is $2,800. This model is transparent, easy to calculate, and commonly used for trade/contractor work where the buyer wants to see the cost breakdown. It's less common in retail settings where market-based pricing typically generates higher margins.
TL;DR
- Cost plus pricing adds a fixed markup percentage to total job costs to set the selling price
- Formula: Selling Price = Total Cost x (1 + Markup Percentage)
- Common markups in countertop fabrication: 30-60% on material, 50-100% on labor
- Most transparent pricing model - customers see costs and markup clearly
- Preferred by contractors and builders who want visibility into what they're paying for
- Risks: limits profit on high-demand materials, requires accurate cost tracking, penalizes efficiency
- SlabWise job costing tracks every cost component so your markup calculations are always accurate
How Cost Plus Pricing Works
The formula is straightforward:
Selling Price = (Material Cost + Labor Cost + Overhead) x (1 + Markup %)
Example: Kitchen Countertop Job
| Cost Component | Amount |
|---|---|
| Slab material (45 sqft of Level 2 granite) | $1,125 |
| Fabrication labor (8 hours @ $28/hr) | $224 |
| Installation labor (4 hours @ $32/hr) | $128 |
| Template visit (1.5 hours, 2 people) | $96 |
| Consumables (blades, polishing pads, adhesive) | $45 |
| Overhead allocation (per-job share of rent, utilities, insurance) | $180 |
| Total cost | $1,798 |
| Markup (40%) | $719 |
| Selling price | $2,517 |
The customer pays $2,517. The shop's gross profit on this job is $719 - a 28.6% margin (not the same as the 40% markup; more on that distinction later).
Where Cost Plus Pricing Fits in Countertop Fabrication
Trade and Contractor Work
General contractors and builders often request cost-plus pricing because they want to see what they're paying for. A GC who's bidding a subdivision project needs material costs, labor costs, and markup percentages to build accurate project budgets.
Many trade relationships operate on negotiated markup rates. A GC who sends 10 jobs per month might negotiate a 25% markup instead of 40%, accepting lower margins in exchange for volume.
Government and Institutional Projects
Public projects that go through formal bidding processes frequently require cost-plus documentation. The fabricator must show material invoices, labor rates, and the applied markup to justify pricing.
Custom and Unusual Jobs
Jobs with unusual materials, complex layouts, or first-time fabrication challenges are hard to price with standard sqft rates. Cost plus pricing lets you track actual costs and apply a consistent markup, reducing the risk of losing money on unfamiliar work.
Internal Job Costing
Even shops that use sqft pricing for customers often use cost-plus calculations internally to validate their sqft rates. If your sqft rate generates $3,200 on a job that cost $2,800 to produce, your effective markup is only 14% - probably too low.
Cost Plus vs. Market-Based Pricing
Most countertop shops actually use market-based pricing for retail customers. They set sqft rates based on what the local market will pay, not on their actual costs. Here's the difference:
| Factor | Cost Plus Pricing | Market-Based Pricing |
|---|---|---|
| Price is set by | Actual costs + markup | What customers are willing to pay |
| Transparency | High - costs are visible | Low - customer sees one price |
| Profit consistency | Fixed markup percentage | Varies by job and material |
| Best for | Trade work, bidding, custom jobs | Retail homeowner sales |
| Risk | Limits upside on popular materials | Risk of underpricing if costs rise |
| Requires | Accurate cost tracking | Market knowledge and competitor awareness |
| Rewards efficiency | No - lower costs mean lower revenue | Yes - lower costs mean higher margins |
The Efficiency Problem
This is the biggest criticism of pure cost-plus pricing. If your shop invests in a CNC saw that cuts fabrication time in half, cost-plus pricing passes those savings to the customer as lower prices. Market-based pricing lets you keep the savings as profit.
Example:
- Old process: 8 hours of fabrication labor = $224 in labor cost
- New CNC process: 4 hours = $112 in labor cost
- Cost-plus at 40% markup: Price drops from $2,517 to $2,360 (customer saves $157)
- Market-based: Price stays at $2,517 (shop keeps the extra $112 as profit)
Shops that use cost-plus for trade work and market-based for retail get the best of both models.
Setting Your Markup Percentages
Material Markup
Material markup in countertop fabrication typically ranges from 30-60%, depending on the material tier.
| Material Tier | Typical Markup |
|---|---|
| Budget materials (basic granite, laminate) | 30-40% |
| Mid-range materials (popular quartz, Level 2 granite) | 35-50% |
| Premium materials (exotic granite, marble, quartzite) | 40-60% |
| Specialty/rare materials | 50-80% |
Higher markups on premium materials reflect the additional handling care, waste risk, and expertise required. A $300/slab piece of exotic quartzite that cracks during fabrication is a much bigger loss than a $80/slab piece of Level 1 granite.
Labor Markup
Labor markups are typically higher than material markups because labor is harder to replace and scale.
| Labor Type | Typical Markup |
|---|---|
| Template labor | 50-75% |
| Fabrication labor | 60-100% |
| Installation labor | 60-100% |
| Design/consultation | 75-150% |
Overhead Allocation
Overhead can be allocated per job using several methods:
- Percentage of direct costs: Add 15-25% of material + labor costs
- Per-job flat rate: Divide monthly overhead by monthly job count
- Per-sqft rate: Divide monthly overhead by monthly sqft output
The per-sqft method is the most accurate for shops with consistent job sizes. The flat-rate method works for shops where job sizes vary dramatically.
Implementing Cost Plus Pricing
Step 1: Track Every Cost
Cost-plus pricing is only as accurate as your cost tracking. You need to know:
- Exact slab cost per job (not averages - actual invoiced amounts)
- Actual labor hours per job stage
- Consumable costs per job
- Delivery and template trip costs
- Allocated overhead
Step 2: Standardize Labor Rates
Assign fully loaded labor rates (wage + benefits + taxes) to each role. A fabricator making $22/hour might have a fully loaded rate of $32/hour after benefits, payroll taxes, and workers' comp.
Step 3: Set Markup by Category
Don't apply a single markup to everything. Material and labor have different cost structures and market dynamics. Set separate markups for material, fabrication labor, installation labor, and consumables.
Step 4: Review Quarterly
Material costs change. Labor rates increase. Overhead shifts. Review your markup percentages quarterly against actual profitability to make sure your pricing is still hitting target margins.
Frequently Asked Questions
What is cost plus pricing in countertop fabrication?
Cost plus pricing calculates the total cost to produce and install a countertop - material, labor, overhead - and adds a fixed markup percentage to determine the selling price.
What markup do countertop fabricators typically use?
Material markups range from 30-60%. Labor markups range from 60-100%. Overall effective markups on a complete job usually fall between 35-55%.
Is cost plus pricing better than square foot pricing?
They serve different purposes. Cost plus pricing is more transparent and works well for trade relationships and bidding. Sqft pricing is simpler for retail customers and allows market-based pricing that can generate higher margins.
How do I calculate the selling price with cost plus pricing?
Add all costs (material + labor + overhead + consumables), then multiply by (1 + your markup percentage). If total costs are $2,000 and your markup is 40%, the price is $2,000 x 1.40 = $2,800.
Why do contractors prefer cost plus pricing?
Because they can see exactly what they're paying for - material costs, labor rates, and the fabricator's markup. This transparency helps contractors build accurate project budgets and builds trust in the relationship.
Does cost plus pricing reward efficiency?
No - that's actually a drawback. If you reduce costs through better processes or equipment, cost-plus passes those savings to the customer. Market-based pricing lets you keep efficiency gains as profit.
How does overhead fit into cost plus pricing?
Overhead (rent, utilities, insurance, equipment, administrative staff) is allocated to each job, typically as a percentage of direct costs or a per-job/per-sqft flat amount. This ensures overhead is covered by every project.
What's the difference between markup and margin in cost plus pricing?
Markup is the percentage added to cost. Margin is the percentage of the selling price that is profit. A 40% markup produces a 28.6% margin. They're different calculations - see our full guide on markup vs. margin.
Can I use cost plus pricing for retail customers?
You can, but most shops use market-based sqft pricing for retail because it typically generates higher margins. Retail customers don't usually demand cost transparency the way trade partners do.
How often should I review my markup percentages?
Quarterly at minimum. Material costs, labor rates, and overhead expenses change regularly. Your markup percentages need to keep pace to maintain target profitability.
What happens if I underestimate costs on a cost plus job?
If you track actual costs and bill cost-plus after the job, you're covered - the customer pays actual costs plus markup. If you quote a cost-plus estimate upfront with a fixed price, you absorb the cost overrun unless you have a change-order process.
Does quoting software support cost plus pricing?
Yes. SlabWise tracks all cost components per job and calculates markup automatically, ensuring your cost-plus quotes are accurate and your margins are protected.
Know Your True Costs on Every Job
Cost-plus pricing only works when your cost tracking is accurate. SlabWise's job costing engine records material, labor, and overhead for every project - so your markup calculations reflect reality, not estimates. Whether you price cost-plus for trade work or sqft for retail, you'll always know your true margins.
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Sources
- Natural Stone Institute - Fabrication Business Financial Standards
- Kitchen & Bath Business - "Pricing Models for Fabrication Shops" (2024)
- ISFA - Job Costing and Profitability Guidelines
- Stone World Magazine - "Cost-Plus vs. Market Pricing in Fabrication" (2024)
- Countertop Fabricators Alliance - Margin and Markup Studies
- Small Business Administration - Pricing Strategy Fundamentals